When to sell?

Investors in the equity market, have always had this question when to sell-off a stock. The investors want some kind of indicator to say whether the stock has reached its ( almost ) maximum and the only movement in its price henceforth will be downwards.

I'm not talking about Technical analysis here and I can't give you a formula to analyse an individual stock but this graph on Sanjay Bakshi's blog could give you an indication whether the equity market as a whole has become over-heated and it is time to sell-off.

( Image Copyright owned by Sanjay Bakshi )

The above graph has been created by plotting the Nifty dividend yield against the returns generated by Nifty over the next 3 years.
Thus, all an investor has to do is monitor the Nifty dividend yield and sell-off if it falls below 1.2% ( or whatever threshold you would like to set based on the above graph ).
However, there are few thing you need to keep in mind:
1. The above graph was based on historical values of Nifty and individual stocks may not follow a similar pattern. Thus this graph is more helpful to those who invest in index funds but can also be used as a reference by other investors.

2. The above graph considers returns generated over the subsequent 3 years, but the graph for investors with a different time horizon may look slightly different.

Please read this complete article by Sanjay Bakshi to know why he has made use of Dividend yield instead of P/E or P/B to plot this graph and also his view on the current market run-up.

New tax code means bad news for the mutual fund industry

The new tax code proposed by the Finance Ministry would lead to withdrawal of several tax-benefits currently on offer to mutual fund investors. This may mean bad news for the asset management companies, since fewer people may be interested to invest in mutual funds now.

1. No more tax-savings through ELSS: The new tax code does not list Equity-linked savings scheme ( commonly known as tax-savings mutual funds ) in section 66 ( the replacement of section 80c ). This means that ELSS would no longer be tax-savings instruments under the new tax regime.

2. Pay tax on dividends: The dividends paid by mutual funds ( even, equity mutual funds ) would be taxable in the hands of the investors under the proposed law.

3. Capital gains are taxed: Previously investors in equity mutual funds used to benefit from tax-free long term capital gains ( holding period more than a year ). Debt fund investors also used to pay long-term capital gains tax at a lower rate than the personal income tax rate. Now capital gains will be clubbed to your income and taxed as per the applicable tax rates of income tax. For holding period greater than a year the capital gains can be adjusted for the cost of inflation.

4. Pay tax even on Switch: Previously, investors in equity schemes could easily switch over to other schemes after one year without any tax-liability. This was widely recommended by financial advisors as part of portfolio re-allocation or when the investor is nearing his goals like "buying a house". But the new tax code proposes to tax all gains hence any switch between mutual funds will also be taxed since a mutual fund switch is technically nothing but a redemption followed by a purchase into the fund you wish to enter.

Why I will continue to invest in equity even at 8K?

Warning: This post is more of personal rant, so that some time in future I can boast of "I-told-you-so". This post contains less of facts and more of personal opinion about the current economic ( and political! ) scenario. Take it all with a pinch of salt.


The Sensex is below the 9K mark and everyday I keep hearing predictions of even lower levels for the Sensex from friends and stock analysts. The US Dow Jones Index is at an 12-year low. All hell has broken loose. The newspapers are busy questioning the very survival of the Tata group companies. Gold is touching new highs and investors are being advised to buy Gold.

I don't care about these stock analysts who were predicting 25K for the Sensex in January 2008 and are now asking investors to stay away. Honestly speaking I don't care about Sensex at all, since I feel that Nifty is much better indicator of the market. I will continue to invest in equity via SIP, since I have been investing since the 18K level. If I was foolish to invest at 18K, I could only be a lesser fool if I invest at 8K. The downside is even lesser!

To quote Warren Buffet: "Be fearful when others are greedy and to be greedy only when others are fearful." Right now everyone is fleeing from the equity markets. MFs are showing a net outflow from equity schemes. All the bloggers I follow are advising people to stay safe ( Gold, debt instruments, cash ). If I ask my friends, whether they are investing in the equity market all I see is a grim face ( and sometimes a frown as well! ). People are frustated about their losses, even I am to a certain extent. But I haven't stopped my SIPs. I put in a small amount every month, in the hope that someday when the market recovers I will get back this invested amount along with good returns. When will the market recover? I don't know! But history tells me that recovery will happen.

Lok Sabha elections will happen in India in the near future, and I expect a sensible Govt to be formed in the Centre which will work to reduce the budget deficit. The present UPA govt has missed the FRBMA targets, and I expect the next government to put in more efforts to control it. But if the left parties come to power any time in future with absolute majority at the Centre, I am selling off all my equity investments ( even at enormous loss ) since I don't see any hopes for the Indian economy then.

ICICIdirect.com - Avoid it to save money

The above title is incomplete. You must avoid ICICIdirect.com to save your money as well as to avoid high BP.

Well if you have already dealt with ICICIdirect, then you would know what I mean. In case you have not here a shortened version of the long list of "Whats wrong with ICICIdirect"

- Highest brokerage. I never seen ( or even heard ) of any brokerage house charging as high as the ICICIdirect.com does 0.75 % !!! You will lose almost 2% of the transaction value on a delivery-based buy and sell transaction.

- Website. This is second most important reason not to use ICICIdirect.com. Apart from regular downtimes for the ICICI website, any day the sensex loses heavily, the website would be down. There are so many users and their servers just can't cope up. Reminds me of the tag line "Part of a crowd or Stand apart".

- Customer Service. How would you like your hair cut done by an untrained professional. Can't imagine how would you look? Well similar is the case with ICICI. Most of its personnel ( atleast those who interact with the customers ) are fresh out of college, in this job just to earn quick money. Ask about the procedure for resolution of an issue to 3 different people, you would get 3 different answers ( wanna bet?? ).

- Still not satisfied? Want more reasons not to deal with ICICIdirect.com? See the review on mouthshut.com here.

I think that was enough bashing ICICIdirect.com for today. Will write, next article soon.