What is Financial Planning – CFP

This post is for people who want to make career in Financial Planning . I will be talking about CFPCM Certification here .

CFP

What is CFP Certification ?

CFP or Certified Financial Planer Certification programmes in India are offered mainly by Financial Planning Standards Board India. Its a certification after doing which you will be a certified to be a Financial Planner and take different roles in the area of Financial planning .

What is FPSB ?

Its Financial Planning Standards Board India , The board authorised to give CFP certification in India . FPSB is a Public–Private Enterprise and a Professional Standards Setting body for Financial Planners in India.

FPSB India proactively guides the development and promotion of standards for Financial Planning professionals to benefit and protect the public in the country.

Who should do CFP ?

Its for people who want to enter the field of Financial Planning , People are interested in the subject and recognise the huge potential and rewards this area may benefit . There are many other courses in Finance like CA , CFA , ICWA or MBA (finance) , but they are totally different from CFP .

CFP mainly deals with planning of Finances in area of Investment , Insurance , Taxation . So its more inclined towards financial planning for individuals .

People who are working professional in other industries and want to switch there career in Financial planning can also go for CFP , its easy to complete the CFP certification while working .

Is it worth doing CFP , What is the Future of this ?

My take :

India has 1 billion+ population ,where financial awareness is almost non-existent , People here save money but do not understand how to invest it or take care of it in the best way . They don’t even know the basic steps for Financial planning . Currently there are handful of CFP’s in India who are in great demand .

In days to come CFP professional will be the most sought after and highly paid professional’s in area of Finance and overall .

So CFP is the next big thing all over India . That is my personal opinion .

How easy it is to do CFP , Is it too costly ?

How to register : There are many Education Providers (colleges) in India certified by FPSB to offer the study material , you have to enroll with some EP of your choice and do the course , They may offer the course through classroom coaching or Distance learning , you have to decide what suits you.

Giving Exams : The exams are conducted though nseindia.com just like NCFM exams , you have to register for an exam date , pay the fees and give the exam. thats it !! .

Cost : Its not at all costly compared to other courses in same field . There are 6 modules you have to clear . Following is the Fees structure

  • FPSB fees : 10,000
  • Exams for 5 module per module : 13000 (2000 for 4 modules and 5k for last module)
  • EP Fees : 20000 (that is average , Many charge from 10k to 1 lacs)

So In total it should be around 45,000 – 60,000 .

Its one of the best career options in India currently at this cost .

people who want are in Bangalore can go for “MANDAR Learning Acedamy” as there EP .

To get more details , go to https://www.fpsb.co.in/Scripts/RegisterForCFPCertificationProgram.aspx

When do you become a CFP ?

You become CFP only after passing all the CFP module exams and having experience as per CFP criteria , Its either 3 years experience in Financial sector or 6 yrs experience in Non-financial sector . For details see there site .

Note : The information given on this post if not 100% information , I just gave a brief idea about CFP . for details you must see fspb site .

See my previos post of GFactor

Conclusion :

CFP is one big thing for India . Indians badly need right financial planning for them and in this country of 1 billion , CFP’s will be the king of future . So if you have interest , time and and some money , go for it .

All the best !!

The Internal Analysis of Akruti Crash

Numbers and Graphs Speak.

I thought of starting my articles from some Analysis on Akruti City Crash .

In this article we will learn , how can we before hand get some idea about events like this and have clear picture of whats going on .

See my previous posts on Warning about Akruti City : Post 1 , Post 2 , Post 3

– Lets see 2 yrs old chart first


If you see the chart you will see the steep rise in prices in last month , you can also see that its was not a normal price movement , when compared with previous movements .

For a closer view , lets see 3 months charts


If you see the chart you will see ,that prices moved up crazy and then crashed in two stages .

First Downmove : This happened because of the news that SEBI is excluding it from F&O segment . (If you dont know F&O , dont worry) .

Second Downmove : Second downmove came near 25-26 Mar , when it was F&O expiry . What happened ? Lots of positions were built up in F&O and after a sharp upmove , everyone rushed to get out as fast as they can , at any price . So selling pressure came in and prices tanked 45% .

See High Volumes in the month of March (3rd half of the graph) . Suddenly there was so much participation . Most of the buying which was happening on this stock was not for long term basis (delivery basis) .

What is Delivery Basis : delivery buying means , people actually get the stock in there demat accounts , it simply means its delivered physically to there account , But when you buy in the morning and sell the stock in evening , then its not delivery basis . you just make profit or loss same day .

Lets understand an important concept called “Deliverable Percentage” , which simply means , percentage of shares out traded shares which are actually delivered .

So if its higher , it means that most of the buying and selling is happening for delivery basis and people want to keep it with them for some time , When its too low , it means lot of trading (speculation) is going on to catch the pie in the price movement and hence its not sustainable most probably .

Example :

So , for some XYZ company , if volume is 100 shares and and deliverable % is 50% , it means that 50 shares where delivered and 50 were speculated , which is normal ..

But if its 20% or 10% , then things are fishy , there is no value buying happening and shares are just exchanging hands from one to another where each one wants to sell it at higher price , also there are people who want to buy the shares at higher price , because they know that there will be some idiot who will buy from them at much higher price to continue the madness .

And when it ends then what happens , There are no buyers !! , every one has sold at lower prices and then suddenly the selling madness comes in and the bunch of people who get out first (at higher prices) make the most money . And in this pressure everyone is ready to sell at a lower price than someone else .

You can easily imagine that day price movement , see 26th Mar downmove of 45% crash .

So how do we find out that this is happening , Is there some place we can get data from , and the answers is nseindia.com website , it has all the information on needs to know .

Source : https://nseindia.com/content/equities/eq_scriphistdata.htm

Go here , choose 3rd radio button (Security-wise Price volume & Deliverable position data) , and choose share name and dates for which you want data . You will get all the data .

You must see “Price” , “Total Traded Quantity” , and “% Dly Qt to Traded Qty”, you will get good idea at looking it .

But I will not leave you with boring looking numbers . I have taken the AKRUTI data for 3 months (Feb 1 – Mar 27) and then smoothed it with 5 period moving average for each of them and then plotted it on graph , so that you can get the picture pretty well .

The points do not represent the actual value , it only shows you the relationship of each other . see the below graph .

If you enlarge the chart , you will see this relationship

Price : Prices picked up and start moving up . (Orange line)

Traded Quantity : You will see how it started moving up wildly and picked up a pick high speed in March (3rd half portion) (RED line)

Deliverable % : you will notice that it started going down and down , which indicated that even though Traded quantity is going up and up , the delivery is not happening , which means lots of speculation , which is an indication of a building of Bubble which can burst anytime .

So whats the learning , If you see Price movement in one direction and see Rising Traded Quantity and falling Deliverable % , you should suspect the move . It is normal to some extent , but an extra ordinary move is truly suspectable .

And whats happening now to Akruti ?

from last some sessions there is no buyer , only sellers are there and from the peak price of 2100 levels , its now down to 380 (at the time of writing) . I had already warned of this long back , dont take it as any success in prediction of stocks 🙂 .

If you see the current Volumes of Akruti , it was 2137 on NSE , where as average volume was at 4.5 lacs !! , Which means that this down move is not supported by volumes , (watch volumes in 2nd chart , you will see nothing) .

Its just the fear of handful traders who have no idea why they are selling . So we can again expect some wild moves on upside in future when prices starts picking up .

Conclusion : When you see prices moving in one direction without any great fundamental change or significant news , You can use the numbers and see there relationship and you will see something which most of the people have no clue about .

Disclosure : I had learned this technique from Mr. Sunil Saranjame blog , timamo.blogspot.com , an excellent market reviewer as per my thinking . So credit goes to him .

Please join jagoinvestor google groups , see the upper right area at the start of the page , I will be sending instant notifications about the post and we can also share options trades there or some other stock trades when there is good opportunity . Also who all have not left there comments/suggestions , please do so on the suggestions/comments post

I also Introduced my self in the last post , see My Introduction

3 M’s of Successful Trading

In the last Article , we had seen an Introduction to trading . In this section we will see what are the 3 M’s of Successful Trading as per Dr Alexander Elder .

I will give brief introduction of each of it , Its your responsibility to take it further and learn it in detail . take this as just a starting point .

3M of successful trading

The 3 M’s are :

  • MIND
  • METHOD
  • MONEY

MIND

This part of Trading is most important . It deals with Psychology . When one enters Trading business , he/she has some beliefs about the environment, about markets. They have to understand the importance of Discipline, How people think , how greed and fear affects investors. There are sub-parts to this

# Individual psychology of traders : You have to understand how to control Fear and Greed . How you should take rational decisions and not fall pray to your emotions while trading .

# Mass psychology of the markets : You also have to understand how mass psychology works . Why most of the people do what they do .

# The rules for maintaining personal discipline : You also have to understand the importance of Self Discipline, why you must be always consistent with your trading . You must never violate your rules . because in long run your discipline in one thing which will make you most money , not your knowledge or your skills .

METHOD

This is the part which deals with your knowledge about market , technical analysis , other tools which you can use to make Entry and Exit from any trade . This part is perceived to be the most important aspect and most of the people run after these a lot , but these are the least important part of your trading . Let us see part of this .

#Technical indicators :

These deals with the tools available for making decisions , for example , MACD, RSI , Stocastics, OBV and other 200 weird words.

#The best chart patterns :

Then you must know different types of patterns, which gives some idea about future action and how masses are thinking, some examples can be double top, Head and shoulder pattern etc.

#Developing a trading system :

Then finally after you are done with knowledge part, you should build up your trading system. what is trading system ? Its your rules for buying, selling, booking profits and cutting losses.

For learning on some technical tools you can see my series of articles on “How to be a better than average Investor”

MONEY

Now this part is an amazing one and my favorite 🙂 . What this determines is how will you manage your money , it decides how much money will put in market at any given time , and how much loss will you take maximum on any given trade . How much will be your maximum loss on any one trade, things like that .

Basically this part decides how long can you in the game of trading if things would go wrong . This part is extremely important . Without proper money management no can can survive for long in Trading . Lets see some basic and widely accepted views .

# The 2% Rule for individual traders :

This rule days that on any given trade your loss should not exceed 2% of total capital . So if you have Rs 1,00,000 , first time your loss should not be more than 2,000 . This rule makes sure that even if you make long series of loosing trades , still you are in the game .

Even if you make 10 consecutive loosing trades , your overall loss will be 18.3% , Though this will be rare , still you take care of this situation .

# The 6% Rules for every trading account :

This rule says that your monthly loss should not cross more than 6% in a month . Sometimes when you trade it may happen that there is some problem with your analysis or some issue between you and market which can not be explained , you keep trying to win , but don’t succeed, that time you have a great urge to revenge trade and get your money back .

The best thing at that time is to stop and get some rest , go for vacation and come back with fresh mind . This rule will make sure that if your chemistry with market doesn’t fit , you stop after loosing 6% of your capital . You can choose your own percentage amount .

I would like to choose 12% for me . it all depends on your risk appetite and stubbornness 😉

You might be interested in my previous money management example

# Essential record keeping for success :

This part says that you should always keep all the information regarding each trade . Buy price , sell price , date of purchase , how many days you carried , Reason for buy , reason of sell , what you learned from the trade , chart at the time of buying , charts at the time of selling etc etc .

Why do you do this ?

Record keeping makes sure that any day you can go back to your records and see what kind of mistakes you have done, why some trade failed , why you succeeded in some trade ? you can get lots of information from your records , you need to analyse your performance over days/months/years .

Its extremely important , after a series of trades when you look back to your records , you may be able to find out some pattern , some particular aspect or mistake which you do with each loosing trade and hence can take corrective measures .

So, finally we are done with 3 M’s of successful trading . Professor Van Tharp , in this legendary book “Trade your way to Financial Freedom” talks about how the weightage they would give on these 3 M’s .

According to him in Trading the importance factor is like this

Mind : 60%
Money : 30%
Method : 10%

Its totally opposite of what people perceive it to be , general people think that having all market knowledge and technical analysis is most important .

Nothing is far from truth , It wont be too ambitious to say that you can make money in market by simple coin toss if your have sound money management Techniques and Great control over your self , you need to cut your looser short without any emotion and let your profits run till they can by sitting tight and doing nothing .

Conclusion

So finally if you want to start learning Trading , Work hard on your Psychology part and money management techniques , Technical analysis and other knowledge is important but not vital !! .

Some other article’s you might be interested in :

Options Trading
Trading , What is it ?
Swing Trading Presentation by Mr. Sudarshan Sukhani

you might also be interested in simple technical analysis example given by me with charts at my analysis blog

A Small tutorial on “How to start Trading?”

What does it takes to be successful in Trading ?

We are going to see 2 articles on this subject, this is Part 1. In this part I will give introduction to Trading and tell you what exactly is it and how should you approach it (if you want to do it).

Trading

Dr. Alexander Elder, explains in his legendary book “Come in to My Trading Room”, the 3 M’s of Successful trading, which I will touch upon today and will explain it in my own way to you. In the second part we will see the 3 M’s in my way of explanation.

Let us first see what exactly is the difference between Trading and Investing and then we will go over the explanation.

Difference between Investing and Trading

Investing means buying a stock of financial instrument for a long period of time, typically over several years. Assessing good investment opportunities often makes use of fundamental information, such as earnings, but can also use technical analysis to detect long-term trends.

Trading means buying and selling stocks or other financial instruments for shorter periods of time, typically less than a few months. Assessing good trading opportunities typically makes use of trading systems or chart-based techniques to detect short-term patterns.

The main advantage of trading over investing is that it provides the ability to make money regardless of the overall direction of the market or the price of an individual stock. The general consensus is that You can make more money in bear markets with Trading than Bull markets. Because bear markets provide steep movements compared to bull markets .

How Risky and Rewarding is Trading ?

Risk : Trading is considered as one of the most risky business you can ever do. Trading can wipe out your entire money so fast that you cant even imagine. As per the data, every 19 person out of 20 who does trading eventually looses. So the success ratio is not more than 5%, even out of this 5%, 3-4% just make small money, actually big money is made by 1% of people.

Reward : If done correctly and successfully trading can make you enough money you cant imagine. Most of the successful traders make more money in a month than people who are considered as “making good money” make in a year. but this numbers is for highly successful traders.

The other reward for successful trader is Independence. Once successful, you are your own boss, can work whenever you want, trade from all corner of the world while travelling.

For people who want to try there skills in trading can try mock trading on moneyvidya.com, Just buy and sell stocks and see how much money are you able to make in 2-3 months, It will give you some feel of trading. You can also read past my article on MoneyVidya.

Should you try Trading ?

Well, Just anyone who thinks that trading is a “get rich quick” thing, is doomed to failure, this is the biggest reason why people fail, they start or see trading with wrong attitude, they want to make millions (if not billions) in just a month or a year from Trading, They underestimate the Risk part and over estimate Reward part of Trading and eventually fall pray to Market’s anger.

Just because its “BUY” or “SELL”, they think its easy. and they need to read a little bit and because they are so successful and smart in whatever they are doing currently, they will succeed in Trading too. The approach Trading in a wrong way with totally unrealistic expectations.

So the main question still is “Is it for you ?”

you have to ask your self some of the questions which are as:

  • Are you ready to take Great risk of losing money ?
  • Do you have time and energy to learn the stuff required to Trading ?
  • Do you like Markets, numbers and what ever required for Trading ?

Some of the thing which “does not matter much” in Trading are :

  • Are you highly intelligent person ?
  • How successful you have always been in whatever you have done earlier in your life ?

Conclusion :

Understand very well that Trading is a very very risky business and not an easy thing , you have to learn it just like any other profession like Medicine or Software and it takes time . But , now a days I would say Trading is much easier compared to earlier days , Now with the online trading and lots of data available on Internet , there is lot of scope in Trading now .

In the next post we will quickly see 3 M’s for successful Trading . here is Part 2

Disclaimer : I am myself a student of Trading and still in my learning Phase , I have lost good money in Trading and still struggling to break even . But Eventually its going to happen, because I have not lost the confidence and still on fighting in the battlefield (Markets) .

 

Why you should Plan your Taxes at the start of the Year?

Most of the people take care of there 80C at the end of the year around Jan-Mar . Ideally it should be at the start of the year . Let us see why its should be done at the start of the year itself to plan your taxes.

Plan your Taxes

Following are the 4 most important reasons for Planning your Taxes in start of the year .

Easy on Pocket :

If you plan your taxes at the start of the year , you can then put small amount of money each month . Otherwise you will have to cough up all the money at the end of the year , which can be little difficult on the pocket .

For example :

If you want to invest 60k for this year … you have two choices , either plan your taxes in advance and invest 5k per month, or invest 60k at the end.

No Headache last moment: Another important point to consider is the tension and headache you go at the last moment because of the rush , there is sudden confusion at the end on what to take , where to go , where all the money will come from and all those things .

planning the taxes in the start of the year ensures that you do in correctly and without and headache for the last moment .

Correct products :

If you plan your taxes in the start of the year , you can do your research well and plan for products which you actually need and then go for it . I have seen most of the people taking all kind of wrong products which they don’t need, because there is just no time to think about your requirement , you just have to “invest to save tax” .

Conforms with principle of “Investing Early” : Also when you plan our taxes early you are putting your investments early, that way you are ahead of most of the other people .

Conclusion

An important aspect of Financial planning is to plan your taxes early . Why procrastinate when you know you have to do it anyways … Best of luck .

I have written a series of 4 articles which talks about “Buying Stocks Smartly”

You can read them here : Part 1, Part 2, Part 3 , Part 4

How to use Oscillators to BUY an SELL

Hi

This is 4th part of the “How to be a better than average Investor” series of articles. Today’s lesson is on Oscillators .

What are Oscillators :

Oscillators are the indicators which move from overbought to oversold area, generally from 0 to 100. when they are nearing 100 it means stocks are overbought and “expected” to go down now. when they are nearing 0, it means, stocks are in oversold area and fresh buying can come and move the stock up.

Oscillators

hey .. wait a min, did you vote on the poll upper right side, I have asked on what all topics do you want me to write. Please select topics from them, so that you also get to read your favorite thing some time 🙂 cheers … go ahead ..

I will discuss just 2 oscillators which Investors can use to make better BUY AND SELL decisions.

Let take a time frame of 6 months and see how indicators gave signals of buy and sell. We will see 2 indicators here RSI and Slow Stocastics (SS) (Read what is RSI and What is Slow Stocastic ).

Rules

When it’s overbought, we SELL the share.
When it’s oversold, we BUY the share.

SS BUY signal = when blue color line crosses down the Red line.
SS SELL signal = when blue color line crosses above the Red line.

RSI BUY signal = when RSI has moved below 30 and starts moving up.
RSI SELL signal = when RSI has moved above 70 and starts falling down.

To make signals more stronger, we will use both the indicators signal and take BUY or SELL only when both shows same kind of signal.

OVERBOUGHT = when RSI and SS both are overbought
OVERSOLD = when RSI and SS both are oversold.

Note

At any point of time, markets may be in any of 3 state.

– Uptrend
– Downtrend
– Side ways Movement

Understand that these signals work best in range bound market, like we had for last 6 months. When market were moving in range of 3100-2600. If markets are in strong Uptrend or Downtrend, these indicators will generate many false signals.

Hence, In different markets we have to use different strategies.

Uptrend Market : IN Uptrend, you should avoid selling the stock, when there is small correction, Indicators can fast move in oversold region, that is the time you should BUY. But not SELL when prices are in over bought market.

Downtrend Market : In Downtrend, you should avoid Buying the stock, only SELL when the indicators are in overbought region .

Sideways Market : In this market, you can buy and sell both.

Lets see some examples for last 6 months. This was a Sideways market (but still downward bias was there, so be careful with BUY, you can take SELL easily).

DLF Chart

ICICI Chart
RELIANCE CAPITAL


Some Important things to NOTE (very important)

Oscillators should not be used in Isolation alone, You should also confirm it with other things like Support and resistance to make your BUY or SELL more stronger.

For example : If prices are near the Overbought, but you see that prices have broken the resistance point, its tells you that you should not BUY. because Oscillators are secondary thing, prices are primary.

Also, If prices are near support and not breaking it, and oscillator are in over sold area, then its safe to BUY. Never rely just on Oscillators, they are only helping tools used with other signals.

Lets see one Chart of JaiAss for testing what you have learnt.

Questions for you

– Tell me where are the buying and selling opportunities.
– Tell me where you should have avoided the signals.
– What according to you can help along with these oscillators.
– Can you come up with some other oscillator of your own which can measure some important thing )

JAIPRAKASH ASSOCIATES CHART

ok, So finally we end the 4th part of this series of articles on Technical Analysis. I hope you have learnt some things from me.

Earlier Posts

Part 1: What is Fundamental and Technical Analysis and which should be used When

Part 2 : How to use Support and Resistance to BUY and SELL ?

Part 3 : How to use Trendlines to find Support and Resistance ?

Understand that we are not learning how to trade, we are learning some trading tools which can be used by long term traders to make better Buy and Sell decisions .

Incase you want to trade stocks/futures/options just after learning from these 4 articles, I must tell you have you have not learned even 1% required for trading. 99% is still there to be learned and over all knowledge of markets, technical analysis blah blah is just 10%. 90% is Psychology, your attitude and your Discipline.

Trading is risky and not easy to do for long term.

Leave you comments / thoughts / suggestions / and answers to test question.

hey .. wait a min, did you vote on the poll upper right side, I have asked on what all topics do you want me to write. Please select topics from them, so that you also get to read your favorite thing some time 🙂 cheers …

Asset Allocation presentation

I am putting a small presentation prepared by a friend Subbu . This talks about asset allocation at different stages of life .

Incase you have not looked at “How to be a better than average Investor” series articles . You can look at them

Part 1
Part 2
Part 3

These articles talk about use of Technical Analysis to find support and resistance levels to make better BUY and SELL decisions . Please share them with others too .

How to use Trendlines to find Support and Resistance

Hi Readers

This is 3rd part of “How to become Better than average investor” Series. Read

Fundamental and Technical Analysis, What and When ?: Part 1
Using Support and Resistance: Part 2.

Let us today discuss how can we use Trendlines to use Support and resistance levels and make better Entry or Exits.

What is a TrendLine?

A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. In the Uptrend , we join two low prices points and in Downtrend, we join two high prices and extend it further. Next time when prices approach them, it should probably act as a Support or resistance point.

Let us see one example of each of them.

Example of trend line while DOWNTREND


You can see in the chart how Two high prices were joined and the line acted as Strong Resistance in future, 3 times prices touched it and broke down again, These are good price area where either one can go Short (sell), or book their profits. You can see that now prices are again Approaching to this Resistance line, so once prices reach this point, it may provide a good opportunity to sell.

What will happen exactly, better not to predict and let the market decide?

Understand that we are not saying that prices have to necessarily touch the Resistance line and then go back down , the trend line only provides Resistance, it may again go back much before touching it .

Example of trend line UPTREND

Below if the 2 yrs chart of HIND LEVER, Let us try to make a trend line which acts as support.

If you see the chart, I have connected two low prices and extended it in future, you can clearly see how it acted as support area and prices went back up from there, At the end, you can see how prices are again approaching this support area, most probably this will again hold and it should be a good BUY 🙂

Let us see one more example of Trend lines. This example will show us the following things :

Resistance line using a trend line.
– Breakout
– How Resistance once is broken became Support
Resistance line using trendline for a shorter time frame.

Let us see a 2 yrs chart of JAIPRAKASH ASSOCIATES


You can see here how I joined two HIGH Points and extended the trendline in the future, and how prices reacted to this Resistance line. Recently Prices broke out of this resistance line and then this same resistance line acted as the Support line and prices bounced back from there.

Also, you can see a small trendline, which was made joining the low points . you can see how prices bounced up as this support line held the prices. So, we have seen some examples of Trend lines and how they can act as Resistance or Support lines (as per situation).

Some of the important points to note are :

– It’s more of an art to making a trendline, it depends on how you make them using HIGH PRICE, CLOSE PRICE, etc.

– You can make Trendline for any time frame.

– It’s not necessary for prices to touch trendlines, you should not expect it.

– It’s a wise decision to BUY OR SELL using trendlines. If the trade goes in your favor, let your profits run, if it fails, cut your losses short and accept it. there is no problem with being wrong . even the best in Industry fail.

Trendlines will be of no help unless you control your GREED in markets. Don’t put all your money in a single trade. Keep adequate cash for bad times.

– Once trendlines are broken, take it seriously, it has happened for a reason :).

– Make sure that the two points used to make the trendline are not very near, there should be some time gap between them to believe in them.

– More times the trendline is touched by the price stronger it becomes, And stronger is the break out from that trendline.


Test for you 🙂

Below is a chart, and I have drawn several trendlines in different time frames, I have marked some points with 1,2,3,4,5, please tell me what are each of them and comments on each point. please do it individually. Let me see who comments correctly on each of them. Also, tell me if there is any other trendline that could have been made, but I have left it?



People who are good with Videos can watch the following videos

 


Please comment on this article, did you like it? Was it easy to understand? Is it too difficult to use Trendlines ?

Conclusion :

So we end this Article here, We saw the Importance of Support and Resistance and how to make trendlines and use them. In the next part (last part), we will see how we can use some of the Indicators from technical Analysis to make the decision better.

Also, we can see that even by visual inspection we can get some idea about which area is support and resistance area.

For people interested in learning these things in detail, I would recommend the book “How to make money trading with Charts” by Ashwini Gujral.

 

Don’t buy “Return of Premium Term Plan” – It does not make sense!

Does it makes any sense to buy “Return of Premium Term Plan”?

The one-line answer is “NO – it does not make sense”

A “Return of Premium Term Plan” or TROP as its called – pays back all your premiums at the end of the period, whereas the plain term plan doesn’t return back anything. Before we get into the analysis further, I want you to know why these return of premium term plan came into existence!

Term Insurance with Return of Premium

Why the Return of Premium Term Plan came into existence?

Term plans have become very popular in the last few years. We are seeing so many advertisements screaming about term plans importance. However, a lot of investors who don’t understand term plans fully, still feel a pinch that their premiums get “wasted” if nothing happens to them.

They equate “paying premiums” as “losing premiums” if they dont die. They compare it with an investment policy (read traditional insurance plans) where they get back there a sum assured towards the end of the policy.

Insurance companies sensed this behaviour and they introduced something called “Term Plan with Return of Premium” which can now proudly tell customers that they have nothing to lose. They get claim money on death, and if they don’t die, they get back all their premiums paid. Many investors who do not understand the time value of money concept fall for a product like this, as to human mind “getting back all your premiums” sounds very attractive offer.

Now, let’s talk about why it does not make sense as a product.

Return of Premium Term plan has an extremely low return

The premium for the TROP (return of premium term plan) is higher than the plain term plan and it can be 2x-3x times the normal premium in some policies.

So basically, you are paying an extra premium for getting your premiums back after 30-40 yrs!

Let’s look at an example of a 30 yr old male, who wants to buy a 1 crore term plan till 60 yrs of age (for 30 yrs tenure). In which case the premiums are as follows (Example is of Max Life Term Plan as on 21st Dec 2020)

[su_table responsive=”yes”]

Type of Plan Yearly Premium Details
Simple Term plan Rs 9912 One has to pay Rs 9912/yr for 30 yrs for Rs 1 crore cover. You don’t get back anything at the end on survival
Return of Premium Term Plan Rs. 17,969 One will have to pay an extra amount of 8057 for 30 yrs (apart from 9912) and will get back Rs 5.01 lacs (this is all premiums paid excluding the tax amount) at 60th year

[/su_table]

If you look at the example above, you can see that in both the plans you are paying Rs 9912 for the Rs 1 crore cover. Only difference is that in second policy, you are paying an extra Rs 8057 to get back Rs 5.01 lacs (excludes the taxes part) at the end. This is the only difference between the two versions.

So internally, the term plan with return of premium is simply a bundled product of a normal term plan and an investment policy. If we ask what is the return of this investment policy where you are paying Rs 8057 per year and getting back Rs 5.01 lacs after 30 yrs.

The answer is 4.05% CAGR.

Yes, its barely above saving account rates and a little below a normal fixed deposit interest.

I did the same analysis for the tenure of 40 yrs and 50 yrs policy (read why you should not take such a long tenure term plan) and the IRR return was 3.92% and 3.00% respectively, which means that if you buy the policy for a longer tenure, the return gets lower and lower and the product becomes even worse.

Below is the IRR return calculated in an excel sheet for your reference 

return of premium term plan irr return

Note : The above calculations are done in Excel for just one company plan, however similar kind of numbers are expected from other companies return of premium term plan. Please do IRR calculations yourself if you looking at other companies plans.

Return of Premium Policy ties you up with the product

What do you do, if you want to stop a “Return of Premium Term plan” in-between? Let’s say after 10 yrs?

It will not be as simple as a normal term plan, because, with the return of premium policy, your mind will tell you that you just have to continue it for another 20 yrs and you will get back all your premiums. Very smartly, the insurance company has converted a pure term plan into an “investment policy cum term plan” with very bad returns.

so the better alternative than a “term plan with return of premium” is to buy a simple term plan (here are 20 checklists before buying term plan) and invest the extra amount in another investment products like PPF, FD’s, Equity mutual fund or debt mutual fund and you will have better flexibility and returns.

Check out this video from Subramoney talking about this product

What happens if you stop paying a premium for Return of Premium Term plan?

There is an option to get a surrender value if you stop paying the premiums in between. Just like traditional plans, there is the concept of “Guaranteed Surrender value” in these kinds of policies which comes into picture once you have paid 3 yrs premium. However, the amount you get back is a fraction of what you have paid. There is a percentage assigned for every year which tells what part of the premium paid will you get back if you surrender the policy in a year. Below is a snapshot of the chart taken from Max Life Brochure

Surrender value chart of the max life insurance return of premium term plan

So, as per this chart – if one wants to surrender the policy in 10th year, they will get back only 55% of the premiums paid (excluding premiums).

Some other Info

  • The TROP gives you income tax benefits as per sec 80C
  • There is an option to pay premiums on a monthly, quarterly or yearly basis
  • There is also an option for limited pay (pay in 10 yrs) or in one single premium

Conclusion

So TROP is a very carefully designed product which favours the insurance company but makes the product look very good and works on the psychology of the investor. Better stay away from it. The best idea is to buy the simple term plan with the lowest premium.

If you have already invested in this kind of plan, then you need to evaluate what will make sense for you!

Do let us know if you liked the article and does it make sense to you? Share in the comments section!

How to use Support and Resistance to Buy or Sell Stocks

This is Part 2 of the How to become a better than average Investor series, see Part 1

In the last post we discussed the importance of Fundamental and Technical Analysis. Now we will see one of the most simple, easy and powerful thing called Support and Resistance.

This is for people who have no idea about what is it and have at most heard about it.

Support and resistance

Let us see both of them one by one.

Support :

Support for a price is a price area where there are lots of buyers ready to buy the stocks rather than sellers. At that price point, the general perception is that its a good buy, and lots of buyers come to buy it. Hence buyers outnumber sellers and there is a higher possibility that prices will bounce back from that point . This is a point where Buying has less risk.

In other words, at support levels demand is thought to be strong enough to prevent the price from declining further. Please understand that Support point is not a place from where it will for sure bounce back, Its only the higher probability that it will bounce back.

Also understand that its not exactly a fixed price which should be considered as Support, generally its a range like 98-100 or 560-570 ..

Which point is Support point : Every Low made by the price can be considered as Support Area.

Let see Example :

Support Example 1 : Below chart is for Jaiprakash Associates (click to enlarge), It made a low of Rs.53 (closing price) on 27th Oct 2008 and then bounced up from there.

Now Rs.53 is the support point, Prices went up from that point and after reaching Rs.90, it again started heading down, You can clearly see in charts that it reached Rs.53 levels, but could not break down from that point and again bounced back from there.

It was a very good “BUY” around Rs.53. Understand that buying around Rs.53, is only a less-risky trade, not a “no-risk” trade. Prices can break down from there also.

Support Example 2 :

Below is a chart of RPL. Here you can see that prices made lows of Rs 70 around Dec 1, 08. That became a support point, and then prices reached thought levels around first week of Mar 09, It bounces back from that point, It was a less risk trade around Rs.70.

Resistance : Resistance is just opposite of Support, At this price levels there are more sellers than buyers and with high probability prices reverses from this point. At this point there are enough sellers in the market to prevent it from rising further.

Resistance point is the High made by a price. All the high’s will act as some kind of resistance points.

Lets see examples :

Resistance Example 1 :

Below is Reliance Charts, You can see that reliance made a high of Rs.1400 around Dec 2008, After that you can see how it reversed from that point 2 times in Jan and Feb 2009. It was a wise decision to sell at those points.

You can also find many examples like this if you investigate yourself. Try to see other charts if you are interested, you can look at charts at ichart.in or https://www.bazaartrend.com/index.php , find yourself)

Important Note : When prices are near Support or Resistance levels, you should be more alert. It does not mean that you just jump onto market and buy or sell, Be patient to see the actual price reversal, Though you will loose some part , that would be a better trade.

Also there are several other factors which should be considered, but for now lets not touch upon them. lets keep it simple for readers.

Lets also look at some important points

Break Down :

Always remember that when prices don’t hold support and break them and fall further, it tells that buyers are not strong enough and Sellers have taken over them and prices will make new lows, When support is broken, Sell further.

Example : Below is the chart of RPL, which shows how it broke down its support point and then made further lows.

Break Out :

When prices don’t hold resistance points and break them on upside, prices then indicate that they are going to make new highs. Better to buy at that point.

I have put a post on my analysis blog for Reliance Break out : please see it :
https://manishanalysis.blogspot.com/2009/04/reliance-break-out-target-1800.html

Some Other points to remember :

1. Support and Resistance points are places where you should be more alert and look for other signals to buy or Sell, just don’t buy because prices have reached near support, buy it when it starts rising and there are positive signals.

2. Support once broken becomes Resistance for next time, and Resistance once broken becomes Support point for next time, use this knowledge. See : https://candlestickmania.blogspot.com/2008/07/resistance-becomes-support.html

3. Many times there are false breakout and breakdown, So it will many times happen that you get out at important levels and miss the large movement, that’s fine, you can always enter after getting out.

4. This is most important point, Everything I talked about in this article can increase your chances of making more money in trading, but remember that you are dealing in Markets, and if you don’t control your GREED and emotions, your failure is guaranteed.

Use strict Stop losses and use Money management techniques (it means not putting all your money at once, if you have 10 lacs, put only 1 lac, don’t be greedy enough, else someday you markets will punish you badly, then no Technical analysis or any thing will help. have good amount of cash with you always ).

All technical Analysis and knowledge are of no help if a person cant control his greed and emotions in Market. TA and your knowledge will contribute not more than 20% of your success in long run.

This was end of Part 2 of this series, In next port (Part 3) we will see how to find support and resistance levels using TRENDLINES. wait for it.

Comments please, Its sometimes disheartening to see no comments after I put up a post after some hard work. I don’t want “good post or Great Article kind of comments, but at least share what you have learned and ask questions, make it little interactive please.

Question for you all :

Question 1 : Do you think this support or resistance thing works , or can you add anything else how to buy or sell and what things to observe at support and resistance levels , which can make buying and selling more successful?

Question 2 : What do you think about Chambal Fertilizrs at this point , see the charts at : https://www.bazaartrend.com/index.php?symbolname=CHAMBLFERT (click on the upper left button to make it full screen).

Suggest what should be done at this point of time ?

I came across very nice video, about difference between winning and success, a worth watch. See it below

Note : All the things discussed here are available on net with great detail. learn more of it yourself.