Monday, 25 July 2016

Its’ Raining IPOs



What is an IPO all about? 


IPO or Initial Public Offer is when a company intends to raise funds from investors for its future projects and get listed on the Stock Exchange. It is selling of company ownership to the public in the primary stock market in exchange of their funds. When a company goes public it is usually to fund its expansion plans or to repay its debt or to diversify its business. So, whenever the company first lists its IPO, it comes out with an Prospectus, which gives an brief idea about the company’s business model, its past three years performance, existing share holding pattern and other factors related to its business.  


In recent times, the market has been flooding with Initial Public Offer or IPOs giving investors a wider market to explore and more opportunities to earn. Although, nowadays IPO is seen as quick money, in true sense it would be better to be seen as long term wealth building tool. If the investor is sure about the product delivered by the company then it is must to be a part of this success story. Lets’ understand take an example: 


Do you find yourself using the services of Just Dial every time you need to find the contact details of your local restaurant, club or salon? or does your local grocery shopkeeper only hands over “GO” cheese every time you go to buy. You know how popular these products/services are with us that it has formed part of our daily lives. But did you know these companies had in recent past come up with their IPO and you could easily earn good profits (capital appreciation / dividends) by participating in these IPOs. Still confused whether you should participate in an IPO, and then lets us put it in numbers: 


Success story of Asian Paints 


The company went public in Aug 1982, with a minimal premium of Rs 13 per share. However, if you or your elderly didn’t participate then in this IPO, lets’ us see what is the missed opportunity you have likely suffered. 


If you had brought 1000 shares @ RS 600 say, immediate IPO issue (since you didn’t get lucky to own one in an IPO) at Rs 600 per share.    
     





Year
Bonus Rate
No of Share owned
Face value
1982

1000
10
1995
1:1
2000
10
2000
3:5
3200
10
2003
1:2
4800
10

 (Source: Company Website)


Further to give you simple explanation let’s look at simple calculation to become a crorepati



Year
Split value of stock
No of Share**
Face Value
2013
10-1
48000
1

  (Source: Company Website)
                                                                   

This is a beautiful example of simple multiplication of wealth without any interfere of stock market players plainly on performance of the company. So, if you had invested identified the potential of a small paint company then, today you would have easily called a proud, shrewd millionaire. An individual who patiently stayed invested for his retirement and waited for 34 years to fulfill his goal. Interim, the stock has also declared dividends to give you regular income

Investment Value Rs.
6,00,000
Current Value* Rs.
5,02,56,000

*- Asian paints closing on 22 July 2016.
**- Stock Split doesn’t bring any change in valuation.

Some last words form our side:

·         Every IPO is unique and its success depends on the business model of the company. We are not advocating that every IPO is successful or should be subscribed.


·         When an individual invests in an IPO, it should be earmarked with a fixed goal and the amount needs to be redeemed when the goal arrives.  

Monday, 18 July 2016

Bonus-Split- Rights issue - Which is better?



Although the terms - share split, bonus share or right are all connected with equity shares, there is not much similarity between them in reality. These announcements bring joy to the share holders i different ways, today we will understand more about them. One of the major misconceptions among the retail investors is that we think these words are interchangeable and can be loosely used to describe any change in the stock price.


Stock Split
Bonus Share
Right Share
Definition
When the face value of a particular stock is split or reduced in a particular ratio, it is called as stock split.
When the existing shareholders get a free share in a predecided ratio, it is known as bonus share
It is an opportunity to existing shareholders to subscribe to additional shares at a discounted price over current market price. It is not compulsory for an investor to participate in the rights issue.
Outstanding Shares
Number of outstanding shares changes but the total value of holding remains the same
Number of outstanding shares changes but there is no change in the value of the holding
The number of outstanding shares changes but the shareholding pattern may or may not change after the issue.
Company reserves
It is not affected by the stock split
Since, the share holders get a free share it is usually paid by utilising the company reserves.
It does not affect the reserves of the company
Face Value
There is a deduction in face value of the share
There is no change in the face value of the share
There is no change in the face value of share
Benefit to Company 
·   It brings more liquidity to the trading volumes
·    Increase liquidity and trade volumes
·    Affordability to small retail investors
·    Since, bonus is increasing the equity base it shows positivity of company future growth.
·  The company can raise funds without additional cost of advertisement.
·  The cost of additional funds is lower than issuing an offer for sale.
Benefit to Investors
·  Stock split increases the holding, also this gives keeps the investor in a better position to participate in future expansion.  
·  High growth in wealth over long term
·  Usually a bonus issuing company means company has got good growth strategy
·     Access to own additional shares of any particular company at lower than market price
Taxation
The cost of acquisition of stock is considered to calculate the gains. If the date of acquisition is above 12 months then the entire stock lot after split is eligible for long term taxation (i.e tax exempt)
The bonus shares are to be held for at least a year’s time to be eligible for tax exemption. The cost of acquisition for bonus is nil. The period of holding is calculated from issue of bonus  
The price paid for acquiring right issue is to be used  to calculate the capital gains. Beyond the year’s time frame the gains are exempt from tax.


Monday, 11 July 2016

CIBIL - Your Credit Score Keeper



In August 2000, on the recommendations of Siddiqui Committee, the CIBIL was formulated as one of its kind credit rating company. It is owned by the leading banks including State Bank of India, Bank of India, Indian Overseas Bank, Aditya Birla Trustee Company Pvt Ltd and many other banks. However, the major stakeholder remains the Trans Union International PLC, which is the leading global credit bureau player with stake of 77.1% (as mentioned on home website). Some of the other facts about are as follows:

What is the full form of CIBIL?

Full form for CIBIL is Credit Information Bureau (India) Limited

What does CIBIL do?

CIBIL records the credit information for all loan providers of all the loan consumers. Its help the money lenders (organized bunch) understand the applicant credit repayment history and capacity to take additional loan.

How does it function?

Member financial  institutions

CIBIL
Leading Companies
    Provide data regarding Loan & credit data of an individual
    Sends the information on monthly basis

  Stores the received data.
    Creates Credit Information Reports (CIR) based o the information received

    Ask for CIR reports from CIBIL  in case of sanction of any loan
    This  report helps to approve loan applications


CIBIL has many of its products (TransUnion Score & CIR) which help the loan providers make quicker decisions regarding the loan sanction from its applications. It is not the only factor for approval of any loan but it is a major one. In order to get a green nod for further loan processing, a minimum score of 750 (range of points: 300-900) credit points is required. If the score is satisfactory, then the income proof and other documents are called for verification.

Can you know your own CIBIL score?

CIBIL score can be received by an individual from the CIBIL company website. It is a simple process where few personal questions are asked to determine the authenticity of the applicant. On payment of nominal fees, the applicant receives his credit score in next 24 hours. It is similar to the score, CIBIL sends to your bank in case if you apply for loans.

What are the factors that affect my credit score?

Payment History – Your payment history affects your rating. This includes delay in payment of your EMIs, delayed credit card bill payment or default in any payment. Any default indicates failure in servicing future debts.

Increased Credit – It indicates additional credit repayment burden on the applicant. It also pressurises the existing cash flow payment.

Type of Loan- The nature of loan acquired in past affects your credibility. A personal loan or unsecured kind of loan increases risk of default of repayment.

How do I improve my credit Score? 

Know your current standing – The first step towards building positive score is to know where you stand. Having an idea about your current outstanding loans and working towards a repayment schedule. 

Never delay payments –Any kind of delay in bill payments, be it credit card or loan EMIs could reduce your score, which makes timely payments a key role in maintaining a decent score.

Don’t utilise your entire credit – Never go overboard when it comes to utilising credit limit. Spend within the limit is bound to build your score, while exceeding it could come as an expense.

Limit your cards/loans – A quick look at your credit cards would help you understand the actual cards you need. It only leads to complication in loan repayment.