FINANCE TALKS

A  hedge fund  is a pooled i nvestment fund  that trades in relatively l iquid  assets and is able to make extensive use of more complex trading ,  portfolio-construction, and risk management  techniques in an attempt to improve performance, such as short selling , leverage , and derivatives .  Financial regulators  generally restrict hedge fund marketing to  institutional investors ,  high net worth individuals , and  accredited investors . Hedge funds are considered  alternative investments . Their ability to use leverage and more complex investment techniques distinguishes them from regulated investment funds available to the retail market, commonly known as  mutual funds  and  ETFs . They are also considered distinct from  private equity funds  and other similar  closed-end funds  as hedge funds generally invest in relatively  liquid assets  and...

"Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1." “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” Price is what you pay. Value is what you get.” "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage." "When I do invest, I don't care if the stock price goes from $10 to $2, But I do care if the value went from $10 to $2." "We don't have to be smarter than the rest. We just have to be more disciplined than the rest." "Do not pull all your eggs in one basket." "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." "The stock market is a device for transferring money from impatient to patient." "Never invest in a b...

One may invest in mutual funds with the help of a financial intermediary i.e., a Mutual Fund Distributor/Agent in a Regular Plan or choose to invest directly i.e., without involving or routing the investment through any distributor/agent in a "Direct Plan". Direct Plan are those mutual fund schemes that are directly offered by the fund house or AMC to the investors. The names of these funds are prefixed by the word 'Direct'. There is no involvement of a third party, distributor or agent. The investors directly deal with the AMC offering the fund. Since there is no involvement of a third party, there are no commissions or brokerage charges involved in these transactions.

Foreign capital flows to a country can be either in active form known as Foreign Direct Investment (FDI) or passive form known as Foreign Portfolio Investment (FPI). In case of FDIs, investing entities participate in decision making and drive the businesses. However, Portfolio Investment, as name indicates is investment in markets – equity or bonds by the Foreign Portfolio Investors (FPIs) without any management participation. There are upper limits on the individual and combined holding by FPIs in the paid-up capital of the Indian companies. FDI is welcomed by all the developing economies and has multiple benefits in addition to bring in capital to the country:  Job creation  New technologies  New managerial skills  New products and services    While FDI is long term in nature and stable money, FPIs money is considered as hot money as they can pull out the money at any time which could create systemic risk for the economy.

Mr. Seth Klarman, a known value investor stated “In capital markets, price is set by the most panicked seller; value, which is determined by cash flows and assets, is not. This is both the challenge and the opportunity of investing: to carefully sift through the markets to find the greatest divergence between price and value, and to concurrently avoid the extreme emotions of the crowd and, indeed, to take a stand against them.” Warren Buffett is also known to state frequently “Price is what you pay and Value is what you get.” Price and value are two different concepts in investing. While price is available from the stock market and known to all, value is based on the evaluation and analysis of the valuer at a point in time. There is no formula or method to put to throw a precise number on valuation of an asset. There are uncertainties associated with the inputs that go into the valuation process. As a result, the final output can at best be considered an educated estimate, pro...

·        About The Company Ø   MapmyIndia is a leading provider of advanced digital maps, geospatial software, and location-based IoT technologies in India. The company is a data and technology products and platforms company, offering proprietary digital maps as a service (MaaS), software as a service (SaaS), and platform as a service (PaaS). The company provides products, platforms, application programming interfaces (APIs), and solutions across a range of digital map data, software, and IoT for the Indian market under the ( MapmyIndia ) brand, and for the international market under the ( Mappls ) brand. Ø   As of September 30, 2021, the company had serviced over 2,000 enterprise customers since their inception. During Financial Year 2021 and the six month period ended September 30, 2021, it had over 500 customers on their SaaS, PaaS and MaaS platforms. Their customers include marquee and renowned global tech giants, new-age consumer internet...

A DVR is just like a normal share of a company, except that it carries less than 1 voting right per share unlike a common share. Such an instrument is useful for issuers who wish to raise capital without diluting voting rights. Investors who wish to invest only for dividends and capital appreciation and are not really bothered about voting rights find these shares attractive. The number of voting rights for a DVR differs from company to company. DVRs typically trade as a separate category of instrument and are available at a discount to the common shares of a company. The Companies Act, 2013 defines the eligibility of a company to issue such shares. This includes a dividend of at least 10% over the preceding 3 years and such shares shall not exceed 25% of the total post-issue paid up capital of the company. Several companies in India including Tata Motors and Pantaloons have issued DVRs.

The term ‘Repo’ stands for ‘Repurchase agreement’. Repo is a form of short-term, collateral-backed borrowing instrument and the interest rate charged for such borrowings is termed as repo rate.  It is the rate at which Reserve Bank of India lends money to commercial banks in India if they face a scarcity of funds. Commercial banks sell government securities and bonds to Reserve Bank of India with an agreement to repurchase the securities and bonds from Reserve Bank of India on a future date at a pre-determined price including interest charges. Current R epo Rate  as on 21st, July 2022 is 4.90%. Reverse repo as the name suggests is an opposite contract to the Repo Rate. It is the rate at which the Reserve Bank of India borrows funds from the commercial banks in the country. In other words, it is the rate at which commercial banks in India park their excess money with Reserve Bank of India usually for a short-term. Current Reverse Repo Rate  as on 21st, July 2022 is 3.35%.

Cash Reserve Ratio , or popularly known as CRR is a compulsory reserve that must be maintained with the Reserve Bank of India. Every bank is required to maintain a specific percentage of their net demand and time liabilities as cash balance with the RBI.   CRR is the percentage of total deposits, which a commercial bank has to keep as reserves in the form of cash with the RBI. The banks are not allowed to use that money, kept with RBI, for economic and commercial purposes. It is a tool used by the apex bank to regulate the liquidity in the economy and control the flow of money in the country. Therefore, if the RBI wants to increase the money supply in the economy, it will reduce the rate of CRR while, if RBI seeks to decrease the money supply in the market then it will increase the rate of CRR. Statutory Liquidity Ratio (SLR) is a percentage of Net Time and Demand Liabilities kept by the bank in the form of liquid assets. It is used to maintain the stability of banks by limiting...

It is common to use the terms Savings and Investment interchangeably. However, they are not one and the same. Saving is just the difference between money earned and money spent. Investment is the current commitment of savings with an expectation of receiving a higher amount of committed savings. Investment involves some specific time period. It is the process of making the savings work to generate return. Hence when people are saving, they use the short-term deposits/short-term securities which are highly liquid assets- on the other hand when people are investing, they commit funds to real assets, capital market securities such as stocks and bonds, and other long-term commitments that may not be as liquid as short-term assets.  The objectives of savers and investors are different. Savers tend to accumulate funds to address short-term goals, whereas investors have longer-term goals, such as building retirement corpus or funding children's college education expenses. Those who save f...

Some Asset Management Companies (AMCs) have sales charges, or loads, on their funds (entry load and/or exit load) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds.   Entry load is charged at the time an investor purchases the units of a scheme. The entry load percentage is added to the prevailing NAV at the time of allotment of units. Exit load is charged at the time of redeeming (or transferring an investment between schemes). The exit load percentage is deducted from the NAV at the time of redemption (or transfer between  schemes). This amount goes to the Asset Management Company and not into the pool of funds of the scheme. In simple terms, therefore, Entry and Exit Load in Mutual Fund are the charges one pays while buying and selling the fund respectively.

A high level of debt used in funding the operations can be risky for the business, especially in an economic downturn when revenues and profitability reduce. Leverage Ratios can be used to analyse the extent of leverage used by a business and its ability to meet the obligations arising from them. Some of these important ratios are as under: Debt-Equity Ratio (D/E): High levels of debt in a business can prove to be detrimental for a company. In absence of its ability to pay to the lenders, business may have to face bankruptcy. When businesses create assets aggressively out of borrowed money, it could be quite dangerous if the assets are unable to generate the expected revenues and profitability. The liability will still have to be met. It would be prudent for investors to avoid companies with extremely high levels of debt. On a most conservative basis, a D/E of 1 or less should be considered as the benchmark, and then depending upon the industry, track record of the company, c...

In simple words, a Side Pocketing in Mutual Funds leads to separation of risky assets from other investments and cash holdings. The purpose is to make sure that money invested in a mutual fund, which is linked to stressed assets, gets locked, until the fund recovers the money from the company or could avoid distress selling of illiquid securities. The modus operandi is simple. Whenever, the rating of a mutual fund decreases, the fund shifts the illiquid assets into a side pocket so that current shareholders can be benefitted from the liquid assets. Consequently, the Net Asset Value (NAV) of the fund will then reflect the actual value of the liquid assets. Side Pocketing is beneficial for those investors who wish to hold on to the units of the main funds for long term. Therefore, the process of Side Pocketing ensures that liquidity is not the problem even in the circumstances of frequent allotments and redemptions. Side Pocketing is quite common internationally. However, Side Pocketing ...

Exchange Traded Fund (ETF) is an investment vehicle that invests funds pooled by investors to track an index, a commodity or a basket of assets. It is similar to an index fund in the sense that its portfolio reflects the index it tracks. But, unlike an index fund, the units of the ETF are listed and traded in demat form on a stock exchange and their price changes continuously to reflect changes in the index or commodity prices.               ETFs provide the diversification benefits of an index fund as well as the facility to sell or buy at real-time prices, even one unit of the fund. Since an ETF is a passively managed portfolio, its expense ratios are typically lower than that of a mutual fund scheme. 

Most investors focus on the profit generating ability of a business to make investment decision. However, over the last few years, the societal discussions about companies and businesses have also started focusing on sustainable development, and corporate social responsibility.  This has given traction to investment theme that is focused on Environment, Social and Corporate governance (ESG). Initially this framework was used by handful of “Impact” investors. But this framework has gradually gained traction as these frameworks also provide commercial value. Under this framework investors evaluate companies based on these criteria: (i) How does the company’s activities affect the environment? Companies with low carbon emission and low contributors to pollution rank better than others.  (ii) What are the activities that the company perform in terms of social development? This includes focus on human rights, gender equality and many such social factors. Companies that contri...

National income of an economy is defined through a variety of measures such as gross domestic product (GDP) and gross national product (GNP). Computation of these numbers is a humongous task in terms of data-collection and its processing. Broadly stating, national income of an economy can be measured through three methods: (i) Product Method (ii) Income Method, and (iii) Expenditure Method. Product Method In this method, national income is measured as an aggregated flow of goods and services in the economy from the different sectors: agriculture, industry and services. Economists calculate money value of all final goods and services produced in the economy during a specified period. Final goods refer to only those goods which are consumed by economy participants and not the ones used in further production processes (intermediate goods).  Product method deals with the economy sector-wise. The total output in the economy is computed as the sum of the outputs of various secto...

Active investing involves identifying the specific security or set of securities that should be purchased or sold. It involves constant evaluation of every security in the investment portfolio so that investors can sell securities that are priced above their fair value. Similarly, while buying securities, investors look to identify securities that are priced below their fair value. Thus, active investing strategies require more effort and involve a greater number of transactions compared to passive strategies. The objective of an active investor is to earn a rate of return that is above the return generated by the broader asset class. Passive investing involves investing in a broad set of securities that fairly represent the asset class the investor needs to invest. Typically, passive investing strategy follows indexing strategy where an investor buys all securities that are part of an index. The objective of a passive investor is to earn the rate of return that the selec...

Charlie Munger: “Understanding how to be a good investor makes you a better business manager and vice versa.” Walter Schloss: “If you can't find good value investing positions, park your money in cash.” David Dreman: "Psychology is probably the most important factor in the market – and one that is least understood." John Tempelton: "Invest at the point of maximum pessimism." Peter Lynch: "Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it." Benjamin Graham: "To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." Warren Buffett: "Rule No.1 is never lose money. Rule No.2 is never forget rule number one."

Dematerialization - Dematerialization is the process of converting securities held in physical form into holdings in book entry (electronic) form. In demat form, one investor's shares are not distinguished from another investor’s shares and these shares do not have any distinctive number, folio number or certificate number. SEBI’s regulations require a company making a  public issue of shares to enter into an agreement with all the depositories to dematerialize its shares so that investors can be given the option of holding the shares in dematerialized form. Rematerialization - Rematerialization is reverse of dematerialization and is the process of converting securities held in electronic form into physical form. On request of investors, Securities on rematerialization are allotted in physical form with distinctive numbers, in place of   the securities held electronically in book-entry form with a depository.

An Offer for Sale (OFS) is a form of share sale where the shares offered in an IPO or FPO are not fresh shares issued by the company, but an offer by existing shareholders to sell shares that have already been allotted to them. An OFS does not result in increase in the share capital of the company since there is no fresh issuance of shares. The proceeds from the offer goes to the offerors, who may be a promoter(s) or other large investor(s).  The disinvestment  program of the government of India, where the government offers shares held by it in Public Sector Undertakings(PSUs), is an example of OFS. It may be stated that OFS is a secondary market transaction done through the primary market route.

Average revenue per user (ARPU), also known as average revenue per unit, is a non-GAAP metric commonly used by d igital media companies , social media companies, and telecommunications companies to assess their revenue-generating capabilities at the per-customer level. The formula for average revenue per user is as follows: Where: Total revenue is the total revenue generated over the desired measurement period.  Average subscribers is the average number of subscribers over the desired measurement period.