My ULIP agent: Many many thanks to you

Flash back to January 2007. I had joined a new company, got good package and had a good sum returned from previous company. By the end of Jan it was raining tax savings schemes and alike instruments all around. I was asked to provide my tax saving stuff and alas I had nothing. Suddenly one fine day the God himself decided to meet me in the form of an ULIP agent. He offered me a product too lucrative to be ignored. I thought one should listen when opportunity knows. I wholeheartedly poured in 70K as the annual premium for the sum assured 7 lakhs. The God said, you look so healthy, nothing will happen to you, thus 7 lakh is more then sufficient for the insurance cover. I happily agreed, after all he was personal finance God.

Fast forward to Jan 2008; The stock market was euphoric and the wisest man inside me chose the "Growth" option in the ULIP, I was too happy to blab about my investment mantra and intelligent decisions. To boast about it I logged into the my savior ULIP web page and hit the 'fund value'. The whole world rolled in front of my eyes. While even my 'kam wali bai' had earned a lot in the stock market during that period, my safe fund showed me my fund value a little more than 30K. I thought to bash at the agent, who conveniently cut the phone. I then rang to the respective insurance company, who enlightened me with the fine details I didn't bother to read previously.

My policy had a funny deduction structure.

1. From the first premium 65% will be deducted as administration charges plus agent commission.(Oh God!)
2. Mortality charges
3. Some other management charges1%
4. 10% service tax and 2% education tax (close to 10.2%)
5. Some 2.75% annual charges

I was amazed at the scene of such a wonderful looting scheme and thought to cancel it. I then was enlightened about the surrender charges and I realized that I would have to pay more to surrender it :-) 

This was the mistake part of my investment life. I thanked my investment agent to teach me a wonderful lesson. I realized the importance of reading the fine print and more importantly, understanding the personal finance. That event left me a much more learned and motivated person.

Many many thanks Mr Agent!!!

P.S I still pat my back for not felling for this. The first year charges are 100%.

Stock selection methodology

Having served the role of project manager for a few projects, I like to present everything as a WBS. So here is my long promised my WBS for stock selection. It still needs a PERT chart analysis. Stay tuned...

A few dividend stocks I am looking into

I am looking into these three dividend paying stocks. The current filter criterion is dividend and nothing else. If this screen test passes I shall look into other matrices.
The graphic above tells the dividend paid as percent. This can help us analyze the dividend trend, stability and deviation (I use standard deviation to measure deviation).

I make a dividend portfolio which will give me a stable income after a few years, I am much interested in stable (if not increasing trend). I will put "Andhra Sugar" off based on this criterion. Having left with Castrol & Valson, it is imperative to understand yield part of the dividend. I will use today's prices to calculate the dividend yield. This will help me understand the trend.

Valson has been giving consistent dividends of more than 8%, it is much more than any A grade bond and FD provides today. At this stage I will place this stock in my to further screening criterion.
A closer look as Castrol dividend yield chart reveals that is has picked up an increasing trend. The financial health of the company is good and the brand image is good. I have multiple reasons to believe that it will yield 8+ % in coming 5 years. This should go to my dividend portfolio for sure.

My equity portfolio allocation

This is the state of my current portfolio. In spite of heavy rebalancing it is still tilted towards oil & gas sector. Any government policy change can decide the direction of my portfolio.

This metric is based on the current capital allocation. The another metric I follow for rebalancing is dividend income. I dont want my dividend income to be tilted on any side otherwise the stability factor goes away.

My current asset allocation

Since quite some time I have been working a lot on my asset allocation. Asset allocation is one way of reducing the risk possibility.

I strongly believe that bonds and debts should be much more than 30% in once portfolio for that provides a solid foundation.

Bharti Airtel : Express your self

I am a great fan of good management. In fact this is my one of the stock screening criterion. Two days back I was reading an article in hindubusinessline.com. The article was about another great personality I admire. I admire him because he talks of future.

....There are 600 million phone users in India whereas the country has only 55 million bank account holders. The way towards financial inclusion — getting the unbanked into the net — is through the mobile money route, feels Sam Pitroda, tech evangelist and currently advisor to the Prime Minister on public information infrastructure and innovations.

In his new book, The March of Mobile Money, co-authored with Mehul Desai, CEO of C-Sam Inc, a company that Pitroda founded, the two discuss the disruptive nature of mobile money technology....

Just after reading this article, there was a flash in my mind. What if the competition mired mobile companies enter into mobile money. Then I thought, who else but great Sunil Mittal can take such a step. Wish I could have asked for something else as what I wished came true. Bharti Airtel has got the license for mobile payment. Is he fond of creating bule oceans?

I am happy about my continued long position on Bharti Airtel. I have been acquiring it since 280 levels. I am very long on good managements.

Dividend Investing

I am a big fan of dividend based investing. I have learned and incorporated this methodology of investing after burning my hands in 2008 crash ;-) and reading tipblog. I simply adore this guy.

Anyway coming to the point of investing. I have become great follower of dividend based investing for these few reasons.

1. Dividends provide a steady stream of income: Dividends work as additional source of income on which you can count on (provided your stock selection was good). It is largely different from the movement of the stock prices in the market. During FY09-10 my dividend income was Rs 11,004 (tax free). Secondly a consistent stream of income is always better than money once at a time.
   
2. Dividend stocks prices mostly go up: In my investment experience I have seen that dividend paying companies are always relied upon by many investors and gradually the stock prices go up. In fact I used dividend yield as one screening criterion for stock selection. My recent dividend investment was Tata Steel. I started acquiring it from 475 levels up to 500. My average dividend yield is close to 4%. Since then I have seen a steady rise in the stock price. Currently it has crossed 600 level.
   
3. Dividends increase: Generally big and mature companies become dividend paying companies. We may not see meteoric capital appreciation in such stocks (and truly speaking dividend investing is not much about capital appreciation). Smaller companies need more capital to grow thus cannot afford to pay dividends (and taxes). Big organizations earn lots of profit, thus can afford to share in spite of having growth plans. I generally like companies having 20%-30% dividend payout factor. In my stock selection I have seen that dividends have increased (in rupee value) consistently. I firmly believe that 4% dividend yield will become at least 8% in next 5-8 years. And if India has to grow, interest rates will have to come down in near future. Which security will give me 8% (and increasing) rate of returns after 10 years?
   
4. Dividends have benefit of SIP: Why SIP is good? It is good because if promotes rupee cost averaging. What to do with dividends? In my view dividends should be reinvested as the stock price comes down. This will help increase the portfolio value and with the effect of compounded interest, my retirement will be peaceful.

My recent dividend stock picks: Tata Steel, Titan Industries, IDBI bank