Saturday, February 4, 2012

MBS - Mortgage Backed Securities

Securitisation is a process of liquidizing the assets held with financial institutions. If there are many auto loans given by a bank and instead of raising money through deposits and giving further loans, Banks can also do the following to increase its profits.

- Bundle all the auto loans and form a security.
- Raise the money through prospective clients with the help of other financial institutions.

The risk lies with the bank and this gives more liquidity to the bank and the money generated through this process can be availed in giving further loans.

In India, Securitisation has been there for long. Please visit this site for more details.

Consider the Home loans now. Banks have done the due diligence and have approved home loans for 20 people for 1 crore. The mortgage would be the home for the bank.

Now, If I am a person A thinking having very less money but ready to lend money for a prospective buyer who buys home and wants my part of interest back. Say, I have only Rs. 20000/- and want the interest for that alone to come to me.

Banks think, my whole 20 crores is locked up in the home loans. I also want the liquidity. This way, Investment banks created a security out of the mortgages in the bank and sold in the market and people like Person A bought it. The things that are not bought will remain with bank and investment bank. This gives more returns than FD and Person A is happy in taking the risk. Bank is happy in getting more money and Investment bank is happy on making its commission on forming the product.

Friday, February 3, 2012

Market Zooming to 6000

Okay. Nice title to keep most of them interested.

Its very hard to time the Stock market and in fact, one can't predict the market move. If you want to know whether the market will zoom to 6000, the answer is YES.
But the real question is when?

One cannot really predict the market and it always gives surprises. There will always be some positive news and negative news around and market will hear the part of it and behave in the bullish trend even when there is a bear around the corner.

Simply, to get good returns,
Put a SIP and invest more during the bearish period in a good equity Mutual fund like DSP Blackrock Top 100.

If you are a good stock picker and want to beat the market, do the fundamental analysis and have patience. Its just the buy and hold strategy. Book profits when your target is hit.

To summarize, one cannot really predict the market at any time. One can wildly guess the way market movement and he can just be lucky in guessing. There is no denying the fact that returns in market is superior than any other means for long periods (>5 years)

By the way, I don't think market would be reaching 6000 by June-2012 for sure.