If you are below 30, with minimal family responsibilities, equities are for you. Life insurance may not be a top priority but health insurance is a must, even if you are covered under corporate mediclaim. You would do well to direct a major part of your savings (roughly 40 per cent of your income) into equity.

Investor profile: 30-45-years old. Couples with kids
Equity Allocation: 35-50%
Must have: Term insurance, goal-oriented savings

Investor profile: 45-55, inching closer to retirement
Equity allocation: 25-35%%
Must have: Health and critical illness cover

Undoubtedly, SEBI has done a lot to protect the interest of investors. There are, however, some areas where action needs to be initiated to ensure that investors, particularly small gullible ones, are protected from unscrupulous promoters, conniving auditors and mercenary manipulators.
The limited punitive actions taken by the department of corporate affairs and SEBI against the companies and their directors do not answer the basic question of compensating the investors who for no rhyme or reason are the losers. The argument that investment in equities is a matter of risk and reward cannot be extended to the frauds committed by these companies. Small investors, at least up to Rs 25,000, need to be compensated.

The rating scale starts with AAA (lowest credit risk) and ends at D (default grade, highest credit risk). Going by the normal yardstick, one should always go for the best. So, should all the investors invest only in AAA rated issues? To fathom this paradigm, we have to understand the riskreturn relationship. Risk-return & risk aversion. It is because of the relationship between risk and return — higher the risk, greater has to be the expected return on that investment and vice versa. An investor hoping for higher returns has to embrace the risks that are attached to it.
But how does an investor decide how much risk to be taken? In reality, there is nothing like optimal risk-return trade off. It is often a derivative of various factors like time horizon, liquidity, and some investor specific circumstances. The risk-return trade off is extendable to equities as an asset class also. The relative safety of investing in blue chips may not result in highest returns. In case of IPOs also, the IPO grading is an opinion on the relative fundamentals of the company. The investor decision is guided to a large extent by the valuation and risk tolerance.

So, as they say, the ability of a person to take some risk in their investment is guided by multiple factors. The only thing one should do is to ensure that one has thought through the investment carefully.

The recently launched ICICI Prudential Return Guaranteed Fund or ‘RGF’ is a good example of how charges diminish ‘guaranteed returns’. One unit of the RGF is available for Rs. 10 NAV with a guaranteed return of Rs. 15 NAV (50 per cent) after five years. This wonderful scheme (I am kidding) can be availed if you enrol in their annual premium ULIPs: Life Stage Pension or Life Stage Gold. All right you may say! At least I am getting 50 per cent minimum guaranteed returns for my first premium. The answer is ‘no’, because only a portion of your first premium is used towards purchase of units. About 20 per cent of the premium is deducted towards premium allocation charge! That means although you expect a total return of 50 per cent (Rs. 10 NAV to Rs. 15 NAV after five years), your effective guaranteed return after charges would be much lesser — close to 20 per cent after five years. That’s a pathetic guarantee! You would earn more in a Bank FD.

This was not something that was clear in the documents that I got from the agent, but this article seemed convincing. And when I showed this review to the agent, he was speechless. He did not deny anything or try to make some more promises to me, but instead told me that I was free to make whatever decision I wanted, and then left. This overall forces me to be more careful the next time.

It is important to be well informed before you invest in a mutual fund on the premise that the fund will deliver. And when it comes to a fund in which you have already invested, it is even more crucial to be well up on numbers and facts. Sectoral allocation is also important. Excessive exposure to one sector can mar the returns if the sector underperforms. It is also important to compare the stock exposure norms and sectoral allocation over a sustained period of time. This gives you an idea as to how the funds have been deployed and the risk associated with such portfolio diversification.
Two key ratios you must keep in mind are portfolio-turnover ratio and expense ratio.
Portfolio-turnover ratio is a measure of churning the fund has undergone while the expense ratio tells us about the cost of managing the funds.
Higher portfolio turnover is seen in opportunities fund and in more actively-managed fund. Value funds are expected to show a low-portfolio turnover.

Read the whole article, and search for more information regarding such investments. Even though learning about Mutual Funds and their details could take some more time, it is worthwhile since you should make your investment when you are an informed investor. This will also help you to make decisions about investment or withdrawal in a better manner, and make you more money overall.

http://economictimes.indiatimes.com/quickiearticleshow/3279973.cms

1. Select businesses with good growth opportunities. Read business magazines that offer research on good businesses and read those articles thoroughly.
2. Select 1-2 good companies in those businesses.
3. Never enter into any stock at unreasonable valuations. Just because a company is good is no reason to buy the stock if it has already run up.
4. Penny stocks are manipulated by big brokers. Never look at them in your life. Take an oath.
5. Good stocks quickly regain their value.
6. Never be sentimental with any stock. A stock is not related to you, and there is no such thing as loyalty in the market.
7. Best stock ideas arise in day to day life like investing in ICICIC Bank stock in 2002 after experiencing their wonderful service when you fed up with Public sector banks. Always look for opportunities.
8. Invest in future sectors. How many of us invested in Infosys in 1997 and Bharti Airtel in 2002? But be careful and selective and do research.
9. Buy and forget will work only to some extent. Indian markets become high volatile zones. There is no reason in keeping your money after RPL reached 300 and RNRL reached 250.
10. If you can’t follow all these things, just put your money in good mutual funds.

How to decide whether to invest in a particular IPO?
• First and foremost, find out the listed peers in the secondary markets and if IPO is at a higher valuation then there is no justification for investing.
• Check the results and growth rate in term of sales ,profit growth ,operating margins growth for the last 3-5 years and not only for 1 year as there are chances of financial engineering (manipulation) of balance sheets just before the launch of the IPO.
• Check the background of the promoters and if there are any serious criminal/income tax evasion cases against then avoid the IPO; typically crooked people are easily able to cook the books when trying to do an IPO
• Find out the purposes of raising the money. Some justified reasons are expansion of capacity, new projects, while if the sole purpose is meeting the working capital needs or repaying the debts then it does not inspire enough confidence to invest in that IPO.
• If the IPO is for a new project then we should check the turnaround /breakeven time. One example is Reliance power IPO where this time was huge and hence took a beating (projected capacity of Reliance power in next 3-4 years was less then current capacity of NTPC).
• Study the risk factors in the draft prospectus and see if they are of real concern or acceptable risks in the normal course of business.
• Check the subscription figures in QIB category as they are considered to be smart /intelligent and have access to lot of company information that retail investors do not have. Of course, this is not always true, but this is still a good indicator.
• Check the future growth prospects of the company and if the future expected growth is huge or they are operating in a niche segment or in a high growth sector for which no listed companies exists in secondary markets, then higher valuations may be justified.
• Never go by the grey market premium(GMP) of a particular IPO to make your investment decisions as they can vary daily and are mostly speculative in nature. (E.g. Reliance Power IPO having a GMP of 450 listed at a premium of Rs 10-15 only while TItagarh IPO having a GMP of Rs. 10-15 listed at a premium of Rs 150).
• Subscription figures in Employee quota can tell you whether the employees themselves are confident of the future prospects of the company.
• Some other indicators of the quality of an IPO can be the rating given by the agencies like ICRA, CRISIL or the reputation of the Book running lead managers(Example is Enam financials which manages only quality IPO’s)
• Keep in mind allotment chances as well besides the quality of the IPO. A medium quality IPO with good subscription chances can give you better returns then a very good IPO with very less subscription chances.
• Do not consider any of the above factors in isolation but look at them together to arrive at any conclusion.

And of course, if there are additional factors that you use to evaluate IPO’s, please mention them in a comment.