Equity means ownership


January 27th, 2010 admin Posted in Asian Stock Market | No Comments »

Equity means ownership

We should understand what exactly you are buying when you buy an equity. Investing in equities is just similar to own a business.

When you invest in shares of a company, you are not only providing finance to the company, but providing capital to that particular company which is known as an equity share. It means you are taking up the part of the ownership in that company. Investment in equity is undoubtedly have greater risk as you are entrusting performance of the company with the job of managing risk on behalf of you.

In what kind of business you should invest?

Normally, the new comers who are investing in equity should focus on the potential of returns received should be at least equal to the bank interest rates. You should determine the qualitative factors to invest your money into a business which ensures the security of your money in a long run. Business itself is also entitled to aspire for the same security aspect. Ideal business should have horizons where profits can be determined. There are various external factors that determine the direction and growth of this activity. While business planning all these factors are considered to sustain the growth of the business over the period of time.  Business operations would have to be evaluated from market feedback resulting into profitability described in the financial statements.

All these concepts apply to the stocks. We know the document called Annual Report of the company; which is the most basic source to know the company’s operations and quality of the performance. Annual report explains the nature of operations and the external factors affecting the performance of the company during the year. To get a fair idea about company’s reputation and stability by keeping track of the position of company’s product in the market. You can also keep track of company’s quarterly financial statements. All these are the parameters to decide which stocks will give maximum and stable returns.

Role of Equity Holder in the company

As an equity shareholder, you are delegating authority to others to run the organization you have a stake in. The company is answerable to their equity base shareholders. Thus, as you are a joint owner, you have delegated the operations of the company to the professional managers and the employees. In turn management is responsible to its shareholders by communicating the performance of the company through the balance sheet and the AGM. Equity shareholders can even voice their opinion on the performance of the company.

In fact, shareholders can actually participate in constructive criticism of the operation of the company.


Power of compounding


January 25th, 2010 admin Posted in Asian Stock Market | No Comments »

Power of compounding

“Compound interest is the eighth wonder of the world” – Benjamin Franklin

Or

“Compound interest is the world’s greatest discovery” – Albert Einstein

If the person earn Rs. 20,000 per month, after how many years he will have 1 crore? It will take almost 50 years.

If you invest Rs. 20,000 every month for 50 years under same term and condition you will get more than Rs.173 crore.

This is called “Power of compounding”. The basic prefaces of investing are that your money gets multiplied many times termed as “Power of Compounding”.

Compounding of money is the way to earn interest on invested money. That money of interest will not remain stored in one place. Again interest will be calculated on that money of interest. And same procedure repeats itself. This compounding makes the money honey.

How investors represent the Power of compounding?

Three students Mr. Realist Ms. Thrifty, and Ms. Follower were studying in the same school and the same class.

Ms Thrifty have her tenth birthday and her father gave Rs100. Rather than spending them she invest with 15% of interest every year.

When Mr. Realist was 16 years old he won the cash prize of Rs. 200.

Ms Thrifty was his friend and suggest investing that amount of prize in same way as she have invested.

Ms. Follower received her first salary and she also invests the money in the same investment.

They aged about 60 years and decide to take out the money from their respective investments. Whose withdrawal will be highest?

Ms Follower will earn the highest than Ms thrifty. After how many years Ms Follower has invested is not the issue but she invests four times more than Ms Thrifty. She received interest of 40 years.
Now, Calculate the total amount of final withdrawals of both. Though, Ms Thrifty had invested only Rs. 100 but finally received Rs. 1, 08,366. While follower who invest Rs.400 will receive Rs. 93,169!

The above example mentions that longer your investment more you earn finally.