Category: Investment

Small medium enterprises and Family-run businesses are the backbone of the Indian economy and employers to millions of people, have a huge potential to grow. The SME Exchange is an appropriate platform of raise capital for such high growth potential businesses.

 

With the immense potential of growth that most SME and family run businesses have in the coming decade, the biggest problem faced is access to appropriate timely availability of capital. With the emphasis of banks on collateral based lending, capital in form of equity is of essence for growth. The SME exchanges in India are an appropriate platform to raise this much needed equity growth capital.

 

The BSE SME exchange is leading the way in India in unleashing the growth potential for family-run businesses and SMEs in the last 10 years. With 400 companies listed on the BSE SME exchange of which 150 companies migrated to the Main Board of the stock exchange. With a market capitalization in excess of INR 58,000 crores and total amount raised in excess of INR 4,000 crores, family business should explore the listing option to raise growth capital to tap the appropriate growth opportunities.

 

The first step that a company needs to undertake is to appoint a Merchant Banker who helps and guides the company in the complete listing process. A Merchant Banker is an intermediary approved by SEBI that helps companies tap the capital market. The process starts with conducting a due diligence by the Merchant Banker, post which a DRHP (Draft Red Herring Prospectus) is prepared after conducting due diligence regarding the company i.e. checking the documentation including all the financial documents, material contracts, Government approvals, promoter details etc. and planning the IPO structure, share issuances and financial requirements.

 

An SME Exchange is a stock exchange dedicated for trading the shares/ securities of SMEs who otherwise find it difficult to get listed on the Main Board. The concept originated from the difficulties faced by SMEs in gaining visibility and attracting sufficient trading volumes when listed alongwith other stocks on the Main Board of Stock Exchanges. World over dedicated SME trading platforms or exchanges are prevalent, which are known by different names such as ‘Alternative Investment Markets’ or ‘Growth Enterprise Market’, ‘SME Board’ etc. Some of the known markets for SMEs are AIM (Alternative Investment Market) in UK, TSX Venture Exchange in Canada, GEM (Growth Enterprise Market) in Hong Kong, MOTHERS (Market of the high-growth and emerging stocks) in Japan, Catalist in Singapore and the latest initiative in China-ChiNext. As a matter of fact, NASDAQ also started as an SME exchange.

 

Eligibility Criteria

The Company shall be incorporated under the Companies Act, 1956 / 2013.

 

Financials

· Post Issue Paid-up Capital

The post issue paid up capital of the company (face value) shall not be more than INR 25 crores.

· Net worth

Positive net worth

· Tangible Asset

Net Tangible Assets should be of INR 1.5 crores.

· Track Record

The company or the partnership/proprietorship/LLP Firm or the firm which have been converted into the company should have combined track record of atleast 3 years.

 

Or

 

In case it has not completed its operation for three years then the company/partnership/proprietorship/LLP should have been funded by Banks or financial institutions or Central or State Government or the group company should be listed for atleast two years either on the Main Board or SME board of the Exchange.

 

The company or the firm which have been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the year out of last three years and its net worth should be positive.

 

Benefits of SME Listing

 

· Access to Capital

With the Indian economy poised to grow at double digits in years to come and marching towards a USD 5 trillion economy and focus of the Government on helping and growing SME companies, the opportunities for growth for SME and family-run businesses is very high. The only constrain to super normal growth that most small business face is timely access to capital. With the constrains faced in terms of the collateral based system of lending of the banking system in India, access to equity funding is a must for overall growth of the company. The SME exchange provides a platform for appropriate funding.

 

· Enhanced Visibility and Prestige

The biggest aspect of a family-run business is the reputation, prestige and pride of the family members running the business across generations. In most cases the business is known in the city in which they operate or the state in which they are present depending upon the overall size of the business. Once listed on the stock exchange, which has a nationwide reach in terms of investors as well as brokers, the company is known at a national scale and thereby enhancing the overall visibility of the promoter family.

 

· Attain Appropriate Business Valuation

Valuation for most family-run businesses is valuation of the land and building. This is mainly for getting appropriate credit from the banks in India, wherein the loan amount depends upon valuation of the asset given as a security and as a secondary collateral. Once listed the share is traded on the SME exchange and thereby the valuation of the company will depend upon the financial performance of the company. If the company is doing very well and has a healthy order book and outlook, the share prices will go up. Over the last 10 years many companies listed in the SME exchange have given multifold returns due to the strong performance of the company.

 

· Liquidity and Exit for Friends and Family

Most family business is built of capital that is taken from close friends and family; the people that have trusted the promoters at a very early stage. When the company grows and becomes large, when the company is unlisted it becomes extremely difficult for the promoters to provide an exit to such investors. Once listed a partial or complete exit can be provided to such friends and family that have invested at a very early stage.

 

· Attract Talent

One of the biggest problems faced by most family business is attracting the right kind of talent. Once listed on the stock exchange, it gives the company appropriate visibility and growth prospects, wherein an appropriate ESOP scheme can be structured for the present and future employees to attract the right kind of talent.

 

· Appropriate Corporate Governance Standards

One of the biggest change that is required in a family business when it attains growth, is the standard of corporate governance. The attitude of owner knows it all and whatever he/she says is correct leads to an environment which is not congenial for growth. Once listed when the company has an appropriate Board of Directors and possibly a family council, it leads to a far better level of corporate governance resulting in growth for the company.

 

The SME exchange is the apt platform for most family-run business to raise capital, with relaxed listing norms and disclosers on getting listed. In these turbulent times the SME exchange is an apt platform to raise growth capital.

 

Imagine if you had started preparing for exams early? If you had started reading early, learning early, started exercising early… you’d be at a much better place, wouldn’t you? So is the case with saving and investing your money. The sooner you start, the better off you’ll be down the road.

 

Though many people feel one should wait until they are older (in their 30s and 40s) to start investing, it’s not the best course of action. Here are five reasons why:

 

1. Take advantage of the magic of compounding
Albert Einstein, one of the most brilliant minds, knew the immense power of compounding. He had remarked: “Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t, pays it.”

 

One of the biggest reasons to start investing early is the power of compounding. Compounding happens when you earn interest on your interest, which also includes your original investment. This has a snowball effect.

 

You’ll be shocked at how much money you will manage to save, even if you start investing a small amount each month.

 

Consider you started investing Rs 2,000 each month at the age of 25. If your investment earned 12 per cent annually, your investment of Rs 6 lakh would grow to Rs 37.95 lakh by the time you are 50.

 

If you keep investing the same amount for another ten years, your total investment of Rs 8.4 lakh will become a massive Rs 1.3 crore. You read that right, we haven’t added a zero by mistake.

 

That’s compounding working its miracle.

 

As you can see, the more time your money has to grow, the faster it will compound – and the more money you will ultimately have. By investing early, you can increase returns in the long run.

 

2. Even small amount of money can work wonders
Don’t worry if you’re just getting started and don’t have enough money to invest. You can start an SIP for as little as Rs 500 every month.

 

Investing a small amount slowly but steadily can lead to a bigger corpus over time, as you saw in the example provided in the first point.

 

You can always increase your contributions when your income increases over time.

 

The secret is to begin investing early and to do it diligently. However, if you continue to wait until you have amassed a substantial sum before investing, it might already be too late.

 

3. You’ll have more time to make up for any mistakes
One benefit of getting started early is that you will have plenty of time to correct any beginner’s mistakes. It can give you more time to educate yourself, experiment and find strategies that work best for you.

 

Assume something bad happens that causes you to lose money. You still have time to recover. You will learn to handle the risks of investing better.

 

However, if you wait until later in life to begin, you will need to be more cautious, and your ability to take risks will likely be more constrained due to increased life responsibilities.

 

Your twenties are the time to experiment and learn because time is on your side.

 

4. You can meet your financial goals sooner
When you start investing early, you reach your financial goals early, which can also include early retirement.

 

Early investing can assist you in achieving your goals quickly, whether you want to buy a home or a car.

 

Additionally, you’ll have more time to enjoy your money. If you wait until your thirties or forties to begin investing, you’ll be less likely to have enough time to let your money grow.

 

However, by starting young, you might not want to keep all your money in investments after retirement. Instead, you can use it to enjoy your golden years.

 

5. You’ll be better prepared for adversities
At some point, your finances may become unstable, but by investing early you’ll be prepared to face such low phases. Early investing can help you overcome such tough periods as you would have enough money to tackle tough phases.

 

As former US president John F Kennedy once said: “The time to repair the roof is when the sun is shining.” The same is true in the case of investing. So, start early and hit the road of financial freedom.

 

Source: Valueresearchonline

As yields on 3-month treasury bills have increased to about 6.5%, popular fund manager Rajeev Thakkar of PPFAS Mutual Fund has suggested investors to shift idle funds from bank accounts to a liquid fund.

 

“In case you have not noticed, central banks the world over have been increasing their interest rates. In India, yields on 3-month treasury bills have increased from a low of about 2.7% in May 2020 to about 6.5% now,” Rajeev Thakkar, CIO & Director of PPFAS, said in a letter to unitholders.

 

“There was a time when it seemed futile to bother to move money out of the savings account to a liquid fund. In some cases, savings bank account interest rates were higher than the prevailing interest rates for treasury bills and commercial paper,” Thakkar said.

 

“It may no longer be profitable to be lethargic and let money lie idle in the savings bank account. You may consider shifting your idle funds in the savings and current account to a liquid fund,” he added.

 

India’s largest public sector lender SBI or State Bank of India offers a 2.70% interest rate on savings account deposits while small finance banks like Fincare Small Finance Bank and Jana Small Finance Bank offer the highest savings account deposit interest rate of 4.50%.

 

Source: Economic Times

Rich people stay rich by living like they are broke. Broke people stay broke by living like they are rich.

 

With convenient credit available, thanks to credit cards, EMIs and Buy Now Pay Later schemes, it is becoming increasingly easy to live like the rich and yet stay broke. Easy because it seems attractive to shop for shiny new things. Easy because we are living for today and not worrying about tomorrow.

 

But that’s dangerous. As Warren Buffett rightly said: “If you buy things you don’t need, soon you’ll have to sell things you need.” This is the mantra everyone must understand. One should reduce their spending and start investing for the future.

 

The importance of saving
So, how do you begin? Right off, you need to learn how to save. It is actually an art to keep aside money every month. This is how you can too: calculate your monthly fixed cost (your rent, travel cost, grocery, etc). Once you do that, check how much money is left with you and then decide to save aside a certain portion of the money.

 

But what if I end up using up that saved money too, you may ask? This is where investing comes in handy.

 

The importance of investing
Investing is a must if you want to a) protect the money you are saving and b) building your wealth. That’s right, investing can actually help you build wealth in the long run. Even if you are in the early stages of your career and the salary isn’t very high, investing can be a game changer for you.

 

And that’s because of the power of compounding. Compounding can grow your money manifolds even if the investment amount is small.

 

Therefore, developing this belief in saving and investing is important and it has nothing to do with the scale. There are a lot of people who earn well but they don’t invest, and there are a lot of people who don’t earn so well but are very disciplined about their savings and investments. So, it’s more a matter of attitude and habit and you should inculcate that habit as early as possible.

 

Where to invest
If you ask your parents, chances are they will nudge you to put money in bank fixed deposits. What you get out of fixed deposits is safe and guaranteed returns but this investment is not very desirable in terms of protecting you from inflation.

 

The best way to create wealth is to invest in equities. And historical data suggest that though equity may be risky over a short period of time, it is the fastest way to grow your money in the long run.

 

For starters, nothing beats the convenience of mutual funds if you want to invest in equity. Here, you can start investing with as low as Rs 500 per month. So, you don’t need a lot of money to start investing. With new technologies, getting started has become easier than ever. If you have a bank account and a mobile phone, you don’t even need to leave your house. Everything can be done online these days.

 

So, what are you waiting for? Just start, no matter how small it might look right now. This investing habit will help you gain experience and make you a wise investor over time. So, the next time you catch yourself splurging money, you should remember that it is better to be rich than broke.

 

 

Source: Valueresearchonline

Risk versus returns. Nothing ventured, nothing gained. The idea that the more returns you want, the more risk you must take is ingrained deeply into the way we think about investing. This is not just a concept or general rule of thumb anymore. There’s even a Nobel Prize that has been given out for work from which this risk-return concept can be mathematically derived.

 

Before someone gives you any investment advice, they are supposed to figure out your ‘risk tolerance’. In fact, in India as well as in most well-regulated parts of the world, this is a mandatory part of being a registered financial advisor. However, there is something fundamentally unsound about this idea. Not the idea of judging an investor’s risk tolerance, but the concept of a person having a single tolerable risk level. In reality, the same person almost always has different risk tolerances for different aspects of their financial life.

 

Conventionally, financial advisors treat all of an investor’s investments as a single portfolio and try and tune this to the investor’s self-perceived risk-tolerance. They try to fathom this risk-tolerance by asking some questions and/or by rules of thumb based on age, income stability and some other factors.

 

I have never believed that such an approach is useful. It may elicit something about an investor’s attitudes but it can’t be the basis for planning an investment portfolio. That’s because each saver, each family, has many different financial goals and each needs a separate portfolio. Think about it. A financial goal is defined by a particular purpose that the money will be used for, as well as a time-frame. Example goals could be ‘Child’s Higher Education’ which might be needed in eight years, or ‘House Purchase’ in about five years, or a ‘Holiday to Europe’ in about three to four years.

 

Some goals have a precise time-frame (like a child’s college education) while others, like an expensive holiday, would be nice to have but not crucial, so to speak. Again, some things can’t be postponed but others can be. There are also general goals like having enough emergency money on standby but that doesn’t need much of an investment strategy. As you’ll realise when you think about these examples, each goal has a different risk level. Moreover, this risk level itself varies not just with the nature of the goal but with how far into the future the targeted goal fulfilment is.

 

Therefore, the approach to portfolio-making that I have evolved at Value Research is based largely on the time-frame for which you are investing. For investments whose goals are far away, we can take more risks and get higher returns. The nearer a goal date is, the less risk you can take. For money that might be needed immediately, zero risk tolerance is needed. This approach means that the conventional idea of a person’s risk tolerance is meaningless.

 

One important implication of this approach is that eventually, the long-term becomes short-term and then becomes imminent. Your eight-year old daughter will start her higher education in 2032 and that’s a long-term goal. But by the time 2027 arrives, it’ll be a medium term goal and in 2031 it’ll be a short-term goal. Therefore, the way these investments are treated must change with time. The risk tolerance that the same goal needs keeps getting lower and lower as D-day approaches and thus the portfolio earmarked for fulfilling that goal must also change. None of these real-life nuances are captured in the conventional way of rating risk-tolerance.

 

At the end of the day, no conventional set of investment products and services will take all this into account. Savers have to learn the concept themselves and take care of their needs. However, as you can see, it’s all just simple common-sense – something that is not available as a service but which you yourself can provide.

 

Source: Valuesearchonline

As is the norm every year, it is yet again that time of year when I must draw up my new year resolutions. I start my list with the compulsory emphasis on my health and eating right with the right dose of regular exercise thrown in. Though the lure of making money has always been on everyone’s list, never before has it become more fashionable to talk and discuss finance and investments than in recent years.

 

My New Year resolution list too has this mandatory entry. On the basis of my mixed experiences on my ‘Do It Yourself’ solutions to financial security, I am super excited to draw up my list of New Financial Resolutions for 2023.

 

1. Responsible Investing: In the last few years, we have all heard about people discussing the best investment scheme that helped someone become wealthy. We have heard about quick fix solutions that would help us create wealth. Armed with knowledge gained from my best friend: ‘The internet’, I took to investing in the newer and fancier investment products that I understood very little but was certainly enchanted. Crypto currency, P2P lending, Futures & Options and many more; all came highly recommended as the shortest way to create wealth. They sure did come recommended but they also came with their inherent risk. As I lost money, I gained experience and lessons were learnt. In 2023 I resolve to be more responsible towards my money while investing.

 

2. Not all that Glitters is Gold: As everyone around me made money in the stock markets after the economy opened post Covid era, it felt natural to pull out from my other investments even at the cost of throwing my carefully planned asset allocation for a toss and joining the bandwagon. What followed was a slew of purchases based on ‘hot tips’ and NFO’s and IPO’s. The euphoria soon dissipated as these ‘hot tips’ got cold feet and many of the so-called ‘golden IPO’s” failed to make a dent on their listings. In 2023, I resolve to be more careful while I select my investments and not go by hot tips.

 

3. Winners take it All: While the indices in India made new heights, my stocks had a mind of their own as they continued to behave stubbornly like a belligerent child and refused to budge north. Call me a loyalist or someone who believes in long term relationships but I certainly had great faith in them (after all they had been purchased on hot tips by my more successful investor friend). My money remained blocked in these while I missed on valuable opportunities to use it to its full potential. In 2023, I resolve to sell my loser investments whose intrinsic value is unlikely to ever recover!

 

4. Bad news should not necessarily translate into staying away from stock markets: TheRussia-Ukraine war followed by high global inflation pushed many world economies to the brink of recession. As is usual in such circumstances, pessimism ruled the roost. Even while the world took steps to circumvent, the general consensus all of last year has been that we are heading for massive corrections. The Indian markets, however, seemed immune as they factored in these blips and continued their journey upwards. I booked profits and worse still stayed out of markets preferring the staid Fixed Deposits and sticking to cash. I kept waiting on the sidelines for the right time while the markets continued to make newer highs. In 2023, I resolve to not time the market but rather invest in a disciplined and staggered manner.

 

5. Future Perfect: “If you save after you spend you will be left with nothing to save at all.” So implied the Investment Guru; Mr. Warren Buffet. Post Covid, many of us took to random and luxurious purchases in the form of cars, laptops, eating out at fancy places and expensive vacations. This was a natural fall out of more than a year spent in captivity at home due to Covid restrictions. As spendings became more extravagant, our savings became thriftier. Each time I skipped a few investment months, my savings for the future got set back by a few years! In 2023, I resolve to be more in control of my spending and committed to save towards my future.

 

It is said that resolutions are made to be broken and possibly I will too! However, lessons learnt from mistakes serve as beacons for future prudence. Well begun is half done and I feel quite satisfied with my list of resolutions. As I put down my pen, I am confident that I have taken the first step towards smarter financial decisions! Have you?

 

Source: Financialexpress

The author of The Chronicles of Narnia famously said, “You are never too old to set another goal or to dream a new dream.” And this is true for everyone, both old and young. All of us have goals in life, and they range from short-term to very long-term. For instance, you may want to purchase the latest iPhone in the market – that is a short-term goal you may wish to accomplish over the next month or so. You may also want to retire at 45 and travel the world for the next five years. Based on your current age, this could be a medium or long-term goal. Others may want to purchase a car, or start farming or learn a new hobby – there is no limitation on the number of goals or dreams you can have. However, there is one thing that every goal requires – adequate time and surplus funding to help realise it. Suppose you wish to purchase an iPhone next month, child wedding after 10 years or a retirement monthly cash flow 20 years down the line. What is the one thing in common here? You need money to make this happen. And, in your investment journey towards realising your goals, asset allocation can be your best friend.

 

Setting your goals

 

Whichever phase of your life you may be in, you need to have a clear understanding of your goals, as well as the time frame you wish to achieve them in as per the time frame, the goals are classified as important or urgent. if you wish to purchase a house 10 years down the line, just thinking about the goal will not lead to its fruition. You also need to figure out how to accomplish that goal. You may plan to take a home loan, but you still have to put up a certain amount of corpus to qualify for the loan. This is where goal setting comes into play.

 

Asset allocation to the rescue

 

Asset allocation involves the practice of diversifying your portfolio in an attempt to secure the highest possible returns, at the lowest possible risk. Based on your investor profile, and the time frame for achieving your goals, you can allocate your corpus to a variety of assets. Suppose you wish to have a corpus of 1.50 crore (current value 75 lakh) rupees to purchase a house after 10 years. You can start working towards this goal by creating an investment portfolio featuring a mix of equity, debt, and other assets, in line with your risk appetite.

 

If you are young and do not mind facing higher risk in the quest for higher returns, you can allocate a larger portion of your portfolio to equities, and leave a small portion in the comparatively safer debt category. Alternatively, if you are saving and investing for a short-term goal, it is better to stick to debt funds, since these keep your money safe while offering stable returns. An important aspect to remember here is that, the closer you get to your goals, lower should be your portfolio risk. This is because the equity market is known for its volatility, and you may end up facing major losses in an unfavourable situation. With the goal nearby, you may not have enough time to recoup your losses. For instance, if you are 25 years old, and want to create a corpus of one crore over the next 10 years, you can allocate a larger part of your portfolio to equities. As you near the completion of the goal, you can shift your corpus from equity to debt funds or from more aggressive equity lesser aggressive equity , to keep it secure. This routine rebalancing is the key for Financial freedom journey as there can be change of goals with amount with time frame.

 

Selecting the optimal schemes

 

Based on your goals, and the time frame, you can choose from a wide variety of schemes, including equity, debt and hybrid funds. To zero in on the scheme most suitable for your needs, you must assess your personal attributes, risk appetite, return expectation and the time frame for realising the goal. As a means to make it easier for the investor, there are solution based schemes like multi-asset or balanced advantage category scheme that an investor can opt for. Here, the fund manager, depending on the relative attractiveness of the various asset classes, the fund manager will do the needful in terms of rebalancing. As a result, an investor need not worry about rebalancing.

 

To conclude, investors can make use of a variety of mutual funds to meet their financial goals. In this journey, with optimal asset allocation, you can ensure that nothing ever comes in the way of achieving your goals.

 

Source: Outlookmoney