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.