The difference between a financial and an investment advisor

Investment Advisor is either a firm or an individual that provides advice or guidance to its clients regarding securities (financial).

It guides and advices on securities such as investment in stocks, bonds, mutual funds, or exchange traded funds are investment advisers. Some investment advisers manage portfolios of securities.

The main difference between an investment advisory and a financial planner is that almost all financial planners are investment advisers but not all investment advisers are financial planners. Some financial planners assess every aspect of an individual’s financial life which includes savings, investments, insurance, taxes, retirement and in some cases estate planning as well. After their assessment, they help the individual to develop a detailed strategy, insurance, taxes, retirement and estate planning.

They also help you to develop a strategy or a financial plan for meeting your day to day financial goals.

Before hiring the services of any financial professional, one must know what kind of services is exactly required and what kind of a background does the financial professional hold. After all you are going to invest your hard earned money therefore it is very necessary for you to know everything about your investment advisory.

1)            To how many people do you provide advices regarding investments?

2)            What is your educational background?

3)            With which stock broking organization are you associated with?

4)            Which are the licenses you hold?

5)            What products and services do you offer?

6)            What is the commission that you charge for your services?

Also one needs to know how the investor advisers are paid in order to make better use of the services that are provided to them.

1)            A percentage of the total value of the assets that they manage for you.

2)            An hourly or daily fee on the basis of their handling of your work.

3)            A fixed fee for the services that they offer you.

4)            A commission on the basis of the securities that they buy/sell for you.

5)            A small combination of everything mentioned above.

All the compensation methods have potential benefits and possibly drawbacks, based on your individual needs. You must ask the investment advisory to explain you all the differences thoroughly before you do any business with them.

One must also ask if these service fees are negotiable or they are a onetime fixed amount. Based on your needs and requirements, the investment advisers will provide you with various strategies that will cater to your financial needs.

What are Derivatives and their need in the Indian Share Market

Derivative instrument is a contract between two parties that emphasizes conditions ( including dates that result in values of the underlying variables and notional amounts) under which payments can be made between both the parties.

Derivatives are used by investors for the following reasons:

1)            It provides leverage with a small movement in the underlying value that causes a large difference in the value of the derivative.

2)            One can often speculate and make a profit, if the value of the underlying asset goes in the way they expect.

3)            It mitigates the risk in the underlying, by making an entry in the derivative contract whose value moves in the opposite direction, stays in or out of a specific range and may reach a certain level.

4)            It can obtain exposure to the underlying where it may not be possible to trade in the underlying derivatives.

5)            It has the ability to create options, where the value of the derivative is linked to a specific condition or event.

When Derivatives allow risk related to the prices of the underlying asset to be transferred from one party to another, it is known as Hedging. Both the parties have a reduction in a future risk, however there is still a risk of the non-availability of the resource that may back-track because of the events unspecified by the contract such as natural damage, may cause problems on the contract.

Although a third party, which is also known as a clearing house, it insures a futures contract, not all derivatives can or will be insured against a counter-party risk.

Derivatives are also used to acquire risk, rather than hedging the risk. Thus, some investors or institutions can enter in a derivative contract to speculate on the value of the underlying asset.

These speculations look to purchase an asset in the future at a really low price which according to the derivative contract maybe a high price to sell the asset in the future when the market price is low.

An OTC or over-the-counter derivative is a contract that is privately traded and negotiated between two parties without going through an exchange.

Exchange-traded derivative contracts are those derivatives that can be traded via specialized derivative exchange or other exchanges. There is a market where derivatives exchange acts as an intermediary to all transactions and takes an initial margin from both the sides of the trade to act as a guarantee.

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Equity and Equity Investments in India

In accounting and finance, Equity means the residual claim or interest of the junior level of investors in assets, after all the liabilities have been paid for.
If liability is more than the amount of assets, it becomes negative equity.
In the context of accounting, shareholder’s equity (or stockholder’s equity, shareholder’s funds, shareholder’s capital or any such similar terms) is represented by the remaining interest in assets of a company which is spread amongst individual shareholders of common or the preferred stock.
In the beginning of a business, the owners invest some funding into the business to the finance operations. This forms a liability on the business in the form of a capital as the business becomes a separate entity from its owners. Businesses can also be considered, for accounting purposes, sums of liabilities and assets; thus this is the accounting equation.

After the liabilities have been accounted for any positive remainder, it deems the owner’s interest in the business. This definition is helpful for understanding the liquidation process in case bankruptcy occurs. Initially, all the secured creditors must be paid against the proceeds from various assets. Afterwards, the series of creditors, who are ranked in terms of priority sequence, have the next claim or right on these residual proceeds.

Ownership equity is the last or residual claim against these assets, which is paid only after all other creditors are paid. In such a scenario, even the creditors who do not get enough money to pay their bills, there is nothing over to reimburse the owner’s equity. Thus, this makes the owner’s equity to zero. The ownership equity also becomes known as the risk capital or liable capital.

An equity investment is generally referred to as the buying and holding of shares in a share market by various individuals and companies in anticipation of an additional income from dividends and/or capital gains as they expect the value of the stock to rise.  When the equity holder receives the right to vote, it means that he can vote for the candidates for a majority of the board of directors as well as some major transactions and residual rights, which means that they share some portion of company’s profits as well as may help in recovering some of the company’s assets in the event of bankruptcy or any untoward incident that might harm the company’s liquidity. This is possible despite they having the lowest priority in recovering their investments.
It might also refer to the acquisition of ownership or participation in a private or a startup company. These equities which are held by private individuals are often known as mutual funds or other forms of collective investment scheme. Many of these have quoted prices that might be listed in financial magazines or newspapers.
The mutual funds are managed by prominent fund management firms that allow such holdings in the hands of private investors and pension funds, who are subjected to hold shares directly. In such institutional environment, many clients who hold their own portfolios have what we know as segregated funds. As opposed or in addition to the pooled mutual fund alternatives.
A calculation made can be made to assess whether equity is overpriced or underpriced, in comparison to a long term government bond. This is known as the yield gap or the yield ratio. It is the ratio of the dividend yield of equity and that of the long term bond.
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Factors influencing Stock Prices in India

A stock price or share price is the price of a single stock or a number of stocks that are saleable of a particular company. Once the stock or stocks have been purchased, the owner becomes a shareholder of the company that has issued the particular stock.

Analysts use random walk techniques in economics and financial history to model the behavior of asset prices in particular share prices on stock markets, currency exchange rates and various commodity prices.

This practice is ritual and has its basis on the presumption that the investors will act rationally and without any biasness and any moment they can estimate the value of an asset based on future expectations.

Under these conditions, all the current information affects the price of the stock which changes only when any new information comes out. The asset price is randomly affected when new information appears randomly.

It has been demonstrated by empirical studies that prices do not completely follow the random walk.

Low serial correlations may exist in short term and have slightly stronger correlations over the long term. Their sign and strength also depends on a variety of factors.

It has been found by the researchers that some of the biggest price deviations are from random walks that result basically from seasonable and temporal patterns. Particularly, the returns in January normally exceed those in other months and on Mondays, stock prices may go down more probably more than on any other day.

It has been observed that these effects in various markets since last 50 years or so.

But there has been no satisfactory explanation for their persistence.

Most of the technical data is used by the anomalies to gather and extract information on future price movements via historical data. However, some economists’ follow the Eugene Fama as a result patterns occurs most frequently. This results in an irrational or insufficient behavior of many investors. The large amount of data that is available for researchers for an analysis that can literally cause fluctuations.

Another school of thought, i.e. behavioral finance is attributed by non-randomness to investigations, cognitive and emotional biases. Thus, this can cause a contrast with the main fundamental analysis.

When this is viewed over longer periods, the stock price may or may not be directly related to the earnings and dividends of the firm. Over short periods of time, more so for the younger or smaller firms, the relationship between a stock price and dividends are mostly unmatched.

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Indian stock market and companies daily report (March 30, 2012, Friday)

The Indian markets are expected to open in the red tracing negative opening in most of the Asian indices. Asian stocks fell for a second day as growth in U.S. durable-goods orders trailed estimates.
The US markets drifted lower over the course of the day on account of profit booking as some traders cashed in on the recent strength in the markets amid calls by a number of analysts for a correction. Traders also reacted negatively to the latest batch of U.S. economic data, including a report from the Labor Department showing that weekly jobless claims came in above economist estimates. However the indices recovered significantly in the later sessions and eventually ended up near the opening.
Indian shares extended losses for a second consecutive session on Thursday, as concerns about growth prospects in the world's two largest economies prompted investors to square off long positions on the expiry of March series derivative contracts.

Markets Today
The trend deciding level for the day is 17,136/5,200 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,232 – 17,342/5,231 – 5,267 levels. However, if NIFTY trades below 17,136/5,200 levels for the first half-an-hour of trade then it may correct up to 17,026 – 16,930/5,164 – 5,133 levels.

TCS to provide banking solution - BaNCS to AmBank, Malaysia
TCS' financial services platform, TCS BaNCS, will replace Malaysian AmBank's core banking engine. This integrated banking suite, spanning conventional and Islamic banking, will support both retail banking and lending functionalities. TCS BaNCS will help expand AmBank's business into new areas. It will also enable development and the scalability required to meet both current and future market and regulatory needs. Due to this deployment, TCS may soon have a regional support centre for TCS BaNCS in Kuala Lumpur. We maintain Accumulate rating on the stock with a target price of Rs.1,262.

NTPC Tamil Nadu Energy Co. commissions Unit I of Vallur Power Project
NTPC Tamil Nadu Energy Co. Ltd. a JV of NTPC Ltd. and TNEB has commissioned Unit I (500 MW) of Vallur Thermal Power Project on March 28, 2012. With this, the total capacity of NTPC group has become 36,514 MW. In all NTPC group has commissioned 2,320MW of capacity in FY2012 till date, which is below the initial target of 4,320MW. At the CMP, the stock is trading at 1.6x FY2013E P/BV. We maintain a Buy on the stock with a Target Price of Rs.199.

Economic and Political News
- February infra output up 6.8% yoy
- Indian GDP to grow at 7.5% in FY2013: Fitch
- Government will clarify stance on P-Notes taxation: Finance Minister

Corporate News
- Tata Motors hikes commercial vehicle prices by up to Rs.60,000
- Tata Motors to invest Rs.600cr on defense vehicles
- NTPC to halt expansion of gas-based projects
- Bharat Forge earmarks Rs.100cr to develop artillery gun

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