Introduction to Mutual Funds.
Article Number 1 in the Mutual fund series (For the next article click here)
I am going to post a series of articles on mutual funds of which this would be the first. We will be going through the basics of what mutual funds are in this article and subsequently move on to their benefits & disadvantages, types, performance, expenses among other things in the later articles.
Prerequisite – It would be beneficial in our quest to understand mutual funds by first understanding about the concept of NAV which I have described here.
So lets begin,
What is a mutual fund?
SEC provides a very simple and jargon free definition for a mutual fund. It says that “A mutual fund is a type of investment company that pools money from many investors and invests the money in stocks, bonds, money-market instruments, other securities, or even cash.”
Lets understand what mutual funds are with the help of the following analogy. More »
How to calculate NAV? Measuring portfolio performance.
Imagine you started your investment of say $2000 by purchasing shares of a few companies and your friend also inspired by your stock market endeavor purchased shares with an initial investment of $1875. Later on, after 6 months seeing the economy slowing down you sold your shares for $2105 and your friend also seeing signs of weakness sold his a couple of days later for $2000. Whose portfolio performed better?
To analyze the performance of a portfolio irrespective of it being that of a mutual fund, a hedge fund or your very own one, its essential to understand how to measure its performance in the first place. One of the more popular ways of doing this would be by using the concept of an NAV.
NAV stands for Net Asset Value.
By definition NAV is calculated as Current value of fund holdings/Number of fund shares.
Lets understand this by the following example.
Imagine you wanted to invest $10,000 in the stock market (say on the 1st of January) by purchasing shares in various companies. Lets call this investment as a whole as your “Personal fund”. Now lets arbitrarily say that each share of this $10,000 “personal fund” is worth $10 so the number of shares in this fund would be $10,000/$10 = 1000. More »
If you are an NRI and are curious to know about the various types of accounts you can open in India you have come to the right place. To start off lets first define who an NRI is.
NRI – NRI stands for Non-resident Indian. The term NRI is defined under FEMA (Foreign Exchange Management Act 1999) as a person who is a resident outside India who is either a citizen of India or a person of Indian origin (PIO).
PIO, Person of Indian origin, is defined as a foreign citizen not being a citizen of Pakistan, Bangladesh and other countries (as may be specified by the Central Government from time to time) if,
1) He/she at any time held a Indian passport; or
2) He/she or either of his/her parents or grand parents or great grand parents was born in and permanently resident in India as defined in the Government of India Act, 1935
Now that we know who an NRI is we can proceed to know what sort of accounts he/she can open in India. There are broadly four types of accounts an NRI can open in India, they being NRE, NRO, FCNR & RFC. Lets have a look at each of these four in detail.
1) NRO stands for Non-resident Ordinary.
2) It is a Rupee account i.e. denominated in Rupees.
3) It can be in the form of a current account, savings account, term deposit account or a recurring deposit account.
4) Purpose – These accounts are generally used by NRIs who earn income in India (Say from rentals from their real estate properties, pension and the like).
5) While the principal amount is completely tax free, the interest you earn on that principal is taxed at 30.9%. More »
How does Goldman Sachs make money?
Ever wondered how Goldman Sachs gets money to pay exorbitant bonuses to its employees? For example, in 2011, Goldman Sachs paid around £8 billion in pay, bonuses and shares to its employees around the world. Before the 2008 crisis, Blankfein, the CEO of Goldman Sachs (in 2007) was awarded a cool $67,900,000 in bonuses . To put that in perspective, the median household income in America during the same period was around $52,673 (0.077% of what Blankfein earned) . So how exactly does Goldman Sachs make such huge amounts of money in the first place?
Fortunately for us, since Goldman Sachs is a publicly traded company, it is obliged to reveal its statement of earnings to the public. According to its filings, for the year ended 2011 its net revenues stood at $28.81 Billion. Lets break that down into its various components to get a clear picture at how it arrived at that figure.
Goldman Sachs describes its business under 4 broad segments which are its 4 “I’s”.
1) Investment Banking
The traditional investment banking activities include stuff such as advising on Mergers & Acquisitions, underwriting of public offerings/private placements (Simply put, valuating the price of a company to determine the share price during an IPO), risk management for firms among other things. It earns a fee/commission on such activities. More »