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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Danger of stock exchange funds

Danger of stock exchange funds

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1Danger of stock exchange funds Empty Danger of stock exchange funds Sat May 03, 2014 12:00 am

Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics
The Chairman of the Securities and Exchange Commission (SEC) of Sri Lanka has, in an interview given to The Island Financial Review on 28.04.14, advised retired workers that investments in the stock market would bring substantial returns which would enable a retiree to live comfortably, compared to what deposits in a bank would bring. However, not everyone who invests in stock market (SM) derived funds get any reasonable return. On the other hand, people who invest in these funds run the risk of losing even the capital let alone any return. Let me give my experience so that people could think twice before they invest in SM funds.

In 2010, I telephoned a bank to find out their fixed deposit interest rates to deposit part of the money I received from my EPF after life-long service. I was told by the officer who answered my call that if I could keep the money for a minimum of three years, he could suggest a better scheme of investing in funds based on stock exchange and that it would bring a higher return than what their FD would. I was also told that such investments were better than investing in individual stocks.

He later visited me at home and explained how the fund worked; it operates on a unit value system that depends on the stock exchange performance. He further said that there was no risk involved and the scheme was government approved. Since the bank itself was a reputed one (I believed), I accepted the bank’s assurance and invested Rs. 2 million. After the money was paid to the bank, I was told that the fund would be managed by an insurance company rather than by the bank.

After one year, the fund grew to Rs. 2.2068 million which was approximately a 10% gain. At the end of the second year, I was shocked when I received a statement showing a balance of only Rs. 1.678 million in the fund, much less than even the capital. When I inquired, I was told that the stock exchange did not perform well and as a result the unit value had dropped and hence the lower balance. I was then told that if I wished I could freeze the fund and unfreeze it when the unit price went up.So I followed the advice given.Initially, I was never told that such a thing could happen.

Subsequently, I inquired several times about the stock market performance and asked them to let me know when to unfreeze the fund. I never received any advice on it. Finally, at the end of the third year when I could withdraw the money, I was told that I could withdraw only Rs. 1.762 million which was the outstanding balance. This is a loss of Rs. 238,000 on the capital. In addition, I had lost three years interest which even at 10% would have brought me a revenue of at least Rs. 660,000 had I deposited my capital in a bank! Altogether it was a loss of nearly Rs. 900,000 that I had to suffer investing in SM funds.

When I withdrew the balance, I appealed that I be given at least my capital back, but the company was not prepared to consider it saying that it was my mistake for not monitoring the movement of the stock exchange and taking precautions. Later, I learned that there were many others who were in my predicament.

Retirees are compelled to go for supposedly high interest paying schemes simply because they are unable to survive with the very low interest paid on deposits by banks under current government regulations. The additional 1% interest paid to senior citizens does not make any significant difference towards making ends meet.

The question now is who gains from our losses – is it the company who handled our funds or anyone else? Perhaps the SEC Chairman could find that out before he advises the public where to invest. Further, the media should give publicity to the fact that there is a possibility that investments in SE funds could rob investors even their capital.

Actually, the government should not allow this kind of funds to operate that erode depositors’ capital whenever the SM performs poorly which is beyond the control of depositors. The depositors should not be penalised for no fault of theirs’.

Robbed retiree

2Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 12:30 am

slmarket2


Manager - Equity Analytics
Manager - Equity Analytics
Stupid fellow no. sorry for your money

Our country everybody complain not knowing things

3Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 7:07 am

dhanurrox


Vice President - Equity Analytics
Vice President - Equity Analytics
Normally scenario is stock market outperforms every investment.Here Question 

4Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 9:12 am

gagamini


Manager - Equity Analytics
Manager - Equity Analytics
The theory behind investment is that one should make investment only with excess money that is available and even you lose the money that has been invested , one's day to day life activities should not have an affect . Could this apply for retired workers ? No. That money is only for consumption and you should not mix it up with investment . Only option available for them is temporary put that money in a FD or other reliable mode of short term allocation of funds where liquidation of such fund should not lose the capital potion .

Investment is a long term process . It is 5 years and over and in the short run investment value could have ups and downs which needed to be ignored as at the end investor would be the winner . Never calculate short term gains or losses as far as investments are concerned . Those people who need short term funds should never do investments and if you do that and premature liquidation would not be guaranteed the return of the capital one invested .

Next very important factor for an investment particularly in the Stock Market is that selection of shares that have be invested . Do your fundamental analysis and pay attention to the following

1 . Stability of the company its business for a long period

2 . Is it a growing company and future prospect of the company and the business it involves

3. Management team - Check if it has a strong management team and their past performance

4 . Dividend payment and dividend payment records

5. Analyse annual reports for past period to know their past performance and future vision

6. Once investment is done review it periodically to evaluate if the investment is going to make the goals expected and if not liquidate it .

Please note that trading in the stock market is not an investment . It is speculation and a short term process during which time you could be a winner or a loser defending on how smart you are . In this process you could loose your entire capital even and has to be very cautious . Every body can not do trading . I would say it is a professional gambling where one should be very sound in technical part of it .

Do something you know and if you do not know it , do not do it . Study first , know it well and then do it .

5Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 10:14 am

VALUEPICK

VALUEPICK
Expert
Expert
@gagamini wrote:The theory behind investment is that one should make investment  only  with excess money that is available and even you lose the money that has been invested , one's day to day life activities should not have an affect . Could this apply for retired workers ?  No. That money is only for consumption and  you should not mix it up  with investment  . Only option available for them is temporary put that money in a FD or other reliable mode of short term allocation of funds where liquidation of such fund should not lose the capital potion .

Investment is a long term process . It is 5 years and over and in the short run investment value could have ups and downs which needed to be ignored as at the end investor would be the winner . Never calculate short term gains or losses as far as investments are concerned . Those people who need short term funds  should never do investments and if you do that  and premature liquidation would not  be  guaranteed the return of the capital one invested .

Next very important factor for an investment particularly in the Stock Market is that selection of shares that have be invested . Do your fundamental analysis and pay attention to the following

1 . Stability of the company its business for a long period

2 . Is it a growing company and future prospect of  the company and the business it involves

3. Management  team - Check if it has a strong management team and their past performance

4 . Dividend payment and dividend payment records

5. Analyse annual reports for past period to know their past performance and future vision

6. Once investment is done review it periodically to evaluate if the investment is going to make the goals expected and if not liquidate it .

Please note that trading in the stock market is not an investment . It is speculation and a short term process during which time you could be a winner or a loser defending on how smart you are . In this process you could loose your entire capital even  and has to be very cautious . Every body can not do trading . I would say it is a professional gambling where one should be very sound in technical part of it .

Do something you know and if you do not know it ,  do not do it . Study first , know it well and then do it .

Very good writing.

Even higher interest based schemes are risky. Every industry and asset has risk and returns. Those who provide higher interest rates schemes invest money obtain from public in their Business activities to generate higher returns. In some situation they will not be able to get expected returns due to unforeseen situations or if they don’t have proper risk management systems. I prefer low interest rate deposit than higher interest rate deposits. It is safer. Because management will have conservative approach. They will not go behind speculative assets.

6Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 12:42 pm

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I think main role of SEC chairman is to make level playing field in SL stock market.

Management of sl stock market failed do its proper role after 2005

Robbed  retiree's statement is good example for this

Rulers who appointed  friends and relations who do not know anything about stock market are directly responsible
for this unfortunate situation

In addition to Robbed Retiree's money they wasted the money
of public funds also. mostly hard earned money of workers



Last edited by D.G.Dayaratne on Sat May 03, 2014 12:44 pm; edited 1 time in total (Reason for editing : typing error)

7Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 4:05 pm

gagamini


Manager - Equity Analytics
Manager - Equity Analytics
@D.G.Dayaratne wrote:I think main role of SEC chairman is to make level playing field in SL stock market.

Management of sl stock market failed do its proper role after 2005

Robbed  retiree's statement is good example for this

Rulers who appointed   friends and relations who do not know anything about stock market are directly responsible
for this unfortunate situation

In addition to Robbed Retiree's money they wasted the money
of public funds also. mostly hard earned money of workers


Unnecessary political interference into the activities of CSE has done an immense damage to it and our economy . Today political appointees are making statements to satisfy their masters . Sometime back we didn't even know the existence of SEC and did not hear the name of SEC or CSE in the media . At that time market was running smoothly . Alas , in the recent past every other day there were statements from SEC or CSE in the papers. This is not a good sign for development of a good capital market in a country .

Politicians should meddle into the activities of a markets when they are falling due to unnecessary panic situations of the country or in the world . If you could recall how then minister of finance of INDIA Mr. Chithambaram came to the floor of BSE and calmed the panic investors at the time market was falling below 15,000 level . How american president made statements to investors of DOW when it was falling during last recession . Can we imagine when our politicians realise the value of the county's stock market .

8Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 5:46 pm

Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics
@gagamini wrote:

Unnecessary political interference into the activities of CSE has done an immense damage to it and our economy . Today political appointees are making statements to satisfy their masters . Sometime back we didn't even know the existence of SEC and did not  hear the name of SEC or CSE in the media .  At that time market was running smoothly . Alas , in the recent past every other day there were statements from SEC or CSE in the papers. This is not a good sign  for development of  a good capital market in a country .

Politicians should meddle into the activities of a markets when they are falling due to unnecessary panic situations of the country or in the world . If you could recall how then minister of finance of INDIA Mr. Chithambaram  came to the floor of  BSE and calmed the panic  investors at the time market was falling below 15,000 level . How american president   made statements to investors of DOW when it was falling during last recession . Can we imagine when our politicians realise the value of the county's stock market .

Very Well Said.
Who would be the next politician who could do that?
Harsha De Silva
Nivard Cabraal
Who could be the others?

9Danger of stock exchange funds Empty Re: Danger of stock exchange funds Sat May 03, 2014 8:17 pm

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
You have mentioned names who are responsible for present situation

Both are from same origin

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