A ship captain set sail from Cochin.
Ship’s name: Sao Joao.
The captain was from Portugal. He had a good reputation for captaining ships between Europe and India.
We are talking about an era when trade with India was greatly sought after by the Europeans – about 500 years ago.
Completely filled with goods and about 600 passengers, the ship headed towards Africa.
In those days, the routes were difficult.
Ships had to sail around the whole of Africa to reach Europe.
Either that, or they had to reach Egypt, unload their goods, travel on land to the Mediterranean Sea, and then load everything again on a ship for Europe.
Or, they had to take the tough land-based journey where the terrain was arduous and tough.
There were no easy options.
When Sao Joao reached the African coast, they realized they were heading into a storm.
Thunderstorms, lightning, and giant waves hit the ship from all sides.
The crew decided to turn around and return to India.
They started throwing the goods into the sea to lighten the ship.
The crew soon realized that even that would not be enough. The ship had been damaged too much. They had to dock the ship somewhere on the African coast.
While trying to do so, the wind swayed the ship and it hit undersea rocks.
The crew and passengers desperately tried to use their lifeboats.
But in the desperate situation, 300 people died.
The remaining who reached the shore now faced a new challenge.
What to do?
They were stuck in an unknown land. They did not know where to go.
They started walking north towards a Portuguese settlement about 1,000 km away.
The journey did not end well for them.
The path was extremely treacherous. They ate fruits and berries from the forests.
Eventually, they were captured by a tribal chieftain.
Most people died of various reasons like starvation, fighting, and diseases.
Eventually, 26 made it back – when they were discovered by Portuguese traders.
There are many such horror tales of the Europe-Asia route.
Canal
Things completely changed when a canal was built.
The Suez Canal.
The canal connected the Red Sea and the Mediterranean Sea.
The sea journey from India (Cochin) to Europe (Lisbon) became shorter by 4,000 miles.
It was thrown open in 1870.
Dreams of building a canal that joins the Red Sea to the Mediterranean Sea were not new.
Kings had dreamt of it for thousands of years. Some even attempted to make a narrow canal.
None truly succeeded.
Until 1870.
And with that, massive hurdles were removed.
Trade between Asian countries like India and China, and the European continent became easier than ever.
Today, Egypt collects a toll from ships passing through the canal.
They maintain it. They even developed it further in 2015.
Ships need not worry about bad weather around the southern tip of Africa. Nobody needs to worry about dredging the canal.
The canal authorities take care of all of that.
They built a canal that allowed traders to worry about trading – and not much else. And trade flourished.
It is impossible to imagine the modern global economy without the Suez Canal – 30% of global trade passes through the Suez Canal.
Mutual Fund Money Flow
Much like the canal, SEBI has structured the mutual fund space in India.
When an investor pays for an investment, the money is collected by a payment aggregator.
The collected amount is sent to Bombay Stock Exchange (BSE).
At the same time, the platform (like Groww) places the order for the transaction (to BSE).
This info is matched and cross-checked by BSE.
BSE will look at the amount of money it has received and match it to the transaction information sent by the platform.
The money is then sent to the mutual fund company’s Registrar and Transfer Agent (RTA) and then to the mutual fund company.
Every mutual fund company has to work with an RTA.
RTAs are responsible for keeping track of mutual fund transactions.
At this point, the units are allocated to investors.
The investment is complete.
CAMS and KFin are two RTAs that all mutual funds work with.
No matter which mutual fund you invest in, either CAMS or KFin will have records of it.
RTAs are closely monitored and highly regulated – by SEBI.
No other party is allowed to handle the investor’s money. This is the only path an investor’s money can take.
Earlier, things used to be different.
There were more parties involved. The path of the money could be different in different cases.
The current path is a lot like the Suez Canal.
The images above were generated using AI tools.
Quick Takes
+India’s fiscal deficit for April-May stood at Rs 50,615 cr or 3% of the total estimated fiscal deficit for the entire financial year.
+Vraj IPO was subscribed 119.04 times. Retail subscription: 54.93 times.
+RBI released a framework which allows India to enter bilateral swap agreements with South Asian Association for Regional Cooperation (SAARC) countries between 2024 to 2027.
+Aditya Birla Group will invest $50 million in a manufacturing, research, and development (R&D) centre in Texas, USA.
+Rivian Automotive and Volkswagen will form a Joint Venture.
+Australia’s Space Machines Company has given a contract to ISRO’s SSVL to launch a 450 kg satellite into lower orbit.
+A new index has been launched – 'Nifty Top 10 Equal Weight'. It aims to track the performance of top 10 companies selected from the Nifty 50.
+Auction of 5G spectrum worth over Rs 96,000 cr was started on 25 June.
+India recorded a current account surplus of $5.7 billion (0.6% of GDP) during Jan-March 2024. In Jan-March 2023, India had recorded a current account deficit of $1.3 billion (0.2% of GDP).
+Mumbai’s first underground metro is expected to start operations in July.
+Stanley Lifestyles IPO was subscribed 96.58 times. Retail subscription: 18.62 times.
6-Day-Course
Theme of the week: Warren Buffett’s checklist
We’ve reached the end of this week’s course that started on Monday. Here’s a test you should take. Get pen and paper!
Question 1:
Warren Buffet says that he focuses more on ___________ than numbers/metrics of a company.
-Age of a company.
-Understanding the business model.
Question 2:
Rather than investing for a short time to book profit, Warren Buffet suggests to invest in a stock for a long period of time (several years or a lifetime).
-True
-False
Question 3:
If a company is excellent in money management and have ____________, it indicates a quality stock.
-High share price
-High market capitalization
-Transparency in operations
Question 4:
If a company has consistently higher profit margins and higher free cash flow, then its a major indicator of a good stock.
-True
-False
Question 5:
To reduce sudden big losses, Warren Buffett suggests to keep a margin of safety when investing in any asset.
-True
-False
Answers:
Q1: Understanding the business model.
Q2: True
Q3: Transparency in operations
Q4: True
Q5: True
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest