Uncertainty due to UK Elections

Blog meant for 9 June 2017 Friday

Dear friends,

Weak global cues and profit booking pushed Nifty down and it closed 17 points lower at 9647. European cues are mixed and the US market cues are slightly positive.

The General Elections is going on in the UK. The uncertainty over who will be elected as Prime Minister is keeping global markets nervous. The results of the Elections will have an impact on the global economy.

As per 30 days moving average, Nifty continues to show Hold signal.
The indications for short term are as follows:

THE HOLDS ARE – HDFC BANK, MARUTI, TCS, ITC, M&M, HDFC, DIVISLAB, Titan,  Axis Bank

Wait to Sell – ASIAN PAINT, L&T

Sell – INFOSYS

Don’t Buy –  LUPIN, BHEL, ONGC, Reliance, SBI

Lets hope that the rally continues and we make decent profits for short term trades. In our opinion, even making 20-30% p.a. returns from short term trades in a year is a very good return since we would normally invest in instruments which give us 5-10% p.a returns.

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Today’s Question – 

Is investing in mutual funds better or directly in shares for long term?

Answer – 

When we invest in Mutual funds, we are investing our money in an institution which pools the money of large number of investors and invests on our behalf in Stocks, Government Bonds, Bonds of Private companies etc. We do not have any choice of which shares to invest in or when to buy or sell a particular share in the portfolio of the mutual fund. All decisions are taken by the Fund Manager of the specific scheme of mutual fund we have invested in.

On the other hand, investing directly in shares means that we become our own Fund Manager and invest as per our wish based on our research and analysis. We have the freedom and choice to buy and sell whichever stocks we want, whenever we want.

For investors who do not have any idea about Stock Markets, it is generally better to invest in Mutual Funds since they can expect better returns than Bank FDs when invested for long term. However, our opinion is that if you have studied about Stock Markets and have slowly observed the statistics and facts and figures of companies and the overall market, then investing in a handful of bluechip companies should be the superior option for long term.

In Mutual funds many times, they invest in 50-100 different companies and hence the diversification may be too much resulting in slightly lower returns since many shares may not do well in the portfolio and thereby reduce the overall returns of the portfolio/fund.

When we select and invest in only 5-8 companies for long term, we can be in control of the situation as long as we monitor their business performance once in 2-3 months to check if they are on right track and growing sufficiently well. Since we would be investing in such companies on a monthly basis, we would also naturally get the advantage of ‘rupee cost advantage’ which means that the purchase price gets averaged out as we buy at different prices every month. 

On average, equity mutual funds may deliver 12-20% p.a. returns over the long term. Direct investments in Stocks could result in getting anywhere from 15-30% p.a. returns tax free.

Of course, the mindset and attitude to invest in Stock Markets for long term is very important since we must have the courage and conviction to face all the short term fluctuations even in bluechips companies. Discipline and patience are most essential to earn good returns in the long term from Stock markets.

All the best!

Dr.Bharath Chandra