How to Identify & Pick & Hold to a Multi-Bagger Stock

Everyone loves to pick multi-bagger stocks. Though the framework to select multi-baggers is quite well-known, we hardly find investors having stocks that multiplied several times in value in their portfolio. 

Here are some mistakes that investors make in identifying or holding on to multi-baggers.

1. Fundamentals: You don’t know what you don’t know :

Investors in general have evolved & they are quite aware of the fact that they are not buying stocks, but are investing in businesses. Hence, an understanding of businesses is a must. But given the dynamic world we are living in, even sound & fundamentally strong companies can go out of business & that is what I meant with “we don’t know what we don’t know.” A Company which is fundamentally sound & strong today may not exist tomorrow. This may be because the very problem which that company is solving now may not exist tomorrow or their products may no longer be needed. There are enough examples such as Kodak, Nokia & Blackberry, which were the market leaders of their time.  Though one cannot predict everything, there is a strong need to identify businesses in this light.

2. Too much focus on the P/E Multiples :

There is a constant talk about the Price/Earnings (PE) ratio, but when it comes to identifying a multi-bagger, a high or low PE may or may not make a huge difference. In fact, look at TESLA stock, which defies rule & also proves the “Greater Fool Theory” that people are willing to pay a much higher price in anticipation of disruptive growth in future. So, do not focus too much on buying a low PE stock; rather, look out for disruptive opportunities while identifying a multi-bagger.

3. Do you understand the Sector well?

Always remember the fact that every stock has a story & you need to pick up those sectors which you understand & believe in. You may also look out for the sectors where you have a core competency like your immediate work area, be it the IT, FMCG or any other industry. Avoid investing on borrowed confidence & the tips given by friends or relatives.

For example, someone in the financial services sector may understand the importance of how the overall Life insurance, Health insurance & Equity market landscape will evolve in India. Examples of leading players include HDFC Life, SBI Life, or AMC or financial firms’ stocks such as HDFC AMC or Aditya Birla Capital.  So, choose a sector which you understand & you can find enough Multi-baggers across sectors as we did in the past, with the likes of Berger Paints, Bajaj Finance, Balkrishna Industries, Eicher Motors & many more.

4. How many MRFs do you have?

We give too much importance to identifying a multi-bagger than holding on to that stock. Take my word, making money is really easy unless you are in a hurry. Though it is easier said than done, let me share a real-life case of my friend’s father who is holding on to the MRF stock which he purchased at ₹ 18. Guess the current market price? It’s ₹ 88,906 per share!

Now, how can you beat that? A person has seen the price go from ₹ 18 to ₹ 89,000 & yet resists the temptation to sell. It is indeed a very difficult task & that is where the test of your patience comes in where most of the investors fail. That is why having a concrete plan & knowing why you invest in a particular stock in the first place is very important to decide your exit strategy.

5. Diversify, but don’t become a Mutual Fund :

Over-diversification will never allow you to have a multi-bagger. Instead, it’s better to go deep with a maximum of say six to seven stocks from different sectors or on the basis your risk profile & return expectations. Diversification is important for your overall asset allocation but not with respect to your stocks, so in case you invest in too many stocks which many do, then you would eventually be running a mutual fund scheme of your own. And that process may get you a decent return but never exponentially higher returns which is the objective behind a multi-bagger.

6. The role of Luck : 

Like it or not, luck plays a small role. I doubt those who claim to know which stock can become a multi-bagger in future. This is important for you to know given the current COVID times & the way many new-age investors who made good money since the lockdown period. The recent sharp rally in the markets & your recent success may not be repeatable often.

What is a DVR Share, How Does DVR Work & Everything You must know about DVR Shares

"One Share, One Vote" had been the bed-rock principle of the financial world for years, until the year 2000, when DVR shares were introduced in India for the first time. 

But what is DVR share? DVR stands for stocks that have Differential Voting Rights. Meaning that the shareholders with DVR shares have higher or lower voting rights as compared to shareholders who have equity shares. But under the Indian law, Companies are not allowed to issue equity shares with superior voting rights, so the only DVR shares issued in the Stock Market are those with limited voting rights.

How is a DVR share different from an ordinary share?

DVR shares are different from ordinary shares in two prominent ways.

1. They offer lower voting rights as compared to ordinary shares. So, the shareholder might not have the right to vote, but other rights such as bonus shares, rights share issue, etc. remain intact. 
2. DVR shares are generally offered at a discount which means the investment amount can be significantly lower as compared to investing in ordinary shares. 
3. Shareholders with DVR shares get higher dividends as compared to ordinary shares to compensate for the sacrifice of their vote.

Why do companies issue DVR shares?

To grow & expand in today’s world, companies need capital. Often, the founders & main stakeholders have to reach out to potential shareholders who would be willing to invest in the company. But this also means diluting the power & giving away some of the control. DVR shares help companies protect their interest while enabling them to raise that additional capital required to keep the business going.

So, issuing DVR shares is a brilliant solution in getting investors who are looking for investments but don’t want to participate in the workings of the business. The company can also control how many voting rights they want to give away. DVR shares also provide a safeguard against hostile takeovers. Without voting rights, shareholders can’t gain majority & challenge to take-over the control of the Company.

Why should you invest in DVR shares?

1. Strategic Investment – DVR shares provide you with an opportunity to reap the benefits of a highly successful business venture without having to worry about the day to day affairs of the company. 
2. Discounted Rates – DVR shares are listed on the stock market at lower costs which means your investment budget is smaller too. 
3. Better Dividends – DVR shares offer higher returns as compared to ordinary shares. As high as 10–20%. And since these shares are quoted at discounted rates, the dividend yields are much more profitable.

Conclusion :

While DVR shares might not have taken off in India in a big way, the latest amendment by SEBI may go a long way in enhancing the attractiveness of DVR shares in the Indian Stock Market. According to this amendment, SEBI has approved a framework that allows individual companies to issue shares with superior voting rights & disallows further issuance of shares that have lower voting rights. Moreover, the Government has also relaxed the norms for start-ups, where they can now have up to 74% DVR shares of the total capital as compared to the previous 26%. This move will enable companies to retain control while raising equity capital. How it impacts the world of the stock market is yet to be determined.

What are the Top 5 Tax Saving Investments for 2021

 What are the top 5 tax saving investments for 2021

There’s no denying that 2020 was a financially tough year for many people across the world. The rise of the COVID-19 pandemic had a huge impact on saving and spending trends. Many people came to realise that saving for an uncertain future was vital. Your financial priorities surely have also changed during the economic slowdown the COVID-19 pandemic caused. Let's take a look at how this can affect your tax planning investments for 2021.

• What are some of the non-negotiable options you can look into? 
• Are there any tax-savings methods that you can benefit from, particularly?.

There are several options available to you if you’re considering saving on your taxes in 2021. These savings options are greatly beneficial to your future. Here are five useful ways to save tax with the right investment plans for 2021.

• Life & Health Insurance 

Health & life insurance plans are of paramount importance - they secure your family’s future financial needs in the case of an emergency. A life insurance policy is greatly beneficial for our dependants, especially in the case that you are the sole breadwinner of the family. A life insurance policy will financially secure the future of your family, and enable them to pay off any financial expenses, as well as maintain a decent standard of living. The benefit of having health insurance is that it provides people with much-needed financial backup at times of medical emergencies. As long as your investments for health or life insurance plans are under a total of ₹1.5 lakhs, it is exempt from being taxed, under Section 10(10D) of the Income Tax Act.

• Saving for Retirement

Health & life insurance plans are of paramount importance - they secure your family’s future financial needs in the case of an emergency. A life insurance policy is greatly beneficial for our dependants, especially in the case that you are the sole breadwinner of the family. A life insurance policy will financially secure the future of your family, and enable them to pay off any financial expenses, as well as maintain a decent standard of living. The benefit of having health insurance is that it provides people with much-needed financial backup at times of medical emergencies. As long as your investments for health or life insurance plans are under a total of ₹1.5 lakhs, it is exempt from being taxed, under Section 10(10D) of the Income Tax Act.

• Saving for Retirement

Among the plethora of tax-saving products in the market, a key way to financially secure your future is to use savings plans such as the National Pension Scheme (NPS) or the Public Provident Fund (PPF). Using these tax-saving tools will give you peace of mind for any of your future financial needs. NPS and PPF encourage you to save so that you can access a regular pension in your retirement years. The Public Provident Fund allows you to only invest up to ₹1.5 lakh in one financial year. You can make this payment in 12 instalments or less. This risk-free investment option has a lock-in period of 15 years & also generates a high-interest rate at the end of its tenure.

• Mutual Funds and Equity-Linked Saving Schemes (ELSS)

Mutual funds are a fairly popular choice used to save taxes. Depending on your financial goal, you can choose from a range of tools that best suits you. Another alternative investment option is Equity-Linked Savings Schemes (ELSS). ELSS has similar advantages to that of mutual funds but with the added advantage of being a tax-saving option. The standout feature of this choice is that it has the shortest lock-in period of 3 years. An investment of up to ₹1.5 lakh in one financial year can be claimed as tax-deductible under Section 80C of the Income Tax Act.

• Tax-saving Fixed Deposits

ULIPs or United Linked Insurance Plans have been noted to be the best investment options in India. It offers you the dual benefit of acting as an investment as well as an insurance plan. For a ULIP, an insurance company invests part of the premium in shares or bonds & the balance amount is utilized as an insurance cover. This segregation of the premium is handled by a fund manager employed by the insurance companies. Under Section 80C of the Income Tax Act, investing in ULIPs can help you save a substantial amount when you are filing your taxes. ULIPs come with a lock-of of a five year period, so it would be advisable to plan before investing in ULIPs.

• National Savings Certificate (NSC)

As far as fixed income tax savings go, the National Savings Certificate is a reliable savings scheme that is spearheaded by the government itself. You can open an NSC at any post office. This savings tool is designed to encourage mid-income folk to invest and is similar to Fixed Deposits or even the PPF. The NSC is a low-risk tax saving investment option. If you opt for an NSC, you can avail a tax deduction of up to ₹1.5 lakhs under Section 80C of the Income Tax Act.

Others Deductions : Declaring home or education loans are also two other ways by which you can be eligible for tax deductions. They are eligible for tax deductions under Section 80C of the Income Tax Act.