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Posted by subbu on August 29, 2008, 5:25 am
How to select a stock?
While choosing a stock, following criteria's need to be analysed for
choosing the correct pick
ROCE(Return on Capital Employed)
ROCE = profit after tax + interest earned on investment in long term
funds by the company
Higher the ROCE , better is the company.
ROE(Return on Equity)
ROE = Profit After Tax/Shareholder funds.
Higher the ROE, better.
Last 10 years sales growth
Compare the growth percentage with the industry average to figure out
if the company is a underperformer or outperformer
Free Cash Flow:
Free Cash Flow = Operational profit - capital expenditure.
Higher the free cash flow, better is the company.
Debt/Equity Ratio
Debt/Equity Ratio = Debt used for business/equity capital used for
business
Ratio of > 2 is risky.
Working Capital
Working capital = Cash needed to run daily business.
Higher (Sales/Working capital) is a good sign.
Profit Margins
Net profit Margin = Net Profit/Sales.
Higher margin, better prospect.
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Posted by subbu on August 29, 2008, 10:59 am
What is Term Insurance?
If you go to a set of life insured people and ask them as to what
policy has they acquired, most of them atleast in my friends circle
don know even the name of policy, which shows their height of
ignorance. The rest will give the very famous answer of "Jeevan Anand"
or some other endowment or moneyback policy name.
The concept of Life Insurance is totally misintrepreted in our nation,
it is seen as an investment avenue. The main mantra behind life
insurance is RISK COVER, which most of us don even cares about here.
INSURANCE SHOULD KEPT SEPERATE FROM INVESTMENTS. There are adequate
alternate choices for better investments.
If you take a survey among the LIC policy holders, for sure not more
than 5% of them would have even heard about TERM INSURANCE. This is
the policy from LIC which is a PURE RISK COVER policy in nature. There
are only such TWO policies offered by LIC (which shows that even the
organisation is willing to sell this policy). The name of the policies
are
1.Anmol Jeevan
2. Amulya Jeevan
How different are these plans from the endowment plans?
1. Cheap Premiums for very high sum assured amount. For eg., for a
50,00,000 cover for a indiviual of age 21 for the period of 35 years,
the premiuim is as low as Rs.13,350. Whereas in jeevan anand which is
a endowment policy, for a sum cover of 5,00,000 itslef, the annual
premium is 12660. This clearly explains high cost involved in
endowment policies.
2. Theres no payment of sum assured on maturity of the policy. THIS IS
THE WAY A LIC POLICY SHOULD OPERATE. You may ask in endowment
policies, we get back sum assured plus assured bonus, so whyd shud i
waste my premium if i cant get anything back. I will
explain that question pretty elaborately with a good example.
Lets assume a 25 lakh policy for an indiviual of age 21 for a period
of 10 years.
Case 1: Amulya jeevan (Term Insurance)
Annual Premium : 5300
Case 2 : Jeevan Anand(Endowment plan)
Annual Premium : 2,82,170
Final amount : Rs 37 lakh.
So Now get the difference between the two premiums.
2,82,170 -5300=2,76,870
Assuming you take a term plan and start a SIP of 23,000(which
2,76,870/12) in reliance vision fund, for 10 years. From the last 10
year track record,
Final Amount : 2,30,30,594 ( 2.3 crores).
2.3 crores Vs 37 lakh speaks for itself. If you are smart enuf of not
wasting money in paying hefty premiums, you can become a crorepathi
instead.
BUT DON EVER EXPECT A LIC AGENT TO TELL U ABT TERM INSURANCE. You have
to get it done from him, coz agents do not much commission from these
policies.
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