Equity is the best investment option for now

It has been quite a long time since i have posted an entry in my blog. I hope you all know the reason by now. The stock markets have tumbled and witnessed the full bear potential.

I was quite busy working on my portfolio of my mutual funds and stocks. But, believe me, there are some great learnings from this biggest stock market crash ever reported in history. Be it the economic conditions, terrorist attacks or the US economic slowdown and whatever that might be the reason, 2008 has offered a lot of learning to all of us across the globe. These are some of the basic lessons that should have been followed and learnt ever since this crash happened.

Remember, the saying, "whatever goes up will come down....", this is exactly what happened with the stock markets. There are many people i know, who have lost substantial wealth in a matter of few months or even days. So should we all be distant to the stock markets??? Definitely not !

In fact current market conditions has a lot to offer. There are tremendous opportunities for wealth creation. But the clause here is, only for those who are patient and with a long term view. I still believe, equity is the best asset class for wealth generation over long term period. One should remember that you should not shy away from equity when markets fall. In fact, it should be the other way round. You have less chances of losing when markets have already fallen.

To be more clear, the chances of losing money are very high when market is at 20K than when the markets are at 8K. Currently the valuations appear so attractive that whoever invests now in equity, is almost sure to generate wealth over period of time. Equity remains the best asset class. It has offered more returns, if you invest when markets fall. This is just not an advice but is based on the facts written upon analysing sensex over a period of time. This is quite logical, as the chances of the market going high are fairly high when the market is low. The same way, the chances of market going down are high when it is at a high.

So invest now... there is no other good time to invest. You miss this opportunity...you miss it for ever.

Stock Market - Nuts and Bolts

Stock market this week started on a very anxious note. There were too many news influencing the market. Ofcourse, the news that came out was thought of having a positive influence. This write up analyzes the pas weeks performance of the stock markets and a few learnings if any.

Crude oil price:This week the price was little over $130 which gave a great relief. This is in fact a great news for the stock market which was struggling to digest the figure of $140 a barrel. This is definitely a good news for the market. The market rose from 12K to 13K taking the price down from oil in the international markets.

UPA Govt. winning the confidence vote: The market has responded with a tremendous come back with a bang from the previous weeks low. The market rose by more than 820 points in a single day even before the confidence vote happened. There is also huge buying seen by the FIIs. This happened to be the driving factor for the markets on tuesday. Investors expected the same to continue for this week. But something else prevented that. The market rallied on tuesday even FIIs are the net sellers.

Bomb blasts in Bangalore: The recent bomb blasts in Bangalore came as a thunder for the markets which responded quickly on friday giving up all the gains in the previous days. The sensex lost almost 500 points in a half a day session as soon as the blasts news came out.

The market responsiveness in the recent time is so huge that no one is actually able to predict what can happen the succeeding sessions. There is actually no saying from the experts as to how the market will behave. Despite the crude oil price coming down, UPA govt being stable and promising to go ahead with reforms, there is no reason as to what is stopping the markets as of now. The only mantra that works even today is "Invest for Long Term".

Fixed maturity Plans for risk-averse investors

FMPs or fixed maturity plans are close-ended mutual funds that have a fixed tenure. These funds invest your money in debt products whose maturity is the same as the funds maturity. The tenure can be anywhere from one month to as long as 5 years. The main objective of these funds is to generated income by protecting your invested capital. These funds are especially suitable for investors who are risk-averse.

These products are very similar to the bank Fixed deposits , the only difference being the tax implications. The returns of these funds is very much predictable and the actual returns that you see after maturity is most likely to be the same as one which you predict before investment. The income in this case is assured, unlike the equity funds. The returns when compared to equity funds is much lesser but the major thing to notice is the risk. These are mostly risk free and your income is assured.

These products are suitable for investors who are not risk-free and it especially suits in the current market conditions. The sensex has come down by over 36% since January peak. Most of the investors will now have a soft corner to these FMPs.

Why invest in Gold?

Perhaps gold is the only metal that is considered an investment apart from being treated as the one having an ornamental value. People around the world invest in gold due to several reasons starting from it being a precious metal to seeing it as a tool that helps fight inflation. It is quite common in these days, that common people see gold investing a safer option than to invest in stocks that swing up and down in accordance with several economic and political factors. There are several reasons why you should stay invest in gold.

Safer investment

The basic need of investment is to create wealth and to increase capital. Investors invest in several forms in order to create wealth. Gold has been an investment opportunity especially in times when there could be a severe volatility in the market and investors consider investing in gold in these times of uncertainty in order to seek protection for their capital.

Volatility and diversified portfolio

Most of portfolios in the recent times are diversified. Each portfolio contains equities that belong to different categories. The idea behind this is to reduce the risk involved. If there is a downward trend in one category, the risk on the portfolio is compensated by the upward trend in the other category. This idea consistently reduces the risk and volatility factor in the portfolios. Taking into consideration this idea, the portfolios containing gold are generally more robust and less prone to volatility.

Risk Factors

The factors that are responsible for affecting the gold price are quite different from those that affect the share market or stocks. As an example, the gold price may be affected due to a rise in the price of Oil. This has a direct link to the supply and demand concept. Many of the nations in the middle east are producers of oil. These nations get more revenue due to high price of oil. These nations in the middle east are also good consumers of gold. As they receive more revenue from oil, the demand for gold naturally increases.

Gold Price

The price of gold changes according to the supply and demand which is a natural phenomenon. Consider the picture below which illustrates the trend for the price of gold and other metal silver. The trend chart is for all regions in the world in the last 1 year period.

Investments should accompany ambitious goals

I came across several investors who just dump their hard earned money into the mutual funds or stock markets just because they are fascinated by the huge returns they see from the mutual funds in the previous years. Be it the advise from friends, or from the agents, people should now realise that the investment they put into the market should always have a goal behind it.

The recent crash in the stock market should have taught a lesson to all those who invest with greed just wanting the returns without even being aware of the risk that is involved with equities. It is not with a sense of hatred or anything of that sort i utter these words, but only to educate those who fall a prey to this bad quality called greed. I have seen friends investing in the market for achieving goals like buying a car, for the sake of higher education of their children and anyother achievable and meaningful goal. They are correct and everyone should have a goal predetermined before putting their money into the stock market. Few things that should be decided before investing are :

• Decide the purpose for which you are investing
• Choose a reasonable time frame. Expect reasonable returns.
• Choose good quality funds or stocks to invest.
  
• Stay invested long for term.
  

Every investment that come into the equity, either stocks or the mutual funds, should have an ambitious goal behind it. Similary every investment should have a timeline predetermined along with the goal. At the same point, do not be over ambitious as well. After all, you cannot expect to be a crorepati in a span of 2 or 3 years. Expect reasonable returns and invest in well chosen and good performing funds.

Mutual Fund Identification Number (MIN) and KYC

Mutual Fund identification number (MIN) and Know your customer (KYC) are the methods followed and deployed by AMFI. They are applicable for investments exceeding 50,000 Rs.

The mutual fund Identification number (MIN) is now discontinued and the new KYC process is put in place. It is applicable for one time investments that exceed Rs. 50,000. KYC stands for know your customer. These processes are put in place to prevent illegal money flowing into the stock markets by anti social elements.

From now on, whoever wants to invest amounts bigger than 50,000 at one go should adhere to these processes.

The power of compounding.

Ever heard of this saying?

"It is not timing the market that is important, but the time spent in the market"

If you try to understand the principle behind this..it is nothing but simple mathematics!

Under the core of investment principles, there is one important strategy that illustrates the best method of generating wealth over long term. It is nothing but the power of compounding!

The longer the time you stay in the market, the better the returns and the wealthier you are!!

To be simply put, the earlier you start investing, the better off you are at the end. Start investing early and you cannot even believe the number you can achieve. It all lies in the simple principle of compounding. It is better illustrated using the table below. The table illustrates two different scenarios where person A starting investing earlier that person B. However, it is an assumption that the rate of return in both the cases is 10% p.a. Whether the number shown is achievable or not is out of scope of present discussion.

Scenario 1:

Person A started investing from age 20 with a monthly investment of 1000. By the time he attains 40 years of age, the corpus he might have build with a 10% return is as shown below.

Monthly Investment : 1000

Amount invested per year: 12000

Rate of Return (assumption): 10% p.a.

No. of years invested: 20

Total corpus at the end of 40 years (Person A's age):

RS. 756029.9933

You can also notice in the above picture, the way the returns and the wealth builds up over a period of time.

Let us see another scenario where person B starts investing from age 30 (10 years later than person A). He invests the double the amount per year when compared to personA. Let us see the wealth he is able to generate.

Person B:

Monthly Investment : 2000

Amount invested per year: 24000

Rate of Return (assumption): 10% p.a.

No. of years invested: 10

Total corpus at the end of 40 years (Person B's age):

RS. 389623.0999

If you carefully observe, even if person B invests twice the amount than person A, he is able to build only around 50 percent of the wealth that person A is able to generate. This itself iterates the fact that, it is the time you spent in the market that matters and not timing the market.

Moral: Invest early to generate maximum returns. Spend more time in market through disciplined investing.

Reliance Growth Mutual Fund - The name for consistency

Reliance Growth. It is one mutual fund that is known for its consistency and performance. We will see the internals of this fund, the top five categories and the top sectors on which it is betting on and the reason behind its success. Here is a snapshot of this fund.

Reliance growth is a mid cap oriented fund. So it carries a bit of risk but it has done exceptionally well so far.

Top holdings (as on 30th Apr): Divis Labs (4.49%), Reliance Industries (4.26%), Jindal Steel & Power (4.15%), Jaiprakash Associates (3.06%)

Top 5 sectors: Energy, Metals and Metal Products, Health Care, Services, Chemicals

Last 1 year return: 21.09% (category return is -10.09%)

5 year returns: 59.5%



This is one fund with great consistency and performance. One noticeable point is that the fund has grown to such huge amounts that it is now almost impossible to stay in 100% cash.
I also recommend this fund to be the core fund in ones portfolio for those who are willing to take that amount of risk to build wealth. It has all that to become one of the star performer.

Appraising your mutual fund portfolio.

Timely appraisal of our portfolio is as important as investing in good mutual funds. You might review your portfolio once in six months and consider changing your investments if your overall portfolio doesn;t do well.

This is as important as choosing a right fund for investment. See to it that your portfolio has a considerable percentage of debt component as well. This ensures safety and reduces the risk associated with equity investment. You may consider looking at the following before appraising your portfolio.

Age: Early you start investing , the better chances for you to create wealth.

Systematic investment: Invest through SIPs so that you make disciplined investments. Consider investing for atleast 5 to 7 years.

Diversification: How diversified is your portfolio? Is there any debt component as well? Check if you have given considerable portion of your total pie to the debt component. Increase debt component if you are above 40 years of age and reduce exposure to equity.

Do not over diversify as it can fetch you nothing.

Check the performance of your funds over the past 3 to 5 years. consider revising your portfolio if not satisfied with their performance. Invest in funds which performed consistently.

Mission 1 crore

Achieving one crore mark is the dream of many. Perhaps, everyone who is into investment and stock markets atleast, dreams of this magical figure. But is it that easy to achieve it is the point? After all, it is not impossible. Disciplined investing combined with good decision making while choosing your funds or stocks is the key to achieve this magic number.

People start investing in markets with great enthusiasm, may be, keeping in mind the stunning returns offered by Mutual funds. They get demotivated once the market falls and stop investing further. They get panic when markets fall and get over enthusiastic when the stock market reaches new highs. In fact the most important thing you should keep in mind is, your investment should go into the stock market when there is a fall and not when the market reaches its high.

It is possible to achieve one crore if you stick to disciplined and periodical investments. You should probably look at opting for Systematic investment plans, which in fact, averages out the risk associated with the investments. Also, the most important thing here to be noticed, is the investor invests in the market in a disciplined way, irrespective of whether the market is high or low. All this only, if it is combined with a good choice of mutual funds or stocks. Over long term, it definitely pays off. Keep in mind the following while investing to achieve your targeted amounts:

1. Do not start investing keeping in mind the huge returns.
2. Invest in a disciplined fashion and stick to timelines.
3. Make a good choice of funds to invest in, otherwise, it may not be fruitful.
4. Always choose to invest in consistent performers
5. Keep yourself away from New fund offers.
6. Do not get emotionally disturbed when market falls.
7. If you are investing in mutual funds, do not check your fund NAV's on a daily basis. Review your portfolio once in a six months.

Systematic Investment Plans - The best way to invest

Almost all the mutual funds offer investments through SIPs (Systematic Investment Plans). As told by most of the experts, SIPs are the best way to invest in mutual funds. The concept of rupee cost averaging is much publicized now a days, which is the core principle that works underneath the SIP route. Systematic investment plans work for the long term, atleast a minimum period of 5 to 7 years should be considered before starting a SIP.

The concept here is, when you invest systematically over time, your cost averages out to give you good returns. Your investment which periodical in nature purchases units of the mutual funds under different market conditions. So, when the market is low, you still invest, buying more units and the market is high, you invest getting low number of units. Over a period of time, which is actually over 3 years as suggested, you get to invest under different market conditions, buying more units when market is low and less units when market is high. So on an average, your cost of purchase becomes low to give you decent returns.

In general, SIP returns are higher if your investments are more during bear markets. This is because you buy more units of the fund, when the market is low. But the fact here is, you should stick to disciplined investing irrespective of the market conditions. This is not as easy as we think. Severe fluctuations in market often result in changing the minds of the investors. This is an emotional factor which varies from person to person.

But one who withstands this mental pressure and is disciplined in his investments periodically is rewarded well. Also, not to forget your investments should still be in well performing mutual funds.

You may consider investing in funds like HDFC Equity, HDFC Top 200, Reliance vision, Birla Sun Life Equity etc.

Mutual Funds to invest

There are several mutual funds to invest in the market today. But one has to be careful while investing. Always stick to those funds which are good performers over time. It is advised, you do a little research on the performance of the fund over a time frame of 3 years to 5 years. Also, see to it that the performance of the fund you choose is not bad during bear markets as well.

In this regard, the funds mentioned below are advised for investment. The funds below have performed well over years and always managed to be among the consistent performers.

HDFC Equity:
It is one fund which is known for its wisdom in spotting opportunities. It has always been on the charts for its returns. Morever, it is from the stable of the most successful fund house, HDFC which has a very good performance track record. More importantly, the fund manager himself is very renowned for his aggressive stock picking and making full advantage of the opportunities.
Risk: Low
Return: Above average

Reliance Growth:
A pure mid cap oriented fund which has proven its mettle over a period of time. Importantly, the fund has performed very well over years and has managed to be the star fund in the mid cap segment. Consistency is the key for this fund. The good thing is that, the fund even though its corpus has grown to enormous amounts, is managing well and maintaining its consistency.
Risk: Average
Return: High

Birla Sunlife Equity:
One of the best funds that came from the Birla Sun Life Mutual Fund. It is an old fund that has performed very well over years. This fund has all the qualities to be the core holding in your portfolio.
Risk: Average
Return: Above Average


Note: The future performance of above mentioned mutual funds is not assured.

Quant Funds - Fund management with Mathematics

In one of my earlier posts, i have discussed about "Active investments". Investments which are actively managed by the fund manager i.e., the fund manager himself is involved in taking the calls about what to buy and what to sell are termed as active investments.

Far away from the above concept, investors are going to witness the lauch of many Quant funds in India very soon. The only difference being that, in case of quant funds, the Fund manager devices a mathematical algorithm which is based on the statistics of the market and the behaviour of various stocks over a large period of time. But the point here is, Can the market be timed based on the statistics, which actually is a history? No one knows.

The entire stock selection is based on the quantitative analysis. A mathematical formula gives the fund manager a basis to identify the stocks for selection to make up his portfolio. Each fund house will develop its own algorithm which becomes its intellectual property. Even before these quant funds are open for subscription, they are rigorously tested, simulating different market conditions.

In fact, quant funds have been around since late 70's outside indian markets. Lotus India AGILE fund is India's first Quant Fund. Reliance has its own quant fund from its stable named Reliance Quant Plus Fund.

The hard thing to digest is that the quant funds have seldom performed well. Lotus India AGILE fund which was mentioned earlier had a poor performance compared to its Index benchmark.

New Fund Offers (NFO) - Stay away from them

Indian stock markets were at their peak in 2007. Investors witnessed a galore of New Fund ffers at that point of time. As many as 20 new fund offers were made during that period. But when the stock markets crashed in January 2008, all the funds that were introduced before Jan 2008 were badly hit by the crash. It was actually a lesson learnt for most of the investors.


In general, investors get lured by the NFOs or the new fund offers due to the exaggerated promotion by the companies. They tend to see the offers in a way that they can get the units at a mere 10Rs/unit. But they do not think whether this NAV at 10Rs per unit will sustain in future!

You get returns only when the fund performs well. So trust the funds that have proved their mettle over the past few years. You get returns when the funds performs well and increases its net asset value, irrespective of whether the unit is available for Rs. 10 or Rs. 100.What investors should do is to evaluate the funds over a period of time (time frame of 3 years to 5 years). Examine their returns, their stability of giving good returns and also the performance during the bear market which is actually very important.

For ex: Consider you have bought 100 units at Rs. 10 in a NFO. Simaltaneously, you have bought 10 units at Rs. 100 each from a reputed Mutual Fund which proved its performance over years. In a bull market the second fund performs very well and its NAV is increased to 110. So your investment is now worth 110*10units which is 1100Rs.

In the first case, where in we are not sure of the performance of the fund, the fund may perform good or bad. Say it has done well and its NAV is now 10.5, so your investment is now 10.5*100 which is 1050Rs. which is lower.

But the actual difference comes in when the market is in a bear phase. The reputed fund in second case performs well or atleast doesn't perform badly. But the NFO might lose value and your returns might shrink and can even give you a loss.

When you subscribe for a New Fund Offer, you are neither assured of its performance nor the returns. So always better avoid the New Fund Offers, unless the NFO has a very convincing idea which is unique and different from the available funds.

ULIP as an investment - Is it really worth?

Recent years saw a rise in the subscriptions for ULIPs or the so called Unit linked Insurance Plans. The reason behind being, ULIP is projected as a tool which offers both insurance and also returns on the investment. Although the statement is true by its nature, there are definitely limitations. I personally atleast don't see ULIPs as a form of investment. There are several reasons behind making this rather painful statement.

People have always been the victims either directly or indirectly when it comes to stock market investments. They are shown returns or features which are quite exaggerated by the so called "investment advisors". The same too happened in case of ULIPs as well. ULIPs are good tools when seen as an insurance and with very long term perspective (very long term here means atleast 10 to 15 years).

The executives who are trying more to market their product rather than understanding the actual need of the people exaggerate things. They only put before the investor, the returns that their product gives (might give) rather than the charges that are imposed. People generally tend to invest when they "foresee" the returns. But the truth here is that, the charges that are imposed in case of ULIP are far more than those that are incurred in a mutual fund investment. Nearly 20% or even more in some cases of your initial investment goes for administration charges. This should be properly disclosed to the investor before he puts his money. Once he / she invests in an ULIP, the money gets locked for 3 years officially and more unofficially for more than 10 years if he/she needs returns.

There is no denying that ULIPs are certainly good tool, but only if it is properly exploited. Do not ever invest in a ULIP, if it is for the sake of returns. Understand the actual need for a ULIP and then try to take a decision. Mutual funds are definitely a better option for investment than ULIP.

Only if you are in need of insurance and are willing to take quite an amount of risk (as the investment is linked to performance of the markets), go for a ULIP. Otherwise, my sincere advise is, go for mutual funds.

Invest for Long term

If we see the growth in number of people investing in stock markets, including Mutual Funds, it is stupendous in the last two or three years. That reflects the awareness that the stock markets and the media has brought in the minds of people. May be, it is also because of the fact that the the investments made in stock markets, especially in the last three to four years of time frame, has brought tremendous returns, even to the magnitude of 125% in a single calendar year.

So it should be quite predictable that people will be interested in stock markets. Not only businessmen and traders, we can even see employees from various firms investing in stock markets today. But the point to be noted here is, how many of them new the fundamentals of stock markets? Are they really investing after proper research? How many of them actually know what a P/E ratio is? How many are investing based on rumours?

These are some of the things to be noted. I think, it is because of these reasons, mutual funds are admired a lot. They eliminate the risk of study and research about stocks. You leave all that to the professional fund manager, who manages the fund. Even in this case, you need to select the right fund with unique idea and good performance track record. So at any point, some kind of research is mandatory. After all, it is your money.

The most common mistake with the investors (small investors), especially who are new to investing in stock markets, is that they tend to invest when markets are high and try to sell when markets fall. This is because, they panic when are markets crash and tend to invest when they see markets marching ahead. So what is the solution for overcoming this?

The only solution for eliminating this risk is investing for long term. Your investment, whether it is in stocks or in mutual funds, will be fruitful when it is for the long term. Day trading is dangerous and is not at all advised. Every investor should be aware of the fact that, if he is investing in purchasing a stock of that company, it means he believes in that company's business and it should be like he himself is running that business. So you should have the right selection of stocks of the companies with sound fundamentals and correct business processes in place. Choose such companies, invest your money in their business (purchase stocks) and stay invested for long term. The same holds good even for the mutual funds. Preferably, it is better to invest in mutual funds through Systematic Investment Plans and most importantly, do not expect immediate returns and stay invested for long term. Only patience pays.





Note: Long term in the above article refer to a period of 5 to 7 years.

Mutual Funds

My blog till date concentrated on the most basic and fundamental aspects of the finance industry. Ultimately this blog aims at educating the users with the basics of financial jargaon and then proceed on to the investments, suggestions, reviews and whatever.

In my last attempt, i tried to explain the meaning of insurance and the types of insurance available today. Now we will explore the most talked about concept now a days, that of Mutual Fund.

A Mutual Fund is an investment strategy wherein a professional like a Mutual Fund Manager will gather amounts from the public and the investment organisations in small/ big amounts to invest in stocks of diversified companies. The main aim is to reduce the risk that is associated with the individual stock picks. For ex: I invest, huge sum of money, say 1 lakh in purchasing stocks of a reputed company like Reliance, when the share price is around 1500 Rs. per share. I buy with an intention that the share price of the company will rise in the near term due to the good performance of the company. But due to some external factors, say political, the share price drops to 1000 Rs. per share. I am at a loss of 500 per share, where in total the loss is huge.

The same investment, of 1 lakh, if i make it in a reputed and well performing mutual fund, the investment is diversified as the amount is used to buy stocks of different companies which are supposed to be good performers. Even if Reliance share drops, my other companies can still fare well and the overall value of the portfolio can increase. In this case, the risk is much lower and the chances of creating wealth over long term is better. So, even if the sensex falls, there is no necessity that your investment value reduces.

It is therefore always advisable to invest in mutual funds which have a proven track record.

What is Insurance?

Insurance is a contract. Before proceeding to the actual meaning of insurance, we will try to understand the basic entities involved. Here the few:

• Payee: A person who opts for an insurance. He is the one who is responsible for the payment of premiums.
• Contract: An agreement into which the payee and the provider enter into.
• Provider: Generally a well known organisation the field of insurance or banks (Banks now-a-days have an insurance wing attached to it)
• The event: The occurrence of some incident against which the insurance is opted for.

So knowing the above terms it is now interesting to know what actually and insurance is. It is contract or an agreement into which the payee and the provider enter into, where in the provider promises to pay a certain amount to the payee upon the occurrence of an event against which the insurance is opted for. The agreement will consist of several terms and conditions which are agreed upon by both the payee and the provider.

Insurance can be bought for almost anything. Below are some of the well known forms of insurance in our present day life.

1. Auto Insurance
2. House Insurance
3. Life insurance
4. Travel insurance

Auto Insurance is one thing that is taken for automobiles like cars, trucks, two-wheelers and other modes of road transport. This kind of insurance is taken in view of protection against loss that incur due to accidents. Similarly life insurance provides protection to the family members in case of any eventuality that occurs to the person who is insured.

Active and Passive Investments

These are generally two kinds of investing. The terms "Active" and "Passive" represent the aggressiveness involved in the trading of stocks in the portfolio. The active investments are those where the trading of stocks is so frequent that the aim of the portfolio is to beat the returns generated by the sensex or the benchmark which is corresponding to portfolio. An active investment also represent the involvement of the fund manager in trading. The fund manager in this case is so concerned and so 'actively' involved in the transactions of trading that he is very obsessive of beating the returns generated by the portfolio's benchmark. He is an active member and reviews the portfolio and takes decision for 'buy' or 'sell' very frequently.


On the other hand, "Passive" investment is more with a long term view of generating returns. The involvement of the fund manager is not that intense as compared to the "Active investments". Index funds are one example of passive investments. The portfolio is more like the index which it is referring to.

The risk that is involved in an "active" investment is high compared to that of the passive investment. However, it depends on how good the fund manager performs while taking the "bur" or "sell" decisions.

Debit and Credit

Let's start off with the most fundamental topic in the field of finance. I saw many people around me who get confused with the usage of the terms debit and a credit. A debit and a credit form the most basic elements for financial transactions.

It all depends on the situation where these terms are used. A debit is not always positive and a credit is not always negative. The balance on an account is either a debit or a credit but not a positive or negative. It all depends on the type of accounts where these transactions take place.

To understand in a better way, we take an example of each. It is almost always assumed that a debit decreases the balance and a credit increases the balance. Though this is true in case of a savings account where you use your debit card, it is not always true.

Accounts which deal with dividends, expenses and losses increase in value when debited. This is because by debiting you are actually decreasing your loss and thereby increasing your value.
Opposite is the way with gains, income or savings accounts where a debit transaction increases the value and a credit transaction decreases the value.

So it all depends on the type of account you are crediting or debiting. The same is the case with the credit card account we generally use. By using your credit card, you make debit transactions and thereby decreasing your value. This is because, the more you use your credit card, the more you owe your bank. So a credit transaction here means, you are actually paying your debit and thereby increasing your value. Your payment for a credit card bill is a credit, where as, your usage of credit card is a debit.

It's all in the type of account these transactions take place.

Welcome to my blog!

Welcome readers! First of all I wish you all a very happy and prosperous new year 2008! I am new to blogging and the main intention of starting this blog is to educate the readers about everything and anything related to finance and investments. That is the reason why i called this blog a money guide. I hope you will find my posts useful, interesting and knowledgeable.

Everyone in this world invests money in a variety of ways, may it be stocks, funds, gold or just fixed deposits, but the sole aim behind this is to generate handsome returns. As an investor i feel if an individual understands the basics of investing or if he well versed with the financial jargaon, then he could be more successful in his venture of generating more returns and increasing his capital. In this regard, i hope this blog will educate the readers to the maximum extent. Thus, do understand the basics, implement your knowledge and benefit from the returns.

I will be glad to receive comments, if any, from my readers. Please do post comments and i assure you i will reply if needed to them.

Once again, i wish this new year brings you happiness and lot of returns on your investments. Finally, i once again reiterate the three terms: Understand, implement and benefit.