What Cause the Market to Go up and Down

It is difficult to identify specific factors that influence the market as a whole. The stock market is a complex, interrelated system of large and small investors making uncoordinated decisions about a huge variety of investments.

The market, so to speak, could be construed as sort of an ecosystem, one organised by the "invisible hand". Each market participant acts and plays freely using their individual ideas and by following their own personal interests. "The market" is shorthand for the collective values of individuals and companies.

There are basic economic principles that can help explain any up and down market movements, and with experience and data, there are more specific indicators market experts have identified as being significant.

The Basics: Supply and Demand

In a market economy, any price movement can be explained by a temporary difference between what providers are supplying and what consumers are demanding. This is why economists say that markets tend towards equilibrium, where supply equals demand. This is how it works with stocks; supply is the amount of shares people want to sell, and demand is the amount of shares people want to purchase.

If there is a greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to be willing to sell or produce more. Conversely, a larger number of sellers bids down the price of stocks hoping to entice buyers to purchase.

Individually, security instruments like stocks and bonds are dependent on the performance of the issuing entity (business or government) and the likelihood the entity will be valued more highly in the future (stocks) or be able to repay its debts (bonds).

Widely Accepted Market Indicators

This begs a new question: What creates more buyers or more sellers?

Confidence in the stability of future investments plays a significant role in whether markets go up or down. Investors are more likely to purchase stocks if they are convinced their shares will increase in value in the future. If, however, there is a reason to believe that shares will perform poorly, there are often more investors looking to sell than to buy.

Events that affect investor confidence include:

• ·       Wars or other conflicts
• ·       Concerns over inflation or deflation
• ·       Government fiscal and monetary policy
• ·       Technological changes
• ·       Natural disasters/extreme weather fluctuations
• ·       Regulation or deregulation
• ·       Changes in the trust of whole industries such as the financial industry
• ·       Changes in the trust in the legal system

For example, It took Sensex just 17 months to add 31,000 points from a March 2020 low of sub-26,000 level to hit 61000 level for the first time ever on Tuesday. This is against 31 years (since its inception in 1986) the index took to touch the 31,000 mark for the first time in May 2017. This move is attributed to the COVID-19 pandemic, which created a lot of uncertainty about the future. Therefore, the market had many more sellers than buyers.

Interest rates are also believed to play a major role in the valuation of any stock or bond. There are several reasons for this, and there is some debate about which is most important. First, interest rates affect how much investors, banks, businesses, and governments are willing to borrow, therefore affecting how much money is spent in the economy. Additionally, rising interest rates make certain "safer" investments a more attractive alternative to stocks.

Bottom Line

While using your instincts and intuition when investing, it’s easy to let your emotions get the best of you. Keep in mind that even with careful research, investing always carries some inherent risk. It’s a good idea to diversify your portfolio as much as possible, so that you’re spreading out your risk over multiple investments. An easy way to do this is by primarily Mutual fund Schemes instead of individual stocks.

Mutual Funds are great ways to build wealth with relatively low maintenance and low barriers to entry. If you also want to invest in individual stocks, it’s always a good idea to do your research and become well-informed about a stock’s past and potential performance before buying anything.

Ultimately, though the stock market may have its ups and downs in the short term, investing in equity funds of mutual funds is a great way to build wealth in the long term. Be sure that you’re investing smartly with a strategy that suits your financial goals, and keep your focus on your long-term goals (such as saving for retirement) to avoid making hasty decisions based on short-term panic or the fear of missing out.

You Can Contact me on any of your Investment and Insurance Requirements.

Ritesh Sheth Call on: 9930444099 email : riteshdsheth@gmail.com 

DISCLAIMER:

An Investor Education & Awareness Initiative.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

*Investments in equity shares, debentures, Bonds etc., are not obligations of, or guaranteed and are subject to investment risks.

The Services and Information provided are for general guidance and information purposes only, and they do not, in any manner, indicate any assurance or opinion whatsoever.

I Marks no representation, warranty, or guarantee as to the quality, accuracy, completeness, performance, or fitness of any alert, article, view, video, information, advice, tool, calculator, analysis, report, data, content news, price, statistic, comment, feedback, advertisement, etc., provided on, or through are personal in nature (collectively known as “Services and Information”).

The Services and Information are dependent on various assumptions, individual preferences, and other factors. Thus, results or analyses cannot be construed to be entirely accurate, and may not be suitable for all categories of users. Hence, they should not be solely relied on when making investment decisions. Your investment / financial decision shall always be at your own discretion and based on your independent research. Nothing contained on, or in any Services and Information would construe me or my family, or any of its employees / authorized representatives as having been in any way involved in your decision making process. Any information and commentaries provided on are not meant to be an endorsement of any stock / investment advice. These are meant for general information only.

What is BITCOIN? A simple explanation.

 Let me try to explain using an example of prison currency.

Prisoners need a proxy for currency as they are not allowed to possess cash. So how do they “pay” for laundry service, hygiene products, protection, a haircut, a book, chocolate or even alcohol? The medium of exchange must be durable, uniform and have a wide acceptance. That is how Ramen noodles and canned fish became prison currency. But cigarettes are top of the pecking order.

Notebooks are kept. Prisoner X will note down how many cigarettes he owes Prisoner Y, and Prisoner Y will make note of what Prisoner X owes him. That book documents all the transactions. The ledgers are draw in an identical fashion. So all books have the same template. To prevent fake entries, a third individual is selected as a witness. He signs the entry made in the books of Prisoner X and Prisoner Y.

Cigarettes / instant noodles / canned fish are bitcoin.
Notebooks are ledgers.
The similar format in the notebooks is blockchain.

Is bitcoin money?

There are 3 functions of money:

1. Money is a store of value. It can be used as a means of saving and allocating capital. It holds its value over time, despite inflation slowly eroding the purchasing power of money.
2. Money is a unit of account. It can measure value in transactions. It can be used to record debts and make calculations. It is divisible and countable. It can account for profits, losses, income, expenses, debt and wealth.
3. Money is a medium of exchange. It is accepted as a method of payment. When you go to the store, you can be confident that the cashier will accept your money, and not demand your shoes as a barter exchange.

Though increasing in popularity, bitcoin is not universally accepted as a unit of account and a means of payment. Far from it. Countries can even ban it. As billionaire Mark Cuban said: Bitcoin would have to be so easy to use it’s a no-brainer. It would have to be completely friction-free and understandable by everybody first. So easy, in fact, that grandma could do it”.

Is bitcoin like gold?

Gold and bitcoin are both speculative; their prices are not determined by cash flow, revenue, earnings, interest payments or dividends. Though bitcoin is sometimes referred to as “new gold”, the similarity ends there. Since gold exists in the physical realm it has to be stored someplace. It is universally acknowledged and humanity has a long history with it. While gold is classified as a commodity, cryptocurrency has eluded categorisation.

What is bitcoin?

• Bitcoin is a cryptocurrency. There are thousands of cryptocurrencies, the most popular being bitcoin.
• A cryptocurrency is created and held electronically. Call it digital currency or virtual money. It can be used to buy goods and services online.
• Cryptocurrencies are powered by blockchain --- a decentralized technology that manages and records transactions spread across many computers. Each "block" contains many transactions. Blocks are "chained" together linearly. Blocks are like a page in a physical ledger signed with maths (cryptography).
• Cryptocurrency uses an online ledger with strong cryptography to secure online transactions.
• Bitcoin was introduced to the world via a whitepaper authored under the pseudonym Satoshi Nakamoto. The creator’s gender, race, nationality, or whether it is an individual or a group, remains a tantalizing mystery.

It is NOT dependent on central banks that control money supply.
It does NOT flow through the traditional banking system.
It is NOT controlled by a monetary agency, institution or country.
It is NOT paper money like the rupee, dollar, euro or yen.
It is NOT backed by gold or central banks or monetary authorities or countries; it is backed by code.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

What is the difference between a large cap equity fund and an equity focused fund? Which one is a better option for investment?

What is the difference between a large cap equity fund and an equity focused fund? Which one is a better option for investment? 

Large-cap Funds:

These are equity funds that invest a minimum of 80% in large-cap companies.

These funds invest primarily in larger & more established companies.

These are in the lowest-risk category amongst equity funds as larger companies tend to have less volatile earnings and stock price volatility than smaller companies.

Large-cap equity funds are suitable for Conservative Investors who wish to invest in equity but are not comfortable with the higher stock price volatility associated with smaller companies.

Equity Focused Funds:

Focused funds take more concentrated exposures in stocks, as compared to the diversified approach more common to mutual funds. Focused funds typically follow a multi-cap approach.

These funds offer higher risk-return than diversified funds.

This fund category essentially includes the top ideas of the fund management team and can outperform or underperform more diversified funds based on how well the investment teams call pans out in the markets.

Focused funds are suitable for Aggressive Investors seeking higher returns on their portfolios, who are comfortable with the potential higher volatility of more concentrated portfolios.

The best investment option depends on your investment profile and financial goals. One must evaluate their risk appetite before investing. The return that an investor can expect from his investments is therefore typically dependent on the level of risk that the investor is willing to assume and the investment horizon.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

How to Build Your Emergency Fund

Experts say's one should having three to six months’ worth of expenses available for emergencies. That’s a pretty wide range; knowing which end of the range to target depends on several factors. 

Saving three to four months’ worth of expenses might be enough if:

• You’re relatively healthy
• You don’t have much debt
• You live in a low cost-of-living area
• You rent and your car (if you have one) is reliable
• You could easily find a job if you lose your current one
• You don’t have kids or dependents (including furry ones) relying on your income
• Your job is very stable
• You have a partner or other family you can rely on for financial assistance

Saving closer to six months’ worth of expenses is recommended if:

• You live in a high cost-of-living area
• It’d be hard for you to find a job if you lose your current one
• You own your own home (especially if you have an older home)
• Your job isn’t very stable (you’re a seasonal worker, gig worker, or an artist)
• You have children, a stay-at-home spouse, pets, and/or other dependents you support
• You have a medical condition, or do high-risk activities (like rock climbing or BASE jumping)
• You lack a financial support network

 Saving a year’s worth of living expenses is ideal if:

• You have a high income
• You have a niche position or specialized job that might require relocation or take extra time to replace
• You are the sole provider to multiple dependents
• You are retired or are nearing retirement

A lot of people will be a blend of these. But if you see more potential for risks in your life, consider saving more versus less.

How to Build Your Emergency Fund

Calculate how much your emergency fund should have and take steps to fund it.

1. Set a savings goal: Determine how many months of expenses to save, between three and six months, based on your personal circumstances and risk factors. 
2. Calculate one month’s worth of expenses: When calculating expenses, only tally up things you’d still pay for in an emergency, like rent, groceries, and bills. Leave out optional expenditures like travel and dinners out.
3. Calculate the amount of your savings goal: Multiply your monthly expenses by the number of months you want to save. For example, if you want to save four months’ expenses and one month’s expenses are 20000 your target is an 80000 emergency fund (20000 x 4). 
4. Automate your savings: If you automate your savings, you’re more likely to succeed. Decide how much you can afford to save each month, then set up automatic deposits into your savings account from your checking account after you get paid.
5. Capitalize on savings opportunities: If you come across other money, such as a tax refund, side hustle income deposit it in your emergency fund to reach your goal sooner.

Don’t get flustered if your goal seems difficult to reach. Just remember that you don’t need it all immediately, or even next year. It’s better to think of your emergency savings fund as an ongoing process, like your retirement savings account. Then, once you do reach it, you’ll have extra money each month to put toward other goals.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

What is the best step to deal with debt?

 GET RID OF IT.

Start by taking inventory of all debt. Credit card debt, personal loans, education loans, vehicle loans, home improvement loans. What you can keep away from this list is a home loan since the tenure could span over a decade. In an excel sheet, stack them in order of interest rate, and size (amount of outstanding).

• Debt Avalanche Strategy: Pay off your debts in order from the highest interest rate to the lowest, regardless of balance.

Say you have a credit card outstanding bill of Rs 40,000 at 24% per annum interest rate. But your personal loan is 18% per annum. This strategy would need you to pay off your credit card bill with priority as it has a higher cost. Once you clear that, you move on to the next most expensive outstanding.
But it does not imply paying off one loan to the exclusion of another. Make the minimum payment on each loan, while the extra money you have managed to save should be channelized into the one with the highest interest rate.

• Debt Snowball Strategy: This time, the size of the debt becomes the focal point, not the cost of it.

Make the minimum payment on each loan, while the extra money you have managed to save should be channelized towards clearing the smallest debt. Once that is paid off, you move to the next one, and the next, until you are debt-free. If you have many loans, this is a good way to clear the clutter.

Which is the right one?

Pay-the-smallest-debt-first is a straightforward strategy that can provide you with the much-needed motivation you need to get started. The small win can help you stay on track. But it also means that getting rid of the smallest debt entails holding onto the debt with the highest interest rate longer. This translates into paying more in interest.

The math favors this Avalanche Strategy, but if the Snowball Strategy helps you actually achieve the goal of being debt-free, there's value in that, too. The Snowball Strategy helps you take the first small steps and is kind of a behavioral trick, the idea being that taking small steps can lead to a sense of motivation and empowerment. It gives you a sense of control and achievement.

Or, you can try a combination. You can work at eliminating the smallest loan first to keep you motivated. After getting one or two out of the way, you can switch to tackling the most expensive debt. A word of caution here: Have a written plan that you adhere to. Or else you will be switching between the two constantly and not make much progress.

THE BEST STEP TO DEALING WITH DEBT IS TO GET RID OF IT.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

What is the surest path to financial independence?

 There are only 3 aspects you need to focus on.

1. Income
2. Dependents
3. Investing

Let's tackle all these three one by one.

Income:

Your income can be from a job, or your own business, or from your assets that are generating income, this income should be able to take care of the shelter, food, and clothing.

Obviously, you should spend less than your income, and the rest need to be invested into assets.

Dependents:

At least In India, We end up taking on the financial responsibility of family finance and sibling financial needs, and even housewife.

Some people are lucky, some parents don't depend on their kids, some people marry a working partner (I think it's a smart move). You will need to find ways to solve this dependent problem (If you have dependents).

It will be hard, but If I can do it, then you can also do it.

Investing:

Obviously, your income can stop due to multiple reasons, you could lose your job, your business can fail or your investments can underperform for a couple of years.

You need back up and that is nothing but more investments.

Until your income is flowing, your investments need to happen side by side, the more you invest, the more you are financially independent you become.

My investment generates almost 2K per day (Somedays even more), But my spending might be at 500 per day, rest 1,500 is always re-invested. Eventually, it will grow into a huge pile of cash and ensuring more financial freedom.

One More: Your Attitude

Your attitude towards money, towards your financial freedom is a very critical part, You can let money and society control you or you can take control of your money and your lifestyle - It's your choice.

As for me…

I live in a small home (Not Villa),

I don't have a SuperBike 

I don't have a luxury car (I do have a nice car)

I eat and drink well at home (Maybe once or twice a month I eat out)

I keep my expense in check and invest most of the money.

I work where I want and I don't really care about getting big offices.

So basically, I am Financially Independent for Many Years to come :)

I hope this helps!

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

Accounting Procedure for Valuation of Goodwill (4 Methods)

The valuation of goodwill depends upon assumptions made by the valuer. Methods to be adopted in valuation of goodwill would depend on circumstances of each case and is often based on the customs of the trade.

The various methods that can be adopted for valuation of goodwill are follows:

1. Average Profit Method

2. Super Profit Method

3. Capitalization Method

4. Annuity Method.

Average Profit Method: 

Goodwill = Future maintainable profit after tax x No. of years purchase

The first step under this method is the calculation of average profit based on past few years’ profit. Past profit are adjusted in respect of any abnormal items of profit or loss which may affect future profit. Average profit may be based on simple average or weighted average.

If profits are constant, equal weight-age may be given in calculating the average profits i.e., simple average may be calculated. However, if the trend shows increasing or decreasing profit, it is necessary to give more weight-age to the profits of recent years.

Number of year’s purchase:

After calculating future maintainable average profits, the next step is to determine the number of years’ purchase. The number of years of purchase is determined with reference to the probability of new business to catch up with an existing business. It will differ from industry to industry and from firm to firm. Normally the number of years ranges between 3 to 5.

Steps Involved under Average Profits Method: 

(i) Calculate past profits before tax.

(ii) Calculate future-maintainable profit before tax after making past adjustments.

(iii) Calculate Average Past adjusted Profits (taking simple average or weighted average as applicable).

(iv) Multiply Future Maintainable Profits by number of years’ purchase.   Value of Goodwill = Future Maintainable Profits x No. of years’ purchase.

Illustration 1:

X Ltd. agreed to purchase business of a sole trader. For that purpose, goodwill is to be valued at 3 years’ purchase of average profits of last 5 years.

Illustration 2:

Y Ltd. proposed to purchase business carried on by Mr. A. Goodwill for this purpose is agreed to be valued at 3 year’s purchase of the weighted average profits of the past four years.

The profit for these years and respective weights to be assigned are as follows:

On a scrutiny of the accounts, the following matters are revealed:

(a) On 1st September, 2012 a major repair was made in respect of plant incurring Rs. 6,000 which was charged to revenue, the said sum is agreed to be capitalized for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing balance method.

(b) The closing stock for the year 2011 was over valued by Rs. 2,400; and

(c) To cover management cost an annual charge of Rs. 4,000 should be made for the purpose of goodwill valuation.

Required:

Compute the value of goodwill of the firm.

Solution:

Before calculating goodwill, it is necessary to compute adjusted profit on the basis of information given.

2. Super Profit Method:

Super profit is the excess of estimated future maintainable profits over normal profits. An enterprise may possess some advantages which enable it to earn extra profits over and above the normal profit that would be earned if the capital of the business was invested in some other business with similar risks. The goodwill under this method is ascertained by multiplying the super profits by certain number of year’s purchase.

Steps Involved in Calculating Goodwill under Super Profit Method:

Step 1: Calculate capital employed (it is the aggregate of Shareholders’ equity and long term debt or fixed assets and net current assets).

Step 2: Calculate Normal Profits by multiplying capital employed with normal rate of return.

Step 3: Calculate average maintainable profit.

Step 4: Calculate Super Profit as follows:

Super Profit = Average maintainable profits – Normal Profits.

Step 5: Calculate goodwill by multiplying super profit by number of year’s purchase.

Illustration 3:

From the following information calculate the value of goodwill on the basis of 3 years purchase of super profits of the business calculated on the average profit of the last four years (simple average and weighted average):

(i) Capital employed – Rs. 50,000

(ii) Trading profit (after tax):

2010 Rs. 12,200;

2011 Rs. 15,000;

2012 Rs. 2,000 (loss); and

2013 Rs. 21,000

(iii) Rate of interest expected from capital having regard to the risk involved is 10%.

(iv) Remuneration from alternative employment of the proprietor (if not engaged in business) Rs. 3,600 p.a.

3. Capitalization Method:

Goodwill under this method can be calculated by capitalizing average normal profit or capitalizing super profits.

(i) Capitalisation of Average Profit Method:

Under this method goodwill is ascertained by deducting Actual Capital Employed (i.e., Net Assets as on the valuation date) from the capitalised value of the average profits on the basis of normal rate of Return (also known as value of the firm or capitalised value of business)

Goodwill = Capitalised Value – Net Assets of Business

Steps involved in calculating goodwill as per capitalisation of Average Profits Method:

Step 1: Calculate Average future maintainable profits

Step 2: Calculate Capitalised value of business on the basis of Average Profits

Step 3: Calculate the value of Net Assets on the valuation date

Net Assets = All Assets (other than goodwill, fictitious assets and non-trade investments) at their current values – Outsider’s Liabilities

Step 4: Calculate Goodwill

Goodwill = Capitalised Value – Net assets of business.

Illustration 5:

From the following calculate the value of goodwill according to capitalisation of Average Profits Method:

(ii) Capitalisation of Super Profit Method:

The goodwill under this method is ascertained by capitalizing the super profits on the basis of normal rate of return. This method assesses the capital needed for earning the super profit.

The value of goodwill is computed as follows:

Illustration 6:

Balance Sheet of X Ltd. on 31st March, 2013 was as under:

4. Annuity Method:

Under this method, goodwill is calculated by taking average super profit as the value of an annuity over a certain number of years. The present value of this annuity is computed by discounting at the given rate of interest (normal rate of return). This discounted present value of the annuity is the value of goodwill. The value of annuity for Rupee 1 can be known by reference to the annuity tables.

If the value of annuity is not given, it can be calculated with the help of following formula:

Illustration 7:

The net profit of a company after providing for taxation for the past five years is:

The net tangible assets in the business are Rs. 4, 00,000 on which the normal rate of return is expected to be 10%. It is also expected that the company will be able to maintain its super profits for next five years. Calculate the value of goodwill of the business on the basis of an annuity of super profits, taking present value of an annuity of Rs. 1 for five years at 10% interest is Rs. 3.78.