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With a large number of mid-priced shares available at reasonable valuation, investors are increasingly faced with a dilemma of which route to take – direct investment in equity or plump for the growth option of mutual funds.
Apart from erosion in price that the stocks had suffered even while the market had peaked, what makes investment in these stocks worthwhile is the good dividend payout record of the companies ensuring periodical cash flow which is tax free.
S. Karthikeyan, Director, Coimbatore Capital Ltd , said the investors' knowledge/expertise in stock selection, ability to allocate quality time and their investible surpluses were crucial. Those with requisite capabilities ‘must always invest directly in stocks' as ‘diversification only protects wealth, concentration creates wealth’.
In the mid-price stock universe (Rs 50-Rs 200 price range) a host of stocks offer a decent dividend return of 3- 5 per cent or even more. These could be found across sectors-from banking to auto components to textile and IT etc. Investors with moderate risk aversion would find some of the PSU bank stocks like (last year's dividend per share in brackets) such as IOB ( Rs 4.50), Indian Bank (Rs 7.50), and Andhra Bank (Rs 5.50), as safe bets.
Apart from good payment record, some of the high dividend-yield stocks have seen steep value erosion and are quoting near 52-week lows. This may be because of problems specific to sectors like auto components or the banks. But they could gain when the sentiments improve.
Karthikeyan said MF investors should be aware of the fact that though mutual funds offer various advantages, ‘risk avoidance is likely to lead to return avoidance as well'. If the investors were unable to spare time to acquire knowledge, they should settle for a lower return. Investors should, during downturns selectively invest in good stocks for which the benchmarks were “consistent profit and dividend track record, less debt, strong, committed and conservative management”.
He was of the view that instead of being risk averse (for instance, investing in mutual funds), investors could be “risk intelligent” (identifying this kind of stocks and invest).
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