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SEBI notified the SEBI (Investment Advisers) Regulation, 2013 in January 2013 intending to regulate the activity of providing investment advisory services in various forms by independent financial advisors, distributors, banks, and other such entities. The regulations become effective from April 2013.
The relationship between the investment adviser and client is that of trust and the investment adviser while performing his role, should act in good faith in the best interests of the client. The Investment Adviser Regulations have cast upon investment advisers certain obligations and responsibilities while providing investment advisory services.
It is important that the investment adviser discloses all conflicts of interest to the client as and when they arise.
An investment adviser must not receive any remuneration from anyone except the client in respect of securities or investment products for which he has provided advice.
There must be segregation of other business activities from investment advisory activity of the investment advisor. A professional relationship must be maintained between investment advisory activity and such other activities. If a conflict of interest arises, the same shall be disclosed to the client.
The investment adviser must maintain strict confidentiality with respect to the information received from the client.
An investment advisor shall follow Know Your Client procedure as specified by SEBI from time to time.
An investment adviser must abide by the Code of Conduct as specified in the Third Schedule of the Investment Adviser Regulations.
The investment adviser must file periodic reports or information to SEBI as may be required from time to time and take prior approval from SEBI if there is a change in control of the investment adviser.
It shall be the responsibility of the Investment Adviser to ensure that its representatives and partners comply with the certification stipulated by the Investment Adviser Regulations at all times.
In India, RBI is the central bank of India which regulates all the major issues related to currency, foreign exchange reserves etc. In short, RBI is the bank responsible for securing the monetary stability in India.
The Reserve Bank of India Act, 1934 says, “An Act to constitute a Reserve Bank of India. Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Banknotes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
No one could deny the fact banks plays an important role in the economic stability. In case a bank crashes then it does not crash alone, it takes away the lifelong investment and savings of its entire account holders too.
This is not the only reason due to which corporate governance in the banking sector is needed. Corporate Governance is also needed for the bank to keep a check on money laundering, financing immoral and criminal acts and transaction of money to the terrorists.
RBI in India plays a leading role in formulating and implementing corporate governance.
It is the most important constituent of corporate governance. If the banks will not be disclosing their transactions to the RBI then they can vanish with the lifelong investments and savings of the people.
The RBI through the requirement of routine reporting of financial transactions of the bank keeps a tab on the activities being undertaken by the banks in India. Any failure to abide by the requirements set out by RBI may lead to heavy fines being imposed along with the cancellation of the license to operate as a bank.
RBI routinely performs an annual on-site inspection of the records of the banks. The main focus of the off-site surveillance is to monitor the financial health of banks between two on-site inspections, identifying banks which show financial deterioration and would be a source for supervisory concerns.
RBI has set important points, based on trigger points set by RBI, the banks have to follow. This will help to maintain a proper mechanism for there performance.
Disinvestment, also known as divestment, refers to the process of selling off a company's assets or investments, often in the form of shares in state-owned enterprises. Governments or private entities may undertake disinvestment for various reasons, including reducing debt, improving efficiency, or focusing on core areas. In this blog, we’ll delve into what disinvestment means, why it occurs, and its impact on the economy and shareholders.
Disinvestment involves the reduction of an organization's stake in an asset or company. This can take several forms:
Selling Shares: The most common form of disinvestment is the sale of equity stakes in a company. Governments may sell shares in state-owned enterprises to private investors.
Asset Sales: Companies or governments may also sell specific assets, such as property or divisions of the business.
Privatization: In some cases, disinvestment can lead to the complete privatization of a previously state-owned enterprise.
Reducing Debt: Governments or companies may sell assets to reduce debt levels and improve their financial health.
Improving Efficiency: Disinvestment can lead to improved efficiency by transferring ownership to entities better equipped to manage the assets.
Focusing on Core Areas: Selling non-core assets allows organizations to concentrate on their primary business activities.
Generating Revenue: Disinvestment can generate substantial revenue, which can be used for development projects or other purposes.
Privatization: Governments may privatize state-owned enterprises to enhance competitiveness and operational efficiency.
Economic Growth: Disinvestment can stimulate economic growth by reallocating resources to more efficient private sector operations.
Market Efficiency: By transferring ownership to private entities, market efficiency can improve due to better management practices.
Shareholder Value: For companies undergoing disinvestment, shareholders might experience fluctuations in stock value based on the sale's impact.
Job Losses or Gains: Depending on the nature of the disinvestment, there might be job losses in the short term, but potential job creation in the long run.
Government Revenue: The revenue generated from selling assets can be used for public investments or debt reduction, benefiting the broader economy.
In India, the Disinvestment of BPCL (Bharat Petroleum Corporation Limited) is a notable instance. The Indian government decided to sell its stake in BPCL to private investors to reduce its fiscal deficit and focus on other critical areas. This move aimed to enhance the company's operational efficiency and competitiveness in the market.
Did you know that disinvestment is not limited to public sector enterprises? Private companies also engage in disinvestment to streamline operations or reallocate capital. For instance, Tata Motors has periodically sold off non-core assets to focus on its primary automotive business.
"If you need a financial advisor or counselor look for someone with the heart of a teacher".
Financial Planning is a key aspect in today's world of inflation every one wishes to maintain a healthy situation of wealth in his life. With regular earnings, one can maintain the household expenses & other necessities. But there are some other charges also which need to be met out of the same earning itself.
But there are some unexpected expenses like medical expenses any other casualty which requires a large sum of money and which is totally unplanned. How all this can be done? A small question arises in the mind of every salaried person because these all need to be planned with the current earning which can meet all the requirements.
Financial planning refers to the process of streamlining the income, expenses, assets & liabilities of a household to take care of both current & future needs for the funds. It is thus a process that enables better management of the personal financial situation of a household.
It works primarily through the identification of key goals and putting in place an action plan to realign the finances to meet those goals. It is a holistic approach that considers the existing financial position, evaluates the future needs, puts a process to fund the needs, and reviews the progress.
The main task of an advisor is to ascertain the needs of his clients to understand his requirements and link them to various financial products available. As we know everyone having a different approach towards life, so an advisor needs to plan all the factors & suggest them the instruments accordingly. An advisor is a person who understands the importance of all financial products on one hand & the needs of the client on the other side.
The following are the primary reasons why financial advisers are needed:
To maintain personal finance many people due to there busy schedule not having time to maintain there own finance due to lack of time & there other professional tasks, As financial planning requires time & attention, to meet the future needs. As many verities of asset classes are available a person needs to understand them first as per the future objective.
Estimating financial goals, finding suitable products, and arriving at suitable allocations to various assets require specific expertise and skills which may not be available in most households.
Asset allocation is a vast approach one should first understand the needs and requirements of the client then plan to manage it as per the requirement of the client. A professional adviser with capabilities to compare, evaluate, and analyze various products enables making efficient choices from competing products.
Financial planning is a dynamic process it requires proper attention, market situations kept on changing an advisor needs to reallocate the sum as per the situation demands.
Many investors will suggest you go through the fundamentals of a company before picking any stocks. This means that you are required to check the financial records of a company which tells you that the stocks are worth investing in or not.
To be frank, not everyone is a finance expert to know everything about a company’s fundamental elements.
Here, I am going to share with you the 5 financial ratios you should study before investing in stocks:
This is one of the crucial financial ratios investors have been using for a long time. P/E ratio is defined as the ratio of the current share price to the earning of the company per share. The ratio helps investors to determine whether the stock is undervalued or overvalued in the market.
For instance, if the company has overall earnings of Rs 1000 and has shares of 100 currently trading in the market. Therefore, it's earning per share is Rs 10. This means that you are paying Rs 10 to the company and in return, you get Rs 1 from the company’s earnings which is not good.
To be honest, there is no ideal price to identify P/E ratio of any stock. You cannot determine the exact P/E ratio as every industry has a different benchmark. If we compare the P/E ratio of two FMCG companies, let's say Hindustan Lever and Britannia, we will get to know that HUL is overvalued as compared to Britannia as the P/E of HUL is greater than 70 while the P/E ratio of Britannia is nearly 50.
The P/E ratio of JK Paper is 4 and if you compare this P/E ratio with HUL and Britannia, you will get an incorrect picture as the industries are very different. Hence it is suggested to know the industry benchmarks while analyzing the P/E of a company.
Return on equity depicts the rate of return on the stock of a company. It’s a way to know about the company’s return on stock investment. Return on equity ratio is defined as Net income to total shareholder’s equity. This is an important ratio as it helps investors to determine how well a company shares its profit with its shareholders.
For instance, if investors contributed Rs 100 in equity and the total equity of the company is Rs 100. With this equity, if a company generates Rs 20 then ROE is 20%. On the other hand, if another company with the same equity generates an income of Rs 40, then the ROE of that company will be 40%. The company that generates better ROE is considered as good to invest in.
Return on Equity is defined as Net income/ Average Stockholder’s equity.
Price to Book Ratio is calculated as Price per share divided by Book value per share. The ratio simply depicts the comparison of a company’s market capitalization to its book value.
Price to Book ratio gives investors an idea of how much shareholders willing to pay for the net asset of a company. Generally, a low P/B ratio is considered good. Do remember that the ratio should be compared within the same industry. For example, the P/B ratio of a manufacturing company should be compared with the P/B ratio of another manufacturing company.
The dividend yield ratio is calculated as the amount of dividend a company pays to its shareholders over the years to its current stock market price. For example, if the share price of a company is Rs 100 and it gives a dividend of Rs 10 then the dividend yield ratio will be 10%.
To get deeper into this, let's assume that an investor purchases a stock at a price of Rs 100. A year later, the stock price is still constant, i.e Rs 100. Is this a good investment? Of course not. You receive a zero per cent return from that company.
Needless to say, the Debt to Equity ratio depicts the amount of debt and equity of a company. This gives investors a clear idea of how much the company running on borrowed capital and owned funds.
Debt to Equity Ratio is defined as total liabilities/total shareholder equity.
Ideally, it is suggested to invest in a company which gives you high ROE for at least 3 years.
Fundamental analysis and technical analysis are the two skills that every investor should know for successful trading. Although they differ from each other yet they are equally important to learn as these indicators help stock market traders to get full insight into the stock.
Fundamental analysis is the study that directly affects a company’s potential value. This includes both macroeconomic and microeconomic factors as well as strategic planning, employee relations and supply chain.
Technical indicators also known as technical's are used to see the past trends of stock and to anticipate the future price of a stock. Technical indicators have nothing to do with the basics of a company such as earnings, revenue, profit margin. The examples of technical indicators are relative strength index, moving averages and stochastic oscillators.
A technical indicator’s objective is to financial forecast direction. This can be achieved by calculating by historic price, volume and open interest information. Technical indicators are basically used to plot a chart pattern which in turn is used to predict the trend of the stock market. Technical indicators help analysts to predict the future price of the stock by looking at its past performance.
Here, we are outlining the top 5 technical indicators every stock market investor should know:
The relative strength indicator helps analysts to identify momentum, market conditions and warning signals for risky price movements. RSI is classified as a momentum oscillator which tells a figure between 0 to 100. Here, momentum is the rate of the rise or fall of a stock price. An asset which is around 60-70 level is considered as overbought whereas an asset near 30 is considered as oversold.
Research analysts said that RSI is one of the most reliable indicators to ascertain accumulation and distribution phase. Also, it is helpful to measure the strength of the ongoing trend of stocks.
Moving Averages or Simple Moving Average is one of the oldest and widely used technical indicators that is used to identify the direction of the current price trend without interrupting the short term price strike.
The formula of Moving Averages is the combined price points of a financial instrument over a specific period divided by the number of data points to present a single trend line. There are three types of Moving Averages: Simple moving average (SMA), exponential moving average (EMA) and weighted moving average (WMA).
Generally, common periods for moving averages are 10 days, 21 days, 50 days, 100 days and 200 days.
The indicator aims at providing a range within which the price of an asset generally trades. Also, Bollinger bands clearly reflect the volatility by increasing and decreasing the band.
Bollinger bands consist of a set of three band curves drawn that are expected to tell the security prices.
The primary function of the indicator is to provide a relative definition of high and low. As per the definition, the prices are high at the upper band and low at the lower band. The narrower the bands with each other, the lower the perceived volatility of the financial instrument. Conversely, the wider the bands, the higher the perceived volatility.
Bollinger Bands are useful for recognizing an asset, for instance, when an asset is trading outside the upper parameters of the band, it can be overbought or vice versa.
MACD is one of the widely used technical indicators to date. It detects the momentum of a stock by comparing two moving averages. It assists traders to identify buy and sell opportunities around resistance and support levels.
When two moving averages come together, it is known as Convergence, on the other hand, if they are moving away from each other, it is known as divergence.
The MACD line is used to compare the short term and long term momentum of stock so that analysts can identify its future direction. When the short term momentum line crosses the long term line, it clearly gives a sign of future stock activity. When the short term line crosses and surpasses the long term line, the stock will trade higher.
ADX is used to measure the trend strength as it helps investors to quantify the strongest zone and increases the opportunity of building aggressive positions.
It works on a scale of 0 to 100, where a reading of increasing ADX value above 25 is considered as a strong trend while a value above 50 indicates exhaustion of a move where a number below 25 is considered a drift.
Analysts use this information in order to collect the data on whether the trend is going upward or downward.
The foremost thing to remember to use trading indicators is that you should never use too many indicators at once nor in isolation. For better results, it is advisable to use a few indicators as they are best suited to what you are trying to achieve.
It is important to clearly monitor a signal for the best stock’s performance. For instance, if you are receiving a buy signal from an indicator and sell a signal from another indicator, then you have to use different indicators until your signals are confirmed.
Like all other countries, Indian investors also have a strong home bias – all their investments will be in India. But there are many opportunities for investments outside of India as well. Further, some global markets have done very well so it is worth exploring investment opportunities outside India too.
In the past, the lack of international exchange-traded funds (ETFs) and mutual funds made global diversification difficult for the average investor, but these days, with lots of opportunities there’s no excuse for the so-called “home bias”.
According to the International Monetary Fund (IMF), in purchasing power parity (PPP), terms in the world’s GDP India contributes only 7.98%, which clearly shows Indian investors have little participation in the overall world’s economic growth.
Two of the major reasons why people invest in international investments and investments with some international exposure are:
International investing might help the investors to spread their investment risk among different foreign companies and markets in addition to different companies and markets.
In emerging markets. It takes advantage of the potential for growth in some foreign economies.
Here, we’ll take a look at how the average investor can build a globally diversified portfolio...
International Funds invest in all countries exceptional of the country in which you reside. while Global Funds invest in all countries around the globe with no exception.
ETFs are a collection of securities that tracks an underlying index such as stocks, however, they can invest in different sectors.
Investors can choose between many different types of mutual funds or ETFs, including:
There are numerous funds which are dedicated to investing in offshore assets, with some devoted to themes such as commodities, EMs, Global smaller cap companies, Debt mutual funds, National Pension Systems, Public Provident Funds, Bank fixed deposit, Senior Citizens' Saving Scheme, Real Estate, Gold. etc. Along with them, there are equity funds that invest the majority of their assets in Indian shares, while also investing a trivial part of their portfolio in global listed equity. The investor’s fear of the risks while investing abroad is about the asset’s level of volatility – that is, how widely its price differs over time. There is currency risk which restricts the changes in the exchange rate against the investor’s home currency. Investors should study qualitative risk factors – like geopolitical risks and bond ratings, and political risk can have serious effects on a nation's economy.
Offshore investing is an attractive idea, given the ease and the low cost through which it can be done through mutual funds. Additionally, it also includes diversification as well as provides access to some of the best-performing companies in the world. Let’s have a look at the other benefits involved in investing globally.
People want to invest in the companies of their choice such as Apple, Facebook, Amazon, etc.
Investing globally helps in diversification. It can reduce the risk in your portfolio as the locals might not have a reasonable effect on the international markets.
There may be better and more profitable opportunities available in international markets.
Many international countries offer attractive tax incentives to foreign investors in order to attract their wealth.
Investing internationally gives a bigger benefit for more growth which also means an increase in return potential in overseas investments.
Many foreign financial institutions are able to protect your investments from confiscation and other threats. They are also concerned with confidentiality regarding your finances.
Market-linked investments have the potential of high returns but they carry high risks as well. Fixed-income investments help in accumulating the accumulated wealth in order to meet the desired goal there are some investments that are fixed-income while others are financial market-linked. Both fixed-income and market-linked investments play a major role in the process of wealth creation.
We all have some desires in life and we work hard to fulfill them at any cost, sometimes it takes less time to achieve them. But how it can be done, you cannot plant money on trees we all need to work to earn.
But human nature desires keep on increasing with the span of time and along with desires earning should need to be increased. In this time of inflation, an individual always thought of how to save his money from unnecessary expenditure, but in this is life anything can happen which makes a difference in a very small time.
One should plan everything in a systematic manner where the unplanned event won't harm his earnings. Though still some of us take more time to decide what can be done to avoid all such events. Many often we never discuss how we can plan our money to invest in such a manner where regular earning can be generated along with we will be able to face inflation too.
Our parents and grandparents always suggested investing in those traditional instruments which take a lot of time to grow and sometimes it is hard to keep them with us. But at last, we need to follow what our mind says.
" I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful" Warren Buffet.
One should be ready to invest when the market is down and come out when it's on highs.
Here are some important benefits we get when we invest in the stock market.
The stock market investment will give long term benefits which prevent our wealth from the impact of inflation.
As compare to other financial instruments buying & selling of stocks are easier and in a convenient manner.
When the economy is on a growing stage, earnings of the corporate also increased, therefore if purchased any good quality company, benefits are there in terms of quality returns.
It is not easy to start any business which we think of, but just because we like it we can become a partial owner of that. After purchasing shares of any of our favorite businesses we get the right to vote and we become a partial owner of it.
Along with the growth in the share prices companies also providing additional benefits in the form of dividends which is actually a part of sharing from the profit that the company earns in a financial year.
Financials of a company are always complex terms which are not easily understandable. They are the actual report card of a company that represents the performance every year. Sometimes results are good sometimes results are bad. For an individual, it is very essential to under these complex figures because the future growth depends on these current numbers only, just like our marks define our progress. Every year this report card shows different results, sometimes good, bad average, or below average.
Every business faces various situations throughout the year and tries to adopt the changes for its survival. But how a common individual understands this as they only understand what a company shows. For example, a company in its quarterly results declares a growth of 10% but still has a loss in revenue. For an individual, growth attracts but still concerns about the revenue. Which makes it complex for him to understand should he invest in the company or not.
A common person with zero knowledge of analyzing the financial statements only looks at the growth factor.
Nowadays many financial websites are available which helps to make this complexity easier, but still one should look deep into it Because this financial data can be easily manipulated. So, one should look into some common points to check the company's health just to make sure it is worth putting money into it or not.
One should check the earnings of the company comparing it with its last quarter earnings and then based on year on year, maybe one can find some quarters are good some are bad but on a yearly basis, the company would reflect a true picture. Earnings should be from its main business not from any other operations.
When a person is analyzing earnings, one should monitor the expenses too Because in business expenses are also an important part, If a company is earning more than it's expenses then that's a favorable condition, But if even after earnings are improving still expenses are more than it’s not a favorable situation for the company.
A businessman for expansion of his business took some long-term loans just to make availability of funds would go in the flow. And the most important part is that one should manage that ratio in an ideal manner if the debts of the company are constantly rising against its earnings and most of the part of earning are indulge in paying its debt then one should stay away from that kind of companies.
A most important point to check out what a company is doing with its profit, which means are they reinvesting it back into the business which makes a company rich in assets & low in the cash balance, low cash balance shows the business is not sustainable. A company requires a healthy amount of cash balance in its bank if in case anything uncertain happens the company should be in a position to face it.
"Yes I got a job now I'll soon settle and fulfill all my dreams. First of all, I'll buy a car, then a house, later on, we'll go for a long vacation. Do you think it's all easy? Maybe if we go for proper planning for our future goals then it's achievable, But wait what to do for achieving this. Again a question arises "My salary is only a piece of cake and my goals is a full apple pie" Yeah it is a tough job to accomplish them all in a short span of time, But yes this all can be done over a period of time, As of now I am only 26 will focus to get them done by the time I get settled in my life."
This may be the story of every young boy or girl who got a new job and started planning to get the thing done as soon as possible.
A famous quote of Warren Buffet:-
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful"
An average earning person spends almost 35 years approx by the age he/she retires by the age of 60 till the time he faces many obstacles while in his/her earning span. And at the phase of time, we always plan to allocate our sum in that manner from where we get a good return for our whole life.
As Warren Buffet said "Never depend on one earning" so we should focus on various sources from which we can get an additional earning.
For creating an additional source, one should make sure about the future outlook, what is the major objective and yes how it can be achieved, That's the time when everyone starts saving for their future.
Let's assume the monthly earning of Mr X is Rs 50000/- an individual (age 26) going to get settled after 2 years so how he decided his ideal portfolio where he decided to park approx 30% of his monthly salary in various instruments.
So let's have a look:
The first and the most common instrument one selects is SIP, yes Systematic Investment Plan, An individual can park a handsome sum in a simple installment manner where his pocket won't feel the pressure. One can plan to have 4 to 5 Sip's for his/ her financial goal, this will always be beneficial in long run. And even the most important benefit you get is the rupee cost averaging.
The Second important instrument is an equity investment, one of the most favorable instruments for "High risk & High return" at a young age the risk capacity is more so investment made inequities can be done for a better return. What all we earn is always less as compared to our needs & wants. With the help of equity investment, one can achieve them, though the risk is higher in this instrument.
Life is full of uncertainties. We often face many situations where we need extra monetary support for all such things one should take an Insurance Policy, to secure ourselves and even our family members. Insurance can be any maybe Health Insurance, General Insurance etc., this can't be compared as an investment instrument but yes it's an important part of our portfolio for the future benefits.
Last but not least it's not necessary we get a good return from equity, Debt instruments should be on our list so that at the time we can have a fixed return in our pocket too. Sometimes when risk-taking capacity declines, we may switch our savings in those instruments where returns are fixed so that in the time of crisis or any pandemic situation we will not be affected by it.
An ideal investment portfolio is a basic need of every person, But the most important thing is proper asset allocation as per the requirement of financial goals, the ability to take a risk. Which means our portfolio should try to attain the requirement of our future needs and will give you ease and stress-free life after retirement.
Practically, no one can achieve this without proper investment strategies and an approach to future requirements. One should be very clear with his future goals and objective because it takes ample time to create wealth as there is a famous saying "Rome was not built in a day". yes, that's truly saying no one can become a millionaire overnight. For achieving this one should follow some basic steps.
The most important point is to identify our future requirements, this can't be described in a single line, because everyone is having a different mindset and objectives, Some of us want to go for a long vacation, some wants to open a new business or anything. For all this, our allocation of sum should be proper and should be in that manner where all the financial needs would be fulfilled.
As it's mentioned earlier " Rome was not built in a day" actually means whatever objective we have takes time to achieve, For example, if require a sum of Rs 10000 after 2 months it just takes a small cut in our expenses if my salary is enough. But if your goal is higher education for your children then you must know how much time will it take to achieve that goal. And you must identify the asset class which will help you to achieve the same.
Once you are clear with the goals & time, The next step you need to take is parking the sum in the proper asset class. This actually depends on the approach of an individual. The major fact is that how much you are ready to allocate, will actually depend upon the risk tolerance capacity.
The most important thing is the capacity of taking the risk to achieve our goal which means if our approach is aggressive then we will be more focused on equities or equity-related instruments. But if it is conservative then We must focus more on Debt instruments where the return are fixed in nature. As time passes out we turned out to be more of conservative nature the aggressive because with the span of time responsibilities increase our approach towards the goals should be safer and secure.
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Just like trading in the spot market trading in futures is also possible in the Indian stock market, but before moving ahead let's clear some concept about it. Trading in futures is categorized under the head of Derivative trading.
The term Derivative means " Derive from others" i.e A derivative is a product or contract which actually derives its value from its underlying asset.
Common derivative contracts available are Forwards, Futures, Options, & Swaps, Here we will look into a Futures contract.
Futures is a contract between two parties to buy & sell an asset at a certain time in the future at a certain price.
The derivatives trading started on 12 June 2000, NSE started its first derivative contract in Index Future, later on, option started on June 4 2001, in NSE. Currently, more than 160 plus companies are trading under derivative contracts along with Index contracts.
Spot Price: Price at which underlying asset available in the spot market.
Future Price: Price at which future contract available in the future market.
Contract Cycle: It is defined as a time period for which a contract trades in the future market, Future contract is available in 3 months contract cycle period.
Lot Size: Defined as a standardized quantity of assets available for delivery at future date.
Expiry: Final day of settlement of a contract i.e. last Thursday of the month.
Initial Margin: Amount which is required to deposit to purchase any future contract.
Trading in futures is as similar as trading in the cash market, the only difference is that in cash a trader needs to pay the full amount to purchase quantity & whereas in the future you need to deposit only a margin amount to purchase the same.
A trader then can hold the given quantity of futures up to expiry or can roll over for the next month, Once can rollover the contract up to 3 months
A trader is more beneficial in future trading as the initial investment requirement is less and returns are more.
For example, A trader who wish to purchase 1000 shares of XYZ ltd @price of 200 where the requirement is Rs 200,000 (1000*200) while in futures you need to deposit only a margin of Rs 25000/-
(Initial Margin 12.5% of the total value of the contract i.e. 1000*200).
Low investment cost: In future trading, a trader needs to deposit only the margin amount required to be deposited with the broker.
More suitable for Speculators: Traders require fast money future contract is more suitable for them.
Possible to carry short position: One of the most important benefits of futures trading is that a trader can carry a short position, In cash short trading can be done only for intra-day, while in futures one can carry a short position up to expiry.
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Investment & savings are two topics which we never learn in school or any college, what we learn is how to get a job. Yes after getting a job, we actually focus on purchasing new things, accessories, parties, etc but we never give a single thought to save a single penny for our future. And this is actually happening with every person at an early age but yes we all bring in it later on after we understand its importance.
Approx at age of 23-24 we entered into the job and simple human tendency is to first enjoy the time being earnings and savings can be done later, yes the basic reason is lack of proper financial planning which make our investments delay. So what can be done? A question arises in the mind of every individual when they face any uncertain situation. It's not so hard to invest what all is required is a mindset of doing it so.
It is a simple way of investing a fixed amount regularly with discipline irrespective of the stock market hours. It is a recurring deposit in mutual funds.
A very basic instrument in which investment can be done is the Mutual Fund. One can allocate 10 to 20 % of salary in its initial stage for start investing, Yes for starting up mutual funds SIP are the best route and it's not required to go with a huge sum one can proceed it with a small sum of Rs.500/-, yes this is correct seems easy.
Actually when we all move out with friends & family spending a huge sum on a normal dinner in the restaurant seems very low, though it cost more.
The investment amount is small: SIP investment requires a very small sum of Rs. 500/- which actually doesn't create any sort of burden on any individual earnings. Even many funds offer a minimum sum of Rs. 100/- too.
SIP is the best way to start investing regularly as it takes one-time registration with help of ECS funds will be directly debited from a bank account
SIP is a kind of investment deducted on a fixed date every month from your bank account. It's actually like depositing regular installments for our future benefits.
An individual can increase the number of SIPs or can increase the amount as per his/her convenience, It actually depends upon the goal of an investor.
SIP is a route of indirect investment in the equity market via a route of mutual funds, we all know equity markets are very volatile in nature on day to day basis but it gives the best return in the long term horizon. As in long term, we receive the benefit of rupee cost averaging.
We are aware of the market it is volatile in nature which sometimes leads to a fall in stock prices also, in a similar manner NAV of funds also falls in continuation of SIP it is more beneficial because in this case buying is done with a low price compare to the previous month.
Once a person hears the word dividend he simply understands it to be a profit or a reward, but why a company does profit sharing with its customers. Here are the answers:
A dividend is cash or reward which is given, for delivering returns to the equity shareholders, on the capital invested by them in the business. It is often a part of the profit that the company shares with its shareholders.
A company uses dividend policy to structure its dividend payout to the shareholders. Dividend decisions refer to the decision-making mechanism of the management to declare the dividends.
These are the major reasons as to why do we need dividend policy.
1. Maximize the shareholder’s wealth
The company’s ultimate objective is to maximize the shareholder’s wealth. The shareholders invest in the company and the company should pay them in such a manner that they further continue to invest.
2. Fulfilling the financial needs of the company
If the shareholders continue to invest in the company, the company would have enough money to sustain in the competitive market.
There does not exist a single dividend decision factor that can work for every organization.
Cash dividend
A dividend which is paid out in cash. It will reduce the cash reserves of a company.
Bonus shares
Bonus shares are the shares in the company which are distributed to shareholders at no cost. It is not done in the place of cash dividend but in addition to a cash dividend.
Well, there are two approaches to the same:
Stable Dividend Policy
The company decides to pay periodically a fixed amount of dividend to the shareholders. Even when the company incurs loss or generates high profit, there is no change in the dividend paid.
Regular Dividend Policy
A certain percentage of the company’s profit is allowed as dividends to the shareholders. When the gain is high, the shareholders’ earnings will also rise and vice-versa.
Irregular Dividend Policy
The company may or may not pay dividends to the shareholders. As per their priorities, the top management i.e., the board of directors solely take all dividend decisions.
No Dividend Policy
The company has no intention of declaring any dividends to its shareholders. The company always retain its profits to fund further projects.
When the company is at the initial stage and it earns little profit, then it should give lower dividends to the shareholders.
When the company is growing it should provide a dividend to the shareholders in a proportionate manner.
When the company can survive in the market, it should provide a stable dividend to its shareholders.
If the company is paying dividends regularly, there is a pressure for maintaining the stability in the dividend payout. If it does not pay dividends even for one year and retains the funds for capital investment then it may prove hazardous for the company.
In cases of the company which has no stability in dividend policies, when the company does declare a dividend, the share prices will rise before the ex-dividend date. On dividend declaration more and more people invest by buying its shares, these shares are then sold. This is then followed by a fall in the share prices. It would result in great volatility.
A company’s dividend decisions and policy depict its future and financial well-being. Dividend payout policies are considered to be a bridge between the company and shareholders for profit-sharing. It would be difficult for investors to know the intentions of the management if the management does not have a sound dividend policy.
The dividend policies of an organization also result in a significant bearing on the market value of stocks, it also impacts the valuation of the company. Hence, it needs to be systematically framed and implemented.
Equity investment is one of the most important investment avenues for investors as it always gives multiple returns in a long duration. But yes the major question is how can we select that stock, just by hearing the name only, Is that enough? Probably not, but you try to understand the basic structure of the company can surely benefit.
Every investor tries to invest in those companies which are having a long record of performance along with high trust value. Because it's business it may run long or can collapse soon. So while investing in equities there lies a risk of investment also, which actually makes Indian investors stay away from the equity asset class. And Investors shift themself towards other instruments like FD, Bonds Gold, etc which are having criteria of fixed return which many investors enjoy.
It's been always a big question to identify a good stock as there are more than 6000+ companies listed on the exchange and it's not easy to track each company from an investment perspective. As all it takes a long time just to understand about the company better one should the basic approach to understand it.
Before proceeding towards investment in any stock we should first select the sector in which we want to invest, Selection of the sector actually depends upon the understanding of the business model of the company so that investor should relate it with the current market condition. In the stock market, it's better to go with the flow instead of going against the flow.
Once the sector selection process is done. We must look into the business of a selected company, what kind of business the company is doing will it be suitable for the long-term, how its revenue generated, the impact of government policy etc, these all things actually play a vital role while selecting any stock.
Warren Buffett Quoted once – "I look for integrity, energy, and intelligence in management."
Management is considered as the backbone of the company, A fair management always gives a clear outlook of the business as well as present a fair image of the company. One should look at what kind of management is in the company is it Professional management or Family management. Professional management is more favorable while selecting any stock.
Investment is actually a game of numbers along with facts & figures, Companies showing consistent growth with positive returns are always considered more favorable, Though the business is not the same all-time some times its profit some times its loss, So investors actually show faith in those companies who are consistent in the market from a long run.
With the help of certain financial statements like P&L, Balance Sheet one can actually look into the company performance, though it's not easy for everyone to read the financial statements one can take the help of certain financial websites available for it.
We all know that trading in the stock market is not so easy as it considered orally, for daily trading in you need to track the market on all basis especially those are indulge in Day Trading / Intraday Trading, Before we proceed lets clear the concept of Intraday Trading:-
“A person or individual who is engaged in purchasing or selling of stocks within the same day is Intraday Trading “
But how can we do it? Is still a question mark for many. For this just follow a very simple top-down approach to understand how the market can behave for the very next day.
For a trader, it is very important to know the next day market for which need to look not only the domestic ques but the global outlook is also very important as the Indian market is on its developing stages.
For an everyday trader, it is essential to know about the global ques along with domestic market So a trader first need to check out the Closing of “US & Europe Market”.
After this, we should check the Opening of Asian Market, whatever happened overnight in US & Europe market will make an impact on the opening of the Asian market.
Once Asian market opened its important for Indian traders to check the opening of SGX NIFTY, it acts as an opening indicator for the Indian market, it also takes the cues from another market ( US & Europe Impact on Asian Market) which leads to indicate the opening of the Indian market.
At last, a trader should check the impact of any News or Data which can create an impact on market should be tracked prior, Impact of any Micro or Macroeconomic news should be considered while one is tracking the market because it may give impact on the same day or can affect later on.
Once a trader is clear about the opening of market the second most important work is to track the stock for trading, No one can directly jump and purchase any stock after just hearing the name though many newcomers do that only as they are not aware of the process.
Points to Remember while Day Trading:-
Volume plays a vital role while you trade in the market so a beginner its better to trade only in liquid stocks or in blue chips & always follow proper research and self-study before taking any trade. The market is inherently volatile in nature you cannot blame anyone for your loss.
One should always be aware of market updates as it actually impacts on the performance of that particular sector/stock.
Many often if you are not clear about the market condition, avoid taking any trades into the market because it's better to sit without trade rather then booking an unnecessary loss.
The Bitter Truth of the Indian education system is that it has completely side-lined capital markets as a subject altogether. The knowledge is not integrated, it is not taught as a life-skill and furthermore, the educational institutions lack the much-needed regulations. This one of the reasons why most of the students are not conscious of the prominent and elite career opportunities present in the scope of the stock markets.
In the recent decade, a shortage of trained professionals in the financial market has prompted the need for specialized professionals in various verticals ranging from stock traders to venture capital analysts.
It is good to see many enthusiastic and young people from other professions are interested in checking their luck in the Stock Market. However, specific precautionary steps are necessary before considering Trading as a full-time profession even if you have decent success as a Trader as the Market situations always change. Besides, I have noticed people attracted to the luxuries available in Trading, and sometimes they plan to jump to Full-time trading to avoid the problems in their current profession.
In India, many young adults refrain themselves from any investing decisions until their financial situation becomes, at least theoretically, more stable and therefore, a small chunk of the population is exposed to the equity investment compared to other developing countries, and we see immense opportunities lying out there in the stock market considering the phenomenal growth in the last decade or so.
As the stock market is one of the key barometers that represent the health of any economy, the growth story of India coupled with the current low rate of penetration in the stock market suggests that there will be increased demand for professionals in this sector.
For people who are interested in making a career in the stock markets, the opportunities are plentiful. For instance, one could work with a buy-side firm such as a mutual fund, hedge fund, pension fund etc., or with a sell-side firm such as a broker, an advisory firm, an investment bank etc.
Apart from the diversity of companies that employ people willing to work in the stock market, the positions for which these companies hire is also just as diverse. For instance, companies hire for the position of a Fundamental Analyst, Technical Analyst, Risk Analyst, Derivatives Analyst, Investment Banker, Mutual Fund Manager, Hedge Fund Manager, Wealth Manager, Economist, Financial Planner, Trader, Dealer, Systems Developer etc. The list simply goes on such as the diversity of working in the stock market.
On the education front, there are a lot of finance-related courses that one could pursue to make a career in the stock market. The internationally recognized ones the Chartered Financial Analyst (CFA) program, the Financial Risk Manager (FRM) program, the Chartered Market Technician (CMT) program, the Chartered Alternative Investment Analyst (CAIA) program, the Certified Financial Planner (CFP) program, Master of Finance, Master of Business Administration with specialization in Finance, etc. Pursuing one or more of these courses opens the door for entering the highly competitive world of stock markets.
Besides these courses, there are a lot of short-term courses that are available in India, such as the ones conducted by the NSE and the BSE. NISM certifications are considered to be the standard in the field of trading and investments. They are recognized by the exchange and many of them are mandatory for market participants.
Commerce degrees such as B.COM, BBA/BBM, MBA, PGDF, PGDM etc. have little to no emphasis on stock markets, trading or investing as a subject. These courses are considered to be a standard, and many undergraduates go on to pursue an MBA hoping for a value-add in terms of their employability, but in real terms, it adds little to no value in terms of the knowledge offered. However, there are a handful of institutes that are good.
However, there is a tendency among most aspirants to complete as many degrees as possible to become more employable. Beyond a point, degrees and certificates don’t matter. Hence, it’s best not to focus too much on the theoretical aspect of finance but rather on the practicality which can only be earned with years of experience.
Financial Markets have grown tremendously in the past decade in terms of participants and volumes but a proper education and training system in this industry is still missing.
Trading in the stock market always seems very easy when explained in a theoretical manner, but is it so?
And the answer is no before we start stock trading in the market we should make it very clear how it can be done.
Before anyone enters into the stock market must clear with this few terms which can help them later on.
Its a market place where already-issued securities trade in an electronic manner from one trader/investor to another trader/investor, via electronic transaction. All the transaction takes place on the Stock Exchange, a place where trader & investors purchase & sell listed securities like Shares Debentures & ETF.
The market run in a hierarchy which makes its function smooth, easy to understand & handle.
Securities Exchange Board of India:- Acting as a regulatory body manages the smooth functioning of the market.
Stock Exchange:- A platform where one can do trading in financial securities via electronic mode, major exchanges are NSE BSE & MSEI.
Depository:- An institution registered under depositories Act 1996 for holding, receiving and transferring securities in electronic form.
Broker:- As defined by SEBI an Intermediary who provide a platform to investors & traders to trade on an exchange.
Client:- A client can be defined as any individual Resident / NRI, group of person, Any Financial Institution Foreign / Domestic.
The basic requirement for an individual to trade in the stock market is a Demat & Trading Account. Which is opened with a broker who provides us with a platform to trade on stock exchanges.
As a trader or investor, you are having to option to trade In the market you can do online trading as well as offline, In the online process, you can directly access through web portal or application through mobile or laptop, whereas in Offline you need to make a call to the authorized dealer in the brokerage firm and the dealer will submit the order on your behalf.
Daily purchase and sale of shares in the market are termed as Intraday Trading, Whereas Purchasing & holding shares for long tenure is termed as delivery trading.
The market actually runs in two trends Bull phase and Bear Phase, when the market goes on high with positive demand & supply is Bull run, whereas when there are less demand and supply is more the market runs in Bear Phase.
Commodities and equities trading is something that has become common in India by now. But a high potential market which most of the traders and investors are unaware of is the currency market. Currency trading holds great potential of earning profits if the traders are able to spot the right opportunity and can use those opportunities for their benefit.
Here are 6 top things you should know about currency trading
The currency market is a market that involves participants from all across the world. The currency market facilitates the buying and selling of different currencies. The major participants of currency trading include commercial banks, the central bank, corporations, various investment management funds, hedge fund managers, forex brokers, and last but not the least investors and traders like you and me.
Currency trading, as the name suggests, is the buying and selling of international currencies. The banks and financial institutions are often involved in the act of currency trading. Individual investors can also indulge in currency trading as it is legitimate. The profit from currency trading is earned due to the variations in the exchange rate of the currencies.
Currency market derivatives comprise of currency futures. They are basically exchange-traded futures contracts. The price of the futures contract is set in a specific currency at which another currency can be bought or sold. It is bought or sold at a future pre-determined date just like in the case of futures contracts. They are also referred to as foreign exchange futures. Currency futures are considered to be financial derivatives as the value of the currency futures contracts is derived from the underlying currency exchange rate. Trading in currency futures calls for the initial margin requirement. If the margin falls below the initial margin requirement a margin call is made to the investor, which means, that the investor will be required to deposit the required amount of money to arrive at the maintenance margin.
Just like an options contract, a currency option is a contract that gives the buyer the right but not the obligation to buy or sell a certain currency at a specified exchange rate in the future. Hence, it gives the right to exercise the contract only if the investor finds the price favorable. This choice is not available in the case of currency futures where the investors have the option to exercise the right.
Trading in the currency market is not only risky but also complex at the same time. Some of the risks involved in currency trading in India are as follows:
Interest Rate Risk
Interest rates have an impact on the country’s currency. The difference in currency values can cause dramatic changes in forex prices. Hence, the interest rate plays a potential risk in currency trading.
Leverage Risk
Currency trading is different from equity and commodity trading. It also requires a margin amount as a small investment from the investor. This benefit of leverage allows the traders to have access to a large number of trades. Even a minor fluctuation can result in levying an additional margin requirement to be maintained by the investor. Hence, market volatility paired with aggressive leverage can be highly risky when talking about currency trading.
Credit Risk
The credit risk is related majorly with the banks and financial institutions and has an insignificant role to play in the case of individual traders. Credit risk is when a voluntary or an involuntary action from the counter party results in the non-repayment of the outstanding currency position.
Counterparty Risk
The counterparty is the investor’s asset provider. The risk caused due to defaults in the transactions by the dealers and the brokers is referred to as counterparty risk. An exchange house or a clearinghouse in case of currency trading does not guarantee spot and forward contracts.
The traders and investors must be well aware of these different risks related to forex-trading, before stepping into the market.
In order to be successful in currency trading, it is essential that the basics, goals, and risk management by the investor is right. There are certain things which currency traders should keep in mind when entering into currency trading.
Though forex trading online has started gaining popularity lately among traders and investors a set of relevant challenges makes it an equally competitive and risky as well. In order to be successful and make a profit from currency trading, it is essential for the trader to have thorough knowledge and understanding of the domestic as well as of global economies. Last but not the least, be cautious when choosing your broker for currency trading.
“Be fearful when others are greedy and greedy when others are fearful.”
A falling knife is risky to catch as it may hurt, but the one who catches the falling knife perfectly without getting hurt is called a genius. Investing at a time of crisis is too risky but one who invests in a fundamentally sound company at the time of crisis can generate good wealth.
At the time of the COVID-19 pandemic outbreak when investors and traders were selling the stocks in bulk, it did create an opportunity for the new investors to build their portfolio. Globally, when stock markets were getting crashed, individuals were selling in bulks which did create a history for the fastest decline in history.
There has been a “V” shaped recovery across the board from the COVID-19 economic crisis on the back of the strong recovery in the economy. We have seen large swings in the market in this period of 9 months where the market crashed recovered and broke out its all-time high.
The stock market is speculative and always has a forward approach. In March, until when the lockdown was initiated market was getting crashed and made its low on 24th March it’s the same day when the lockdown was announced.
Having its forward outlook it NIFTY50 touched its new all-time high breaking the previous high of 12430.50 on 9th November. We saw a massive rally of approximately 5000 points in just 9 months which was the fastest recovery in the history including its high and low.
In this period of 9 months, fundamentally sound stocks have multiplied themselves and generated huge wealth for the investors. Below is the list of top 10 stocks from NIFTY200 which have generated ample wealth for the investors considering and individual have bought the shares around the close price of 24th March.
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As we can see in the above graph, Adani Green Energy has rejoiced the wealth of investors by 700% which is the most NIFTY200 list of companies; the list is followed by two more companies from the Adani Group namely Adani Gas and Adani Enterprises.[/caption]
In the period of lockdown when everything came to a halt, we saw many new traders and investors entered the market and earned handsome money by investing in some of the good quality companies. The valuations were cheaper and they got an opportunity to be a long term investor.
At the time of crisis stocks were falling and buying at that price does need courage which is equivalent to catch a falling knife but the market has again proved that investing in a fundamentally sound company will always reward investors.
When we buy goods, lower prices are generally a good thing. That’s not the same case in terms of stocks as we never know how much a stock can fall. However, if you would have bought the dip in quality stocks then it will surely benefit the investors. While if an individual wants to invest for a long term then a crisis is the best time to buy because as soon as the economy will recovering it will benefit the investor.
Historically, there has been an economic crisis timely in the stock market. It can occur in the form of a pandemic, recession, or any bubble. People generally sell their portfolio when any crisis happens but as said earlier it does create an opportunity for the investors to average out their portfolio also it creates an opportunity for new investors to build their portfolio.
There have been twelve crises in the 20th century excluding the geopolitical event and the still market had hit an all-time high on 04th December 2020. Thus, a new investor should look for a dip or any crisis event to build a portfolio and invest in the long term.
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