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# 7. formula plans

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### 7. formula plans

1. 1. Rupee cost averaging  The simplest and most effective formula is rupee cost averaging. First stocks with good fundamentals and long term growth prospects should be selected. Such stocks price tend to be volatile in the market and provide maximum benefit from rupee cost averaging. Secondly investor should make a regular commitment of buying shares at regular intervals. Once he makes commitment, he should purchase the shares regardless of the stock’s price, the company’s short term performance and the economic factors affecting the stock market.
2. 2. Quarter Market price Shares Purchased Cumulative investment Market value Unrealised profit or Loss Average Cost per share Average market price per share 1. 100 10 1000 1000 0 100 100 2. 90 11 1990 1890 -100 94.76 95 3. 100 10 2990 3100 110 96.45 96.67 4. 110 9 3980 4400 420 99.50 100
3. 3. Constant rupee plan  This plan forces the investor to sell when the price rises and purchase as the price falls.
4. 4. Period Market price No. of shares Value of stock portfolio Value of defensive portfolio Total 1 50 200 10000 10000 20000 2 44 200 8800 10000 18800 3 40 200 8000 10000 18000 4 40 250 10000 8000 18000 5 44 250 11000 8000 19000 6 50 250 12500 8000 20500 7 50 200 10000 10500 20500
5. 5. Constant ratio plan  Constant ratio plan attempts to maintain a constant ratio between the aggressive and conservative portfolios. The ratio is fixed by the investor.
6. 6. Market price No. of shares in stock portfolio Value of stock Value of defensive portfolio Total portfolio value Ratio of stock portion to defensive portion 50 100 5000 5000 10000 1.00 48 100 4800 5000 9800 .96 45 100 4500 5000 9500 .90 45 105.5 4748 4752 9500 1.00 40.5 105.5 4273 4752 9025 .90 40.5 111.4 4512 4511 9023 1.00 44.5 111.4 4957 4511 9468 1.10 44.5 106.4 4734 4734 9468 1.00
7. 7. Variable ratio plan  According to this plan at varying levels of market price, the proportion of the stocks and bond change. Whenever the price of stock increases we decrease the proportion of stocks and vice versa
8. 8. Share price Value of stock proportion Value of defensive Total portfolio value Stock as a percentage of portfolio Portfolio adjustment Shares in stock proportion 100 10000 10000 20000 50.00 100 90 9000 10000 19000 47.37 100 80 8000 10000 18000 44.4 100 80 12640 5400 18040 70.06 Bought 58 shares 158 90 14220 5400 19620 72.48 158 100 15800 5400 21200 74.53 Sold 52 shares 158 100 10600 10600 21200 50.00 106