Systematic Investment Plan – Dutch Uncles

Brew High Returns With Coffee Can Investment Strategy

Aakash Sharma — Wed, 06 Oct 2021 03:35:08 +0000

Coffee Can Investing is a low-risk way of making money by purchasing shares of outstanding companies for an extended period without actively trading. As we all know, the stock exchange can be a risky choice for investments and profits. Amidst the uncertainty, the Coffee Can Investment Strategy helps you reduce risk by investing in high-performance companies for over ten years and not selling them during that period.

Coffee Can Investing – Buy and Forget your shares

In simple words, the buy-and-forget strategy to investing in shares of companies that have consistently delivered adequately is referred to as coffee can investing. Such investment in shares produces a coffee Can Portfolio. Those who invest in such shares develop a diverse collection of consistently performing companies, buy their stocks, and retain them for at least ten years.

But the questions that arise here are – is the Coffee Can investing strategy this simple? Can you invest in any stock using this method? If not, what are the stocks that you should invest in?

Let’s answer these questions and understand the nitty-gritty of the coffee can investing method.

A Canned History

Veteran investment manager Robert G Kirby coined the term coffee can investing in 1984 on the concept where people used to hide their valuable assets, including gold and cash, in “cans” and hid them under the floor or stuffed them into mattresses. They used to forget about these savings, only to find them later to their surprise and joy of added wealth.

‘‘

The bandwagon effect works through a self-amplifying mechanism. It uses a positive feedback loop to expand, which means the impact becomes more robust as more people join.

This age-old method of saving wealth can also be applied to the share market using the Coffee Can investment strategy. It is primarily a long-term investment strategy with a maturity period of at least ten years. At the end of the decade, you can realise substantial profits from a diverse portfolio of stocks.

Coffee Can Portfolio in the Indian context

Coffee Can Portfolio in the Indian context includes companies that have generated a Return on Capital (ROCE) of more than 15% per annum with the Coffee Can Investing approach. This makes the process a low-risk way to generate incredible wealth.

How to build a Coffee Can Portfolio?

The pandemic has pushed us to learn the fundamentals of market investment to generate a passive income. It is not a simple subject since real money is a concern. There are horrifying accounts where people have lost all their life savings rapidly.

There are some advantages to long-term investing. It is very profitable and fetches compounding dividends. When a company releases a dividend, you get more interest over your holdings.

Coffee Can Portfolio is mainly concerned with stock quality. The following parameters must be analysed while selecting stocks for your Coffee Can investment strategy.

- Invest in fundamentally strong companies.
- Market capitalisation should be above Rs. 5000 crores.
- The company should have a good brand value and a competitive advantage.
- Diversify your stocks and invest in different industries.
- Structure your portfolio
- Invest in no more than the stocks of 10-15 companies. These companies should be market leaders having an outstanding growth record of at least ten years.
- The revenue growth should be at least 10% year on year, not CAGR or SAGR.
- ROCE of at least 15% for ten years
- Use a Coffee Can Portfolio screener

Let us take an example of a milk company. If a milk company increases its product prices, will people stop having milk? Clearly, that will never be the situation. Similarly, the Coffee Can strategy is not heavily dependent on quantity and growth – it works on quality investing. You can find the Coffee Can Portfolio India 2021 on the internet.

The graph shows that if you invest for one year, you have a 68% probability of making a higher return (an almost 2/3rd profit return). But if the investment period is around 8-10 years, there are practically 0 chances of losing money on your investment in BSE Sensex, which is a diversified basket of top stocks.

Over ten years, 20-30% of companies in your portfolio might not perform at all or even underperform. 40-50% of companies may give a consistent but average growth. The remaining 20-30% of companies that outperform will average your portfolio to provide outstanding returns.

Investing in a Coffee Can Portfolio

Lump-Sum Investment

- A lump sum investment can bring huge capital returns on your investment. You can do it once a year.
- Employees can use the bonus amount for lump sum capital investments.
- If you have significant income from real estate sales and business income, you can use it for lump sum investment.

Systematic Investment Plan

- A systematic investment plan (SIP) helps a salaried person invest a pre-determined amount monthly.

Buy on Dips

- Buying a low-price asset (security) after its value falls with the hopes that it will recover in the future with an upward trend is called Buy on Dips. You can use this method to buy new assets or simplify an existing investment portfolio.

Concerns – what if I lose all my money?

Coffee Cans are non-perishable. So, even if you forget about the money in a coffee can investment portfolio, you will not lose it.

More advantages

You earn dividends over and above the stock price.
The chances of making negative returns are meagre.
As you invest in the present and sell after many years, the transaction costs reduce significantly.

In a nutshell, Coffee Can Portfolios are proper for investors who prefer to get a higher yield than index funds and are prepared to invest for over ten years. For those who want to invest passively, it is a viable option to other choices.

The post Brew High Returns With Coffee Can Investment Strategy appeared first on Dutch Uncles.

Financial Planning with SIP, STP and SWP

Shalmoli Sarkar — Wed, 29 Sep 2021 05:35:07 +0000

Due to simplicity and low to moderate risk factor, mutual funds are often the most sought-after investment option. Since one can begin investing with as low as Rs 500, it is the simplest and effective investment for amateur investors to create wealth and secure their financial future. According to the data from the Association of Mutual Funds in India (AMFI), the pandemic did not deter people from investing in mutual funds. In 2020-21, the mutual fund industry added more than 8.1 million folios than 7.29 million in 2019-20. But, before we begin to invest, one must have clarity regarding strategies of investing strategically in mutual funds.

Systematic investment planning (SIP), systematic transfer plan (STP), and systematic withdrawal plan (SWP) are strategic methods of investing in mutual funds that an investor should know about.

What is systematic investment planning (SIP)?

A systematic investment plan (SIP) is a tool for investing in mutual funds where we invest a fixed amount at regular intervals. The facility also offers flexibility to investors to invest a smaller amount every month. For instance, one can invest Rs 1000 in a mutual fund scheme every month, and suppose the individual is promoted or receives a hike in salary, he/she can invest Rs 1200 from next month.

SIPs help in disciplined investment and are a convenient tool that reduces the probability of making losses due to market fluctuations, preserves capital, and is an effective way to double wealth.

‘‘

In 2020-21, the mutual fund industry added more than 8.1 million folios than 7.29 million in 2019-20.

What is a systematic transfer plan (STP)?

Unlike SIP, where the transfer of money takes place from a savings bank account to a mutual fund plan, STP transfers money from one mutual fund plan to another. In STP the funds are transferred at regular intervals from one mutual fund scheme to another of investor’s choice. It is considered to be a smart strategy to reduce risks and balance returns since at times market conditions might prove to be unfavourable to the mutual fund scheme chosen by the investor thereby giving low returns. Therefore, it will be smart to shift the investment to other profitable mutual fund schemes.

The transfer in STP takes place by investors selecting a mutual fund from which the transfer should take place to put in another mutual fund. The transfer of money can happen daily, weekly, monthly, or quarterly based on the STP chosen and the options available with the asset management company.

Systematic transfer plans are of three types

Fixed STP: A fixed sum of money is taken from one mutual fund to another.
Capital appreciation STP: The profit earned by investing in a mutual fund is invested in other.
Flexi STP: The money to be transferred varies. Here, the minimum amount is fixed by the amount decided by the investor and the maximum amount has no limitations, and depends on the volatility in the market.

What is a systematic withdrawal plan (SWP)?

The above two facilities in mutual fund investment were related to investment, but a systematic withdrawal plan (SWP) is about withdrawing money invested in any mutual fund scheme at regular intervals. Sometimes, lower interest rates on mutual fund schemes make investors afraid of meeting their income needs. This problem is solved by mutual funds by offering an investment plan in which fixed amounts at regular intervals can be withdrawn on a monthly, quarterly, and yearly basis. The regular withdrawal from mutual fund investment thereby creates a regular flow of money. SWP also offers tax benefits where instead of earning profits in one go, it offers earnings in multiple intervals lowering the total tax.

The difference – SIP vs STP vs SWP

Lastly, the three different investment tools SIP, STP, and SWP depend upon the risk appetite of the investor. There is no right or wrong way to invest in mutual funds using these tools. STPs are suitable for investors if they have excess funds but are wary of market risks. STPs are a transfer from debt to equity funds that give investors stability, security, and higher returns. The regular withdrawals from SWP plans help investors to receive significant returns from funds and seek a source of income from it. SIPs on the other hand make an investor disciplined with his/her investment.

The post Financial Planning with SIP, STP and SWP appeared first on Dutch Uncles.

Government’s SIP-EIT Scheme: What’s In It for Small Businesses

Smruthi Krishnan — Sun, 21 Feb 2021 06:35:03 +0000

MSMEs and Tech start-ups over the years have formed the crux of the Indian Economy but hundreds of them need external help and support to survive in the market. Many SMEs are unable to protect their Intellectual property because of the high investments required for IPR (Intellectual Property Rights) protection especially in cases of international filing which is a necessity for entering the global competition. SIP-EIT is an initiative by the Department of Electronics and Information Technology for lending financial aid to start-ups and MSMEs to increase competitiveness through innovation and protection.

The SIP-EIT Scheme comprises of two schemes:

Support for International Patent Protection in E&IT

This is to promote the filing of International Patents. The Scheme Supports International Patent Protection in Electronics & IT by SMEs and Technology Start-Up Companies

Scheme to Support IPR Awareness Seminars/Workshops in E&IT Sector

This is to provide financial support to Education Institutes, DeitY societies, etc. for organizing seminars & workshops on IPR awareness among various stakeholders.

What does the SIP-EIT Scheme consist of?

It provides financial aid for international filing in the Information Communication Technologies and Electronics sector. It also allows reimbursement up to a maximum of Rs 15 Lakhs per invention or 50 % of the expenses incurred in filing patents.
In respect of ownership of the patent, the application filed in the name of the owner may also be considered and the applicant may be asked to assign it to the company after DeitY’s approval to provide support under the SIP-EIT-II scheme, however, the individual at the time of applying under SIP-EIT-II scheme must be an existing employee or should be in the Board of Directors of the company.
Under the scheme, only one application for foreign filing in all countries for a particular invention will only be considered.
Being a pure grant subject to approval by Deity, no stake in the supported patent is envisaged.

What is in it for MSMEs and Tech Start-ups?

The main benefit that MSMEs and Tech Start-ups will gain from this scheme is the financial aid and support required specially to sign up for IPR protection. This will help them protect their research and development and also their unique technology. This scheme will also help them enter the global competitive market where they can compete with other similar companies across the globe. With Intellectual Property Rights, companies will be able to focus more on innovation as the necessary protection will be employed. The scheme also plans to conduct IPR awareness programmes and workshops to help stakeholders and MSMEs understand the concept and push them towards innovation and development.

The post Government’s SIP-EIT Scheme: What’s In It for Small Businesses appeared first on Dutch Uncles.