Coming back from Durga Puja - 2008 with lots of 'ashish' from Durga and with tanked down market! It's globally - we shaded 7% today. Are we heading towards 8000 in Sensex? Nodoby actually knows. That's the beauty of Market - when it goes up ... seems it will always go up. And when it moves southwards, there is no hope - all dark loomed large! However only the market is TRUTH, all others are not.
It's a nice situation. Actually nobody knows which to buy ... bcos almost all the front runners are treading at their 52 week low and in highly oversold region (something measured by Relative Strength Index, RSI which is < 20 for Nifty).
So in this 7% fall, I was wondering what can be bought for a short horizon - may be not more than a month to crack a few rupees - just bottom fishing.
Going through my own broker plus looking into some recent news, it seems people are saying market will definitely go up, not sure which sector will lead. But people are somehow convinced that market will go up. Somebody calls it a 'dead-cat' bounce, actually might be a rather short pull back kind of rally. Because we all know stock prices never moves in one direction, rather they tend to fool ourselves, go a bit opposite direction then again resume the original trend (which is downward now). Whatever it may be - a 'dead-cat', a 'pull back', a 'traders' remorse' - it seems to have a shart/very short/very very short rally which might brings something to my pocket.
Hence I was looking at how to buy market, specially in shorter term. Market means Index - say Sensex/Nifty. Now I have got the following four options:
1. Buy Stocks directly : Out of question : Costliest
2. But Index future / call option : Costlier
3. Buy some Index Mutual Funds : Good Option, typical entry load it 1% + expenses
4. Interestingly - buying ETFs which track indices.
I found the last one is more aligned towards my need. It only comes with brokarage (+STT+service tax), sums up to 0.72% (for me). No extra cost to keep it in DP. And can trade real time! So even if the rally will be pretty short (say for an hour!) - I can directly sells it.
From an investment blog, I got the compelling comparison:
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You can buy individual stocks on an exchange. But if you wanted to buy an Index, such as the Nifty or the Sensex, you have to buy ALL the stocks of the index, in the corresponding weightage. So you may need to buy 1.6 shares of Reliance, 1.2 or ONGC etc - but obviously this does not work too well for you, since you can't buy fractional shares, and buying at a higher multiple can involve lakhs of rupees! Plus, you have to keep shifting stocks around because the weightages change daily.
A cheaper way is to buy Index futures - these are derivatives that will allow you to purchase or sell the Nifty or the Sensex, but on a future date. Unfortunately, such derivatives are only available for the short term - a maximum of three months. Additionally, index futures have a huge margin - Rs. 40,000 or above - per contract.
ETFs are very good for index purchases. Firstly, they are much cheaper than buying stocks in the index or buying futures. The Nifty BeES by Benchmark fund, for instance, costs about 1/10th the value of the nifty (per unit), which is around Rs. 420 today. The fund management is passive - almost entirely computerised - which means fund management charges are very low (less than 1%). Add that to the fact that your entry load is nil and brokerage charges are very little, you can trade an exchange traded index fund and reap benefits of overall market growth.
There are ETFs for the Nifty, the Sensex, Nifty's bank index and a few other indices.
"Hope this is informative.
