Tag Archives: stocks

Where is my Money?

A huge guy with a elite blue suit walks out of his rolls royce and hand over a brief case full of cash. Here Santa, here is your Money, go fund the Banta Co. Cheers!

If only Businesses used to work that way!

Welcome back Riters, today we will discuss how Businesses raise money and whats in it for you as a consumer. So lets dive in.

Every Business comes with a cost. Business need money to generate money, and there are four major ways a Business can raise capital –

  1. Early Stage Investors or Seed Money – This is usually when a Business is just starting up, and the founders may put in their money or may reach out to venture capital for investment.
  2. Profit as a source of financial capital – If firms are earning, they may chose to reinvest some of their profit back.
  3. Borrowing – Firms may choose to borrow money from Banks, that they can then invest back into the Business. This can also be referred to as debt financing. While debt is easy, it puts a additional burden to pay off interests.
  4. Stocks– This is a way by which a company can issue shares, and in turn get the public money to invest back into the Business. This can be referred to as equity financing. While this may sound attractive but going public may often means a lot of additional work that goes into financial reporting, where in you need to announce your earnings to the public and file them. If not done correctly it can also result in a company downfall, and eventual demise.

Oftentimes a company will use a mix of both debt and equity to finance their Business. And the best mix of debt & equity referred to as an optimal capital structure of firm helps maximize a company’s market value and minimize its cost. Often debt/equity ratio is something that a potential investor looks at.  

Lets further discuss how do the company raise capital via stocks.

IPOInitial Public Offering is the way by which a privately held company goes public and get listed on Stock Exchange. Think of Exchange as a place where Stocks (a piece of company) are sold & bought, so that you public get to be the owners! Owners, not in a real sense though you don’t get to take or make any decision as such, but you do get to keep a part of profit or loss.  

Now, as a consumer, you just don’t need to sell the shares/stocks to encash the profit, Some Companies also offer a regular payment a part of their earnings as ‘dividends’.  And remember the golden rule of Investment – Invest only in things you understand & do your own due diligence.

Now, if your Car runs out of fuel, you go to a petrol pump nearby and pour in some gas! Same way if a Company feels it needs more fuel aka more money to run, it may go back to you the public and ask for it, via FPO.

FPO – referred to as Further Public Offer or a Follow-on Public Offer is a process by which a already listed company issues new shares to the existing shareholders or the new investors.

FPO is used by companies to diversify their equity base with a aim to inflow subsequent public investment. FPO is comparatively less riskier, more predictable, and has a profit lower than IPO

The issue of shares IPO, FPO, private equity or debt instrument is regulated by SEBI (Securities and Exchange Board of India) in India.

There are two types of FPO:

  • Dilutive FPO – when the new offer of shares actually increases the outstanding shares of company. Such FPO is undertaken to fund the expansion activities or pay off some debts like the current Yes Bank FPO.
  • Non-Dilutive FPO– This one provides no additional shares or diversify the equity. This is when company’s founders, the board of directors, or other large shareholders sell their privately held shares on the open market.

Tata Steel Ltd, Engineers India Ltd, Power Grid Corporation of India, Power Finance Corporation Ltd, and NTPC Ltd are some of the successful FPOs in the past. The success of any IPO or FPO, depends on various factors like pedigree of the company, its promoters, earning capacity, potential and the Sentiment among the Market.

Each type of funding has its pros and cons, not knowing how to invest the money you earned or raised whether for a consumer or a business can make a whole difference between expansion or fall, growth or decline.

Thank you for reading, look out this space for more!

Caution! Dalal Street Ahead

Yes, you heard it right, there are things that you should avoid, no matter what its a Big No. Like Trespassing Area 51, or buying the stock of your favorite Pizza Chain. Just Kidding, there is more to it, today lets talk Stocks.

When it comes to Stock Market Investing you should do your due diligence before Investing and never listen to any random guy online, but trust me you can listen this random guy (me) on this one.

Below are the 5 mistakes every Investors should be avoid –

  1. FOMO (Fear of Missing Out) – As the name suggest it refers to the Fear of missing out on the Opportunity. It is one of most common mistake that a new Investor makes. Basically when you see a stock rally you worry that you might miss the boat and hence try to invest as much as you can to get your share of the pie. But often times it leads to unnecessary investment, and at times you end up buying stock way too higher than its intrinsic value.
  2. Panic Selling – Selling a stock when its price is low i.e. in a Bear Market. When a stock is undergoing correction or has been the victim of some bad speculations, we as an Investor turn on our Panic mode and again let the emotions rule our judgement resulting into selling of the stock when it is undervalued.
  3. Trying to Time the Market – The common mistake every Investor make is trying hard to time the Market and failing to do so (which almost everybody do). Rather a good Investment strategy is to invest consistently for the long terms and be patient about your Investments. Remember nobody can accurately time the Market, not even Warren Buffet.
  4. Sunk Cost Fallacy Tendency to Invest in the fallen stock in order to recover the money invested. For example – I bought xyz corp share for INR 100 and the price fell to INR 50 in few weeks, without rethinking my strategy, doing research/analysis, I kept on buying more and more shares in order to average out the cost to be able to reap the benefits of future rise, But the future rise may never come.
  5. Failing to Diversify – One mistake every investor should avoid in long run is to invest only in a single sector or a very few stocks. One should diversify his/her portfolio in order to reduce the risk by investing in multiple sector so that if there is a Crisis or the Investment value goes down across one sector the other is there to back it up, hedging against the risk.

Greed, Fear, lack of Patience and often the lack of Understanding of the Investment is something we all should avoid as an Investor. A Investment should be done with all due diligence and rationality. Emotions, get rich quick schemes and lack of understanding is not good for any Investment. It is something I learnt the hard way, I too have committed to a few of the above mistakes. One thing you should always remember in the long run Market always tend to go up and hence by all means one should avoid emotions rule the decision making process. And if you are new to Investment, it is always a better idea to start with some sort of Index fund in order to lower the risk from Market fluctuations.

Bonus Content – One good Investment Strategy to follow during crisis like Covid is to be a Nibbler i.e. to keep buying small bites of a great company slowly as its share price fall, given it has enough cash reserve to survive the pandemic.

That’s all folks. Until next time, stay healthy, stay happy and keep Investing!

And if you are new to Investment you can consider opening a Demat Account at a brokerage firm like Zerodha.

Invest your Money

Money affects every aspect of our Life. But oftentimes we forget that it is just a tool. A tool to help us live better, not the sole purpose of life. It is not the only thing that should matter, but yes its a major thing in Life.

If you are broke, no one will shelter you. If you are broke, sure your life becomes a hell. That is why we need to understand how to not let Money destroy our Happiness, how to not let Money stress us, how to not let us be consumed and work tirelessly for Money without caring about health or stuff that matters,“how to be financially free”!

One Important aspect to Financial Freedom is INVESTING. ‘To Let Money grow Money’. But before you Invest, you need to know

5 To Dos of INVESTING

1. Only INVEST in things you understand. Not just listen to any random advice, Do your own due diligence before Investing. Because Investing comes with risk and you are never guaranteed to make Money, you may lose all.

2. INVEST for the Long term. By Investing for long term you can stay away from seasonal risk and short term market fluctuations, hence reducing the risk and letting your capital grow over the time. This is the way to reap all the benefits of Compounding.

3. Diversify your Investments. Like the saying goes don’t put all your eggs in one basket. The same is true for Investment, one should not put all their Money on a single asset.

4. Only INVEST the Money you don’t need for the next 1 to 3 years at-least. Well apart from Investing you need to make sure you have a saving cushion, and some cash to be used in case of emergency.

5. INVEST on Self. Now this is the thing many of us forget, well its equally important if not more to Invest back on self i.e. education, learning, personal grooming, health etc in order to reap all the benefits and even further grow your Investments.

That’s all for now ‘Happy Investing‘. For more such Personal Finance related tips and knowledge do follow riteFinance, ‘because Money Matters’.