Zebu blog

Tag: Asset Allocation

  • The Role of Fundamental Analysis in Building a Diversified Investment Portfolio

    Fundamental analysis is a key tool for investors who are looking to build a diversified investment portfolio. It involves evaluating the underlying financial and economic factors that can impact a company’s stock price, with the goal of identifying stocks that are likely to perform well in the long term.

    One of the main benefits of fundamental analysis is that it helps investors to make informed investment decisions based on objective data, rather than relying on market speculation or short-term trends. By analyzing a company’s financial statements, management team, market conditions, and other relevant factors, investors can gain a deeper understanding of a company’s strengths and weaknesses, and make informed decisions about whether or not to include it in their portfolio.

    In addition to helping investors to identify potential investments, fundamental analysis can also play a key role in portfolio diversification. By analyzing a wide range of companies in different industries and sectors, investors can build a portfolio that is less vulnerable to market fluctuations and is better positioned to weather economic downturns.

    There are several key steps that investors can take when using fundamental analysis to build a diversified portfolio:

    Identify your investment goals: Before you start analyzing individual stocks, it is important to have a clear understanding of your investment goals. Are you looking to generate long-term growth, generate income, or a combination of both? Knowing your goals will help you to choose the right mix of stocks and other assets to include in your portfolio.

    Evaluate the company’s financial health: One of the key factors to consider when conducting fundamental analysis is a company’s financial health. This involves analyzing its financial statements, including its balance sheet, income statement, and cash flow statement, to assess its profitability, debt levels, and other key indicators of financial stability.

    Analyze the company’s management team and business model: In addition to its financials, it is also important to assess a company’s management team and business model. This can involve evaluating the experience and track record of the management team, as well as the company’s competitive advantage and growth potential.

    Consider the industry and market conditions: It is also important to consider the industry and market conditions in which a company operates. This can involve evaluating the overall health of the industry, as well as any potential risks or opportunities that may impact the company’s future performance.

    Diversify your portfolio: Once you have identified a list of potential investments, it is important to diversify your portfolio by including a mix of stocks from different industries and sectors. This can help to reduce the overall risk of your portfolio and increase the chances of long-term success.

    In conclusion, fundamental analysis is a powerful tool for investors who are looking to build a diversified investment portfolio. By evaluating the underlying financial and economic factors that can impact a company’s stock price, investors can make informed decisions about which stocks to include in their portfolio and how to diversify their holdings to reduce risk. By following these steps, investors can increase their chances of long-term success and achieve their investment goals.

  • What Impacts The Performance Of A Mutual Fund?

    There are many different mutual fund investments that people can choose from. There are some good reasons to invest in mutual funds, like getting help from a qualified asset manager.

    Investors trust fund managers to choose investments that will be good for their money. If you’re an investor, it’s best to know how fund managers do their jobs.

    Here are a few factors that impact the returns from a mutual fund.

    1. The cost of running a fund

    The expense ratio, which is also called the fund management fee, is a typical fee that the fund house charges investors to cover costs like operating costs, wages, compliance costs, administrative fees, etc. It usually shows how much of the investor’s mutual fund holdings it is. Most hedge fund companies use the 2/20 model, which lets them take 2% of the fund’s AUM as a cost ratio and 20% of the fund’s profits as performance fees.

    2. Window dressing illusion

    Mutual funds sometimes use “window dressing” to hide the fact that they aren’t doing well by making it look like they are. They don’t have to explain what happened to make them perform badly. Before putting money into a fund, a potential investor should carefully look at how the fund has done in the past and how it invests overall.

    3. Indexing as a way to lower risk

    Investors prize fund managers’ stock-picking skills. But now, a lot of mutual funds invest in a portfolio that is like an index. It lets them get similar returns and lowers their risk. But if they charge you a management fee, this may not be the best way to invest.

    4. Giving short-term growth more importance than long-term growth

    Fund managers may put more emphasis on the fund’s short-term growth to make it look more appealing to individual investors. This lack of long-term thinking could force the fund manager to ignore the bigger picture and focus only on how the next quarter will go. The short-term goals of a fund may affect how you do as an investor and what your financial goals are.

    5. Incentives

    Mutual fund companies need to increase AUM to grow their market share and profits. They often use advertising and marketing methods to get people to invest. It leaves the manager of the fund with little time to run the fund. But none of these things improve how well the fund works. By investing in index funds that are passively managed, small investors can avoid being affected by the fund manager’s goals.

    How to figure out how well a mutual fund did

    Set goals for your investments

    Before you make an investment, you should know what you want to get out of it. Finding the answer to the question is the first step in choosing the best mutual funds.

    Choosing between mutual funds

    The best way to find the best mutual funds is to compare the returns of several similar funds.

    Check out how things worked in the past

    Even though a fund’s past performance doesn’t tell you how it will do in the future, it might be helpful to know how it has done in different market conditions.

    How they did compare to the index

    Even if the fund didn’t do well, management fees still have to be paid. So, before you put money into a fund, compare the fees. Most of the time, better funds will cost you more.

    Risk-adjusted returns

    Mutual funds have to take your capital risk into account. When a fund makes more money than its overall risk, this is called “risk-adjusted returns.”

    Conclusion
    As an investor, you should know how standard fund management works so you can have more control over your money. Start investing in mutual funds with Zebu right away by opening a demat account.

  • Number-based Rules For Investing

    A few rules about investing could help us figure out how quickly our money grows or loses value. Then, some rules help us decide what to do with our money. For instance, how should we divide up the money in our mutual funds? How much should we save for retirement and emergencies?

    We’ve made a list of general tips to keep in mind when making decisions about money or investing.

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    7 RULES OF INVESTING

    To quickly understand how much money is worth, you need to know the first three thumb rules.

    RULE OF 72

    Everyone wants their money to double in value and is looking for ways to make that happen as quickly as possible. The rule of 72 gives you an estimate of how many years it will take for your money to double.

    If you divide 72 by the expected rate of return, you may get a very accurate estimate of how long it will take for your money to double using this method. Let’s look at an example to see how this rule works. Let’s say you put Rs 1 lakh into something that gives you a 6% return. If you take 72 and divide it by 6, you get 12.

    That means that in 12 years, your Rs. 1 lakh will be worth Rs. 2,00,000

    It’s important to remember that this rule only applies to assets that pay compound interest.

    You can also use the Rule of 72 to figure out how much interest you’ll need in a certain amount of time to double your money. For example, if you want your money to double in 5 years, you can find the interest rate by dividing 72 by the amount of time it takes to double. I.e., 72/5= 14.4%p.a. So, for you to get twice as much, you should get 14.4% p.a.

    RULE OF 114

    Using the same reasoning and math formula, the investing rules of 114 can give you a pretty good idea of how many years it will take for your investment to triple.

    Rule 114 says that if you invest 1 lakh at 6% p.a. for 19 years, it will grow to 3 lakhs.

    Similarly, if you want your money to triple over the next five years divide 114 by 5, which gives you a rate of interest of 22.8% per year for your money to triple in 5 years.

    RULE OF 144

    Rule 144 is the next rule of thumb to keep in mind when investing in a mutual fund. Rule 72 times 2 is 144. The “rule of 144” tells you how much time it will take to quadruple your investment.

    Rule 144 says that if you put Rs 1 lakh into a product with a 6% interest rate, it will be worth Rs 4 lakh 24 years later. So, to find out how many years it will take for the money to grow four times, just divide 144 by the interest rate of the product.

    100 MINUS AGE RULE

    The 100-minus-age rule is a great way to figure out how to spend your money. That is, how much of your money should go into equity funds and how much should go toward paying off debt.

    This investment rule says that you should take your age away from 100. The number you get is the right amount of equity exposure for you. The rest of the money can be used to buy debt.

    Say, for example, you are 25 years old and want to invest Rs 10,000 each month. If you follow the 100 minus age rules for investing, 75 percent of your money will be in stocks (100 – 25). Then you should put Rs 7,500 into stocks and Rs 2,500 into debt. Using the same rule, if you are 35 years old and want to invest Rs 10,000, you should put 100 – 35 = 65% of your money in stocks. So, you should put Rs 6,500 into stocks and Rs 3,500 into debt.

    RULE FOR A MINIMUM INVESTMENT OF 10%

    This rule of thumb says that investors should start by putting away at least 10% of their current salary and then increase that amount by 10% each year as their salary increases. To make the most of the power of compounding, you should start investing as soon as possible. Investing early will help you make the most out of it.

    EMERGENCY FUND RULE

    Like the rule about investing at least 10% of your income, you must put some of your salary into the emergency fund. You need to have money saved up because you never know what life will throw at you. So, you should save money for emergencies before you start investing. According to this rule, you should save enough money to cover your monthly costs for at least three to six months.

    In case of an emergency, you need to be able to get to your emergency fund, and it’s best to keep it liquid so you don’t run out of money.

    RULE OF 4% WITHDRAWAL

    Stick to the 4% rule if you want your retirement fund to last long. If you follow this rule as a retiree, you will have a steady income. But at the same time, you have enough money in the bank to make enough money.

    For example, if you have a retirement fund of Rs. 1 crore, you should take Rs. 4 lakh every year, or Rs. 33,000 every month, to keep up with inflation.

    SUMMING UP

    The rules of thumb listed above are general rules and guidelines that every investor should follow. A good investor is careful, so before you start, you should do your research and talk to someone who knows about investing. That’s why it’s important to stress that these rules shouldn’t be followed without question. Keep in mind that a good investment portfolio helps you reach your financial goals while taking your risk tolerance and time horizon into account.

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  • How to Invest in the Stock Market During Inflation

    The economy is always changing, and it can be hard to make investments when things are always changing. Investors are having a hard time right now because the economy is showing all the signs of inflation. So, how do investors invest now, especially if they want to put their money in the stock market?

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    With higher rates of inflation, the IPOs of startups going public are becoming an ever more appealing way to get people to invest. But it’s worth going back in time to get a better idea of how the economy worked in the past. The last 10 years, from 2011 to 2020, had low inflation and moderate growth. During the first decade, especially from 2002 to 2007, growth was higher, but inflation went up.

    We are at a time when growth is slow and prices are going up fast. There is a lot of uncertainty in the world today, and rising geopolitical tension is making it worse. But even though the markets have recently gone down, starting prices are still high. If you want to trade stocks when inflation is high, you can, but you should be careful.

    How the Indian economy is doing

    The Indian economy is in a macro situation right now, which can hurt most emerging markets. Many countries with “emerging markets” (some of which are closer to India than others) are in economic trouble. Because of this, FIIs are pulling their money out of these markets. Since October 2021, this has been the case with India. Still, India is better off than other countries in the same situation when it comes to inflation. This is one of the most optimistic signs for investors.

    Using Investor Awareness to Trade on the Stock Market

    Why is India a good market for investments, even if they are in the stock market? For one thing, India’s economy is back on track after all the problems of the past few years. The services sector, which has been slowing down for the past few years, is also showing signs of getting back on its feet. Also, the amount of debt owed to countries outside of Canada is low, and the country has enough foreign exchange reserves to cover CAD projections and debt payments to countries outside of Canada. In this situation, investors who buy stocks need to be careful, because investing in the markets is risky. Investors who want to open a Demat account and invest in stocks that will do well during times of inflation should keep in mind the following:

    Investors should be ready for more volatility for the next 6 to 9 months.

    Investors shouldn’t expect big returns and shouldn’t think that the returns of the last two years will happen again.
    If an investor wants to invest a large sum all at once, they can choose funds that have a balanced mix of debt and stocks.
    Hybrid funds are a good choice for investors who like to play it safe.
    Using an STP or SIP, you should spread out your investments in small and mid-cap stocks over the next 6 to 9 months.

    A Time to Invest Carefully

    You might be interested in investing in the stock market because there are a lot of IPOs coming up. It’s easy to open a Demat account and start investing with Zebu, but if you do so now, you must do your research on stocks and invest carefully.

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  • The Ideal Asset Allocation Formula For Your Capital

    For the same amount of capital, different investors will divide it and invest in different asset classes like mutual funds, real estate, bonds, FDs and so on.

    But how can we decide which portfolio is the best? Well, that depends on the investor’s age and what they want to do with their money. The right asset allocation for each investor is based on these things. But what does it mean to divide up assets? Let’s find out.

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    How do you divide up your assets?

    Asset allocation is the process of putting your money into different kinds of investments, such as stocks, bonds, gold, real estate, cash, and so on. It is the process of choosing what assets to buy with the money you have to invest.

    Asset allocation is important because it makes sure that your portfolio is in line with your financial goals. It also makes sure that you don’t buy assets whose level of risk doesn’t match your risk tolerance.

    So, what’s the best way to divide your wealth among different assets?

    There is no one best way for investors, in general, to divide up their assets in their portfolios. Even for the same investor, the best way to invest their money will change as they get older. So, if you are just starting out with investing, here is how you can figure out the best way to divide up your assets.

    When you’re in your 20s, you’re still young and many years away from retirement. This means that you can take more risks with your money and invest in the stock market today. So, you may put more of your money into stocks and mutual funds that invest in stocks.

    This is fine as long as you don’t have too many debts in your name. Also, you should balance your equity investments with a few safe investments to make your portfolio more diverse and reduce the overall risk.

    When you’re in your 30s, you may be able to earn a lot more than when you were younger. But you may also have other debts under your name, such as a mortgage or car loan. Still, you can still take some risks at this age because retirement is still a long way off.

    So, your portfolio could have a lot of stocks and a few fixed-income investments to balance out the risk. You could buy shares in mutual funds, or you could put together your own portfolio of stocks and bonds.

    When you are in your 40s, you are getting closer to retirement age. You need to make sure that you pay off your high-interest debts. As for how you divide up your assets, it may be time to gradually put less money into high-risk investments and more into stable ones.

    You could keep investing in mutual funds on the stock market as long as you choose “blue chip” stocks from strong companies or stocks that pay regular dividends. Aside from that, it might be a good time to put more of your money into debt instruments and deposits.

    Asset allocation in your 50s: When you’re in your 50s, you should put more emphasis on keeping your money than on making it grow. With retirement coming up in just a few years, you need to make sure you have enough money to take care of your life goals after retirement. Since you won’t be working after you retire, it’s also important to set up another way to make money.

    At this point, you can almost completely get out of the stock market and change your portfolio so that it has more debt and fixed-income investments. Also, try to choose investments that can give you a steady stream of income.

    When you are in your 60s, it is likely that you have already retired. You should have been able to pay off all your debts if you had planned your money better. Your asset allocation should be made up of only safe, risk-free, or low-risk investments like gold, real estate, deposits, and debt instruments. This way, you can make sure that the money you’ve saved up over the years is safe and not affected by changes in the market.

    How to make sure the best use of assets?

    In addition to the above rules of thumb, you can also make sure your asset allocation is good by making sure your portfolio is in line with your financial goals.

    Know where your money is going:
    Your goals must match up with how you divide up your assets. You need to know why you’re investing, whether it’s to buy a new house, pay for your kids’ college, or save for your retirement.

    Think about the time frame of the investment. You should choose investments with a time frame that matches the time frame of your goals. In other words, choose long-term investments for long-term goals and short-term assets for short-term goals.

    Think about the money you’ll make from your investments. Find out how much money you’ll need to reach a certain financial goal, and invest in something whose returns will help you build up the money you’ll need. For instance, you can’t use an FD to get the money you need to build your house. Instead, if you want to make a lot of money, you should invest in the stock market or stock funds.

    Conclusion
    If investing in the stock market is part of your ideal mix of assets, you need to open a demat account before you can start. Zebu has an online platform that makes it easy to do this. Make sure you look at your portfolio every six months or once a year to make sure it fits your age and goals.

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