Buying Options to save your Mutual fund / UTI investment, insure your investments

I like to let Mutual fund or UTI and other stock market related instrument buyers to learn about Options.

 

Options are instruments that allow you to protect your Investments in downtrends. Its like Insurance.

 

You Family is dependent on you so you buy mediclaim and life insurance to compensate for the losses due to medical problems and death.

Similaly you buy insurance for you Home and other assets.

 

You buy Mutual Funds and UTI/ULIP schemes as long term investment for your life. Your retirement or childrends education depend on it. You also invest to save taxes.

 

But in Bear market you may loose 50% or more of your investment within few months leading to tension and stress. The News may increase your BP and you may stop investing in markets.

 

There is a easy way to manage this. Buy Insurance for your Investment.  Its called "Options"

 

Say if you have invested 2 lakh in mutual funds and other market linked assets. and you come accross the bear market that threatens to cut 50% or more of your investment.  .... The best way is to Buy a  "NIFTY PUT OPTION"

 

What is Nifty Put Option ?

 

Nifty means NSE Stock exchange Index. In bear markets it may fall by 50-60%... almost very similar to fall in your mutual fund portfolio.

 

"NIfty Put Option" is a Insurance scheme that will protect your investment from falling.

 

Nifty Put option is valid for 1 month to 3 months. hence you have to renew it agian if require. Norally you may buy them when you expect possibility of significant fall in Stock markets.

 

e.g. To protect 2 lakh investment in Mutual fund against fall of say 25% in 2 months, I will normally buy a Nifty Put option worth Rs.10000/- .

 

If Stock Market Index (Nifty) fall by 25% in 2 months... then The value of Rs.5000/- put option would be atleast Rs.50000/-

 

So My 2lakh investment will be now equal to Rs.1.5lakh but my Insurance policy will cover it up by growing to Rs.50000/-

 

So the total will be still 2lakh...

 

Just by investing Rs.10000/- you have saved yourself from loss of 50000/- in 2 months.. Isn't it amazing...

 

So your friends will by crying but you will be like a Smart Investor giving them tips... and enjoying your Diwali..

 

 

How to Buy Option ?

 

If you have demat account and Trading acocunt, you can directly buy it. But I suggest you to take advice form some broker or person who trade with options.

Tell him that you have investment of 2lakh in market links funds and you want to protect it against any fall for next 2-3 months due to bear market. You broker will calculate a maximum fall expected and can advice you the best option to buy to protect your investment.

 

Do ask him clearly as what is the maximum fall to which this option can protect, and what is its expiry date. Normally options are valid upto 3 months..

 

Then buy the option and relax at home..

 

 

I am not recommending you to buy options for anything other then Insurance. DO NOT TRADE IN OPTIONS.

 

 

 

 

Real Estate Property purchase in Diwali 2008

Beaware of lot of chances of frauds and mis-commitments during diwali 2008 Property sales.

 

The Real Estate Market is in bad shape and this is the time lot of developers may resort to frauds and make fool of the customers.

What is the Problem ?

 

Real Estate Boom was started by working class like us but was hijacked by the Foreign Investors, Builders, Rich Investors and NRI.

 

Foreign Institutional investors were reayd to commit large money for the Builders to do large projects, Builders has started large projects and Rich Investors/NRIs were buying/pre-booking their property in expectations that the real estate prices will rapidly increase and they will sell the property.

 

When Inflation & Interest rates went up, they realized that there are not real buyers (working middle class) and there is little chance that these buyers will comeup for next few years to buy their property at high prices.

 

Recently the Foreign money dried up and no money is available to builders. Builders has also bought many large land banks at high cost by taking loans from banks. they are paying hich interest rates for it and they are not getting income from sales.

 

The big builders like DLF , Unitech are also in bad shape their stock prices have dropped nearly 80-90% and its not possible for them to raise funds for their projects. They have also invested in land and have to make payments for the same. There is news that some of them are defaulting.

 

So the problem is accross the board and things will not improve for long.

 

Old Projects !

 

Woek on old projects has stopped and builders are planning to sell the property first and build later. Also the money they are earning from some sales , is being diverted to pay their loans instead of completing the project.

 

This means that people who have bought property in uncompleted scheme will not get delivery by next 1-2 years and hence their cost of ownership increases at the benefit fo builder.

 

 

New Project Launches !

 

While all this is happening many builders have launched new projects before Diwali and promoting them agressively. This is clear indication of fraud or malafide intensions. When their old projects are themselves not sold , launching new projects is very surprising.

 

The only explaination seems is they want to sell Virtual Non existing attrative projects and lure some investors or buyers to invest in it. And they will use the proceeds for some other work. Also may be collecting money for paying for some dues of land. Also they may change payment terms and try to cheat you by taking higher commitments. I think there projects will take several years to take off and hence buyers must not invest in them.

 

RULE 1: Only and Only buy Ready properties. Go for resale or old properties for sale.  Get premium discount for the same.

 

RULE 2: For buying any property in a partially built project, talk to few older buyers before commiting. Check if builder has been fullfilling their commitments.