- STOCK MARKET BASICS MADE EASY
- FINANCIAL LITERACY TEST?
- MARKET WISDOM
- STOCK MARKET AND INVESTMENT VIDEOS
- EQUITY INVESTMENTS
- MUTUAL FUNDS
- DEBT MARKETS
- RESEARCH IN EQUITY MARKETS
- DERIVATIVES TRADING
- CURRENCY MARKET
- COMMODITY MARKETS
- Advisory - KYC Compliance
- Advisory for investors
- Procedure to view collateral data
What is Equity?
Equity is the base method of financing the company. It is the risk capital of the owners. Each unit of equity is called a stock or a share. When you buy shares of a company, you basically own a part of that company. A company's stockholders or shareholders are the owners of equity capital in the company . And each owner owns the company in proportion of her shareholding.
Investors buy equity as they expect to earn risk related returns which are realised in the form of capital appreciation and dividends. There are two basic types of shares that any company issues: equity shares and preference shares.
A. Equity shares
Both public and private corporations issue equity shares. Equity shareholders are the owners of a company and initially provide the risk capital in the form of equity to start the business. Equity share ownership in a public company offers many benefits to investors. The following are some of its main advantages:
Dividend tax credit
There are also a few drawbacks of owning equity shares. Although part owners of the business, common shareholders are in a weaker position when compared to senior creditors, bondholders and preferred shareholders have prior claims on the earnings and assets of a company. While interest payments are guaranteed to bond holders, dividends are payable to shareholders at the discretion of the directors of a company.
As equity shareholders are part owners of the company, they must share the rewards as well as the risk that the company faces at any point in time.
B. Preference shares
A preference share is a type of share capital that generally enables shareholders to receive dividends ahead of the company's common shares and to receive a stated rupee value per share in the event of liquidation. Typically, the preferred shareholder occupies a position between that of a company's creditors and its common shareholders.
As preferred shares have characteristics of both debt and equity, they provide a link between the bond and common equity sections of a portfolio. One shortcoming of preferred shares is that many are non-voting. However, after a specified number of preferred dividends are withheld, voting rights are usually assigned to preferred shareholders. In India, very few companies offer preference shares.
Why Invest In Equities?
Investing in shares offers many benefits over other asset classes.
A. Returns which beat inflation:
Equities can help you build long-term growth into your overall financial plan. Over a longer period, shares can produce significant capital gains through price appreciation. Some companies also issue free or bonus shares to their shareholders as another way of passing on company profits or increases in their net worth.
As an asset class, equity has outperformed most other type of investments over longer periods of time. Data from BSE sensex – from 1978 till 2014 – a period of 36 years shows that on average, equities have given an annual return of 15% CAGR compounded annual growth rate. During the same period CPI retail inflation in India averaged 8% p.a. This data shows that in the long-term equities have given returns that are almost 2 times that of inflation.
In addition, equities pay dividend income, which has the potential to grow overtime. Equities that pay regular dividends are called income stocks. These companies have capital appreciation potential and when dividends are reinvested into additional shares, there is also the potential to compound investment returns.
There are over 5,000 companies listed on the capital markets, in which you can buy shares, so there are plenty to choose from to match your investment needs.
Equity represents an ownership stake in a corporation. If you are a stockholder, you own a proportionate share in the company's assets. That means you gain a part of the ownership of the company.
Equities have a high level of liquidity. You can sell your stocks and receive the money in 2-3 working days.
E. Tax Benefits: (as per current tax laws)
The dividend income generated on shares is completely tax-free. Long-term capital gains on equity investments are tax-free as well. That means if you invest in a company and keep the shares for 12 or more months, you pay concessional tax beyond the limit. Short-term capital gains tax on shares is also just 10%, while investment in other asset classes attracts short-term capital gains tax of 30%.
Basic Terms Used When Investing In Equities
This represents the highest price a prospective buyer is willing to pay for a stock.
B. Offer (Ask):
This represents the lowest price a prospective seller is willing to accept for a stock.
C. Market order:
An order to buy or sell a specified number of shares at the best available price at the time the order is received on the exchange floor. All orders not bearing a specific price are usually considered "at the market" which could mean paying the "offer" when buying or accepting the "bid" when selling.
D. Limit Order:
An order in which you specify the price at which you would like to buy or sell.
E. Stop Buy and Stop Loss Orders:
Orders to buy or sell that are placed above or below the current market price, which become active orders when the price of the stock rises or falls to the specified price. These orders may be placed to execute at the market, at a specified limit or within a specified price range.
A stop buy order can be used to protect against losses in a short sale, whereas a stop loss order can be used to protect a paper profit or to limit a possible loss when you already own the shares.
Not all stock exchanges will accept these orders. Stop buy and stop loss orders are risky because they may not necessarily fill at the specified price but at the best possible price available at that time.
F. Market capitalization
This is a frequently used term and it denotes the size of the floating stock available. Market cap = total outstanding shares of the company X current market price.
For instance, a company has 20 million outstanding shares and the current market price of each share is INR 100. Market capitalization of this company will be 2,00,00,000 x 100 = INR 200 crores.
Stocks of companies can be classified into 3 types based on their market capitalization. Those with a market cap of INR 10,000 crores or more are large cap stocks. Those with a market cap between INR 2,000 crores and 10000 crores are mid cap stocks and those less than INR 2,000 crores market cap are small cap stocks.
This definition is modified from time to time by the stock exchanges (NSE & BSE) and used to construct the various indices.
Generally, large cap stocks are more liquid and more actively traded than mid and small cap stocks. This definition is useful while constructing and tracking stock portfolios.
G. Types of stocks:
Generally, there are 2 types of stocks available:
A stock that trades at a lower price relative to its fundamentals (i.e. dividends, earnings, sales, etc.) is defined as a value stock. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to earnings ratio.
Shares in a company whose earnings are expected to grow at an above average rate relative to the market. A growth stock is often overvalued. Common characteristics of such stocks include a low dividend yield, high price-to-book ratio and/or high price-to-earnings ratio.
We will discuss more about these ratios in the "Experienced investor" section
Various Institutions In The Stock Market
A. SEBI (Securities and exchange board of India)
SEBI is the regulator that governs the capital market in India. SEBI is part of the various organizations under the Ministry of Finance (Government of India) (please click here for more detailed information)
B. Stock exchange
Stock exchanges are the platform where shares are bought or sold. They are regulated by SEBI. There are many stock exchanges in India, however for the purpose of this discussion, we are limiting ourselves to the top 2 stock exchanges in India.
Bombay Stock Exchange (BSE) (please click here for more detailed information)
National Stock Exchange (NSE) (please click here for more detailed information)
Depositories are the platforms where the shares are held in electronic (paperless) OR more popularly known as DEMAT (dematerialized) form. They are regulated by SEBI
There are 2 major depositories in India:
Central depository services (please click here for more detailed information)
National depository services (please click here for more detailed information)
Brokers are registered members of the stock exchange and investors can buy or sell shares through brokers. Brokers are regulated by the stock exchange and SEBI Brokers can be either individual brokers or corporate broking firms
We at www.investmentz.com are a part of the Asit C. Mehta Investment Interrmediates Ltd., the oldest registered corporate broking firm.
E. Clearing corporation
The clearing corporation clears and settles trades in equities traded on the stock exchanges. When a buy order in an exchange matches with a sell order, a trade is completed. The central counter party steps in between the buyer and the seller and acts as a buyer to every seller and a seller to every buyer guaranteeing settlement of trades.
Clearing corporations maintain funds for guaranteeing trades, settlement and in case a buyer or a seller defaults. They are regulated by SEBI.
There are 3 qualified central counter parties (QCCPs) in the Indian securities market.
National Securities Clearing Corporation Ltd (NSCCL) (please click here for more detailed information)
Indian Clearing Corporation Ltd (ICCL) (please click here for more detailed information)
MCX-SX Clearing Corporation Ltd (MCX-SXCCL) (please click here for more detailed information)
How To Buy And Sell Shares Or Stocks
It is quite simple. All you must do is to follow the 3 steps process given below:
A. Open a demat account
You can open a zero balance demat account with us.
B. Open a trading account
You can open a zero-balance trading account with us.
C. Linking your existing bank account
Your current bank account will be linked to the trading and demat accounts to ensure that there is a smooth fund flow to your account when you buy or sell shares.
You can contact us to complete these initial formalities and then start buying and selling shares over the internet or through the mobile app.
Security And Privacy Of Your Trading Account
Only you will know your Login ID and Password, as these are stored in encrypted form. We recommend that you choose a strong password that is not easy to guess, and never share it with anyone.
We at www.investmentz.com offer you a range of research services which will help you to buy or sell stocks.
Our research services are categorized as:
A. Informational products
B. Recommendation products
Please click here to know more and to register for our research and subscription services
Investing In Equities
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What Is A Mutual Fund?
A Mutual Fund is a product wherein an asset management company pools investible funds of various investors having a common objective as disclosed in an offer document. Investors are issued units, based on the amount of money they have invested. Investors of mutual funds are known as unit holders.
Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time.
The profits or losses are shared by the investors in proportion to their investments. Mutual Funds generally offer a variety of schemes with different investment. Before a mutual fund can collect funds from investors, it is required to be registered with Securities and Exchange Board of India (SEBI).
Benefits of Investing In Mutual Funds
- Beating Inflation
- Expert Fund Management
- Low Cost
- Higher Return Potential
- Safety & Transparency
History Of Mutual Funds In India And Role Of SEBI
The Unit Trust of India was the first mutual fund in India, set up in the year 1963. In the early 1990s, Government allowed public sector banks and institutions to set up mutual funds.
In the year 1992, the Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.
As far as mutual funds are concerned, SEBI formulates policies and regulates mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter on an ongoing basis. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. All mutual funds regardless of their ownership (private, public or foreign) are governed by the same set of regulations.
How Is A Mutual Fund Set Up?
A mutual fund is set up in the form of a trust, which has a sponsor, trustees, an asset management company (AMC) and a custodian. The trust is established by one or more sponsors. The trustees of the mutual fund hold its property for the benefit of the unit holders. The AMC manages the funds by making investments in various types of securities. The custodian holds the securities purchased by the fund in its custody. The trustees are vested with the general power of superintendence and direction over the AMC. They monitor the performance and the regulatory compliance of the mutual fund. All these entities are regulated by SEBI.
SEBI regulations require that at least half of the directors of the AMC, as well as two thirds of the directors of the trustee company must be independent, which means that they should not be associated with the sponsors.
Net Asset Value (NAV)
The performance of a particular scheme of a mutual fund is denoted by the NAV.
Mutual funds invest the money collected from the investors in securities markets. In simple words, NAV is the market value of the securities held by the scheme. Since the market value of securities changes every day, the NAV of a scheme also changes every day. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date.
For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.
Types Of Mutual Funds Scheme
A.Schemes according to Accessibility of the Investment:
Depending on the accessibility of the investment, mutual fund scheme can be classified as an open-ended scheme or a close-ended scheme.
An open-ended scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at the most recent NAV. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme:
A close-ended scheme has a stipulated maturity period. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed.
In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or listing on stock exchanges.
B. Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. These are the main types of schemes available:
Growth / Equity Oriented Scheme:
The aim of growth funds is to provide capital appreciation over the medium- to long-term. Such schemes generally invest a major part of their corpus in equities. Such funds have comparatively higher risks vs other scheme types. These schemes provide different options to the investors like a dividend option, capital appreciation, etc. The investors must indicate the option at the time of subscription, though they may change it at a later date. Growth schemes are good for investors who have a long-term outlook and are willing to take some additional risk.
Income / Debt Oriented Scheme:
The aim of income funds is to provide regular income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, the NAVs of such funds are affected by changes in interest rates. Opportunities of capital appreciation are also limited in such funds.
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% each in equity and debt instruments. The NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund:
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive Index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage as the index being tracked. NAVs of such schemes increase and decrease based on the fluctuation of the index, though not exactly by the same percentage due to a tracking error that normally exists. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
These are the funds/schemes which invest in the securities of only those sectors that are specified in the offer documents. The returns in these funds are dependent on the performance of the sector being tracked. While these funds may give higher returns, they are more risky compared to diversified funds as the diversification is limited to companies in a particular sector.
Tax Saving Mutual Fund Schemes
Under specific provisions of the Income Tax Act, 1961, the Government offers tax incentives for investment in certain avenues. These schemes offer tax rebates to the investors in the form of Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth-oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
Fund Of Funds (FoF) Scheme?
A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as an FoF scheme. An FoF scheme enables the investors to achieve greater diversification through one scheme by spreading risks across a greater universe. However, it cost more to invest in such a scheme as there are typically two layers of management fees.
Load Or No-Load Mutual Fund?
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge is applicable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit.
The investors should take loads into consideration while making investment as they affect returns on the investment. However, the investors should also consider the performance track record and service standards of the mutual fund. Efficient funds may give higher returns in spite of having a load.
A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
Can A Mutual Fund Impose Fresh Load Or Increase The Load Beyond The Level Mentioned In The Offer Documents?
Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load is applicable only to prospective investments and not to the original investments. In case of the imposition of fresh loads or an increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are informed of the revised loads at the time of investment.
Sales or Repurchase/Redemption Price
The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales price. It may include a sales load, if applicable.
The repurchase or redemption price is the NAV at which an open-ended scheme purchases or redeems its units from the unit holders. It may include an exit load, if applicable.
Can A Mutual Fund Change The Asset Allocation While Deploying Funds Of Investors?
The fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. Considering the market trends, any prudent fund manager can change the asset allocation i.e. she can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on for the short term based on defensive considerations such as protecting the NAV. In case the mutual fund wants to change the asset allocation on a permanent basis, it is required to inform the unitholders and give them an option to exit the scheme at the prevailing NAV without any load.
Investing In Mutual Fund
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What Exactly Is Debt?
Debt is an amount of money borrowed by one party from another. Companies borrow to supplement equity funds (risk capital) for financing projects and meeting working capital needs. By definition, something that is borrowed has to be repaid at a point of time in the future. Debt does not assume any risk related to the venture, nor does it aspire to earn business profits. The compensation for lending money in the form of debt is interest, the rate of which is decided in advance.
Debt Products Available
Here is a list of products available to the individual investor in India:
A. Fixed deposits / Corporate bonds / Debentures:
This is the most popular debt product category. It is a deposit for a specific time period with a fixed rate of interest, which is to be paid along with the principal at maturity. Fixed deposits issued by banks and companies are popular with Indian investors. The rate of interest may be fixed or floating (linked to a benchmark rate). The tenure could be from 1 week to 10 years.
Bonds carry a fixed or floating rate of interest, which can be taxable or tax-free. There are many public sector companies which offer tax-free bonds.
These tax-free bonds are popular with investors who are in the highest income tax slab, since their pre-tax return is attractive compared to the risk of investing.
To assess the risk profile of the borrower, a credit rating is assigned by the credit rating agency. CRISIL, ICRA & CARE are the leading credit rating agencies in India.
An investor should check the credit rating and interest rate of the fixed deposit, corporate bond or debenture before investing.
Generally, the highest credit rating is AAA and as the credit rating falls, (from low risk to high risk) the rate of interest offered increases.
B. Government securities:
They are issued by the Reserve bank of India (RBI) on behalf of the central and various state governments. They carry a fixed rate of interest that is payable semi-annually, and a fixed tenure. The tenure can range from 1 year to 30 years. The principal amount is repaid at the maturity date.
Securities below the tenure of 1 year are called Treasury bills (T-bills). They are issued at a discount to the face value and redeemed at face value.
They are considered to be the safest amongst all debt products, as the central and state governments issue them.
C. Debt mutual funds:
These mutual fund schemes invest in government securities, corporate bonds (fixed rate and floating rate) and money market instruments. They seek to provide a steady return with relatively low risk.
They are ideal for investors with a low risk profile. They offer high liquidity and returns that are in line with those provided by corporate bonds. Returns are not guaranteed. They enjoy tax benefits. If debt funds are sold after 3 years, then the applicable long-term capital gains tax is lower than usual.
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Investing In Debt
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RESEARCH IN EQUITY MARKETS
RESEARCH & MORE
In India, there are more than 5,000 listed stocks available for investment. How does one go about selecting a particular stock? The process of research and analysis is like a filtration process, which enables one to filter and chose the stock or company, which matches one’s investment criteria. This process enables the identification of undervalued, overvalued and growth stocks.
Research Methodologies In The Equity Market
In the equity markets, there are broadly two types of research methods available:
A. Fundamental Research: In this method, the research analyst studies the fundamentals of the stock, which include:
- The business of the company
- The background of the promoters
- The shareholding pattern
- The current product and/or service portfolio
- The competitive positioning
- The historical performance and growth rates
- The detailed analysis of various financial statements such as the balance sheet, the cashflow statement and the profit and loss statement
- The analysis of various financial and operating ratios of the company
- The analysis of various valuation ratios
- Interactions with the management of the company
- Interactions with key vendors, customers, and suppliers
B. Technical Research: In this method, the research analyst studies past volume and pricing information of the stock. It makes certain key assumptions, such as:
- The market value of the asset reflects its supply and demand
- Supply and demand are driven by rational factors such as data and economic analysis, as well as irrational factors such as greed, panic, sentiment and guesswork.
- Markets and individual stocks move together
Differences between Technical and Fundamental Analysis
The main difference between technical analysis and fundamental analysis is the use of financial statements to value equities. Technical analysis is the practice of valuing stocks based on past volume and pricing information to predict future price movements. Fundamental analysis, however, takes a more formal approach. Fundamental analysts review the financial statements of a company and generate ratios, such as price-to-book value, price-to-earnings, return on equity, return on net worth, price-to-sales, price-to-cash earnings, enterprise value-to-EBITDA. These ratios are then used to value a stock.
Advantages And Disadvantages Of Technical Analysis
- Technical analysis is easy to understand and can be performed relatively with the aid of a charting software
- Technical analysis does not rely on the use of financial statements for valuation
- Rather than strict fundamental valuation, technical analysis takes into account the "feeling" of the market, which is subjective.
- The past is not always an indication of future results, calling into question the validity of technical analysis
- Technical analysis violates the premise of Efficient Market Hypothesis (EMH). EMH says it is impossible to "beat the market", because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.
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What are Derivatives Instruments?
A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, currency, bonds, stocks, indices, etc. Derivatives can be used to either to hedge the portfolio, indices or other investments, or to benefit from sharp movements in their prices. Four most common examples of derivative instruments are Futures, Forwards, Options and Swaps.
What is Futures Contract?
Stock & Index Futures are financial contracts where the underlying asset is an individual stock & Index. The Future contract is an agreement to buy or sell a specified quantity of underlying equity share for a future date at a price agreed upon between the buyer and seller. The contracts have standardized specifications like market lot, expiry day, unit of price quotation, tick size and method of settlement. Futures are traded in contracts of 1 month, 2 months and 3 months. All F&O contracts will expire on the last Thursday of the month, if the last Thursday is a trading holiday; the contracts expire on the previous trading day. Futures will trade at a Futures price which is normally at a premium to the spot price due to the time value.
There are three major participants in Derivatives.
1. Hedgers- Futures can be used to hedge the price movement of the underlying asset. Here, the goal is to prevent losses from potentially unfavourable price changes rather than to speculate.
2. Speculators/Traders- They try to predict the future movements in prices of underlying assets and based on the view, take positions in derivative contracts
3. Arbitrageurs- Arbitrage is a deal that produces profit by exploiting a price difference in a product in two different markets. Arbitrage originates when a trader purchases an asset cheaply in one location and simultaneously arranges to sell it at a higher price in another location
Let us understand various terms in the futures market with the help of quotes on Nifty futures from NSE:
Spot Price: The price at which an asset trades in the cash market.
Futures Price: The price of the futures contract in the futures market.
Contract Cycle: Maximum number of index futures contracts is of 3 months contract cycle- the near month (July 2020), the next month (August 2020) and the far month (September 2020). Every futures contract expires on last Thursday of respective month (in this case July 30, 2020). And, a new contract (in this example - October 2020) is introduced on the trading day following the expiry day of the near month contract.
Expiration Day: The day on which a derivative contract ceases to exist. It is last trading day of the contract.
Contract Size and contract value: Futures contracts are traded in lots and to arrive at the contract value we have to multiply the price with contract multiplier or lot size or contract size.
Basis: The difference between the spot price and the futures price is called basis.
Cost of Carry: Cost of Carry or CoC is the cost to be incurred by the investor for holding certain positions in the underlying market till the futures contract expires. The risk-free interest rate is included in this cost. Dividend payouts from the underlying are excluded from the CoC.
CoC is the difference between the futures and spot price of a stock or index. The Cost of Carry is important because higher the value of CoC, higher is the willingness of the traders to pay more money for holding futures.
Initial Margin: The amount one needs to deposit in the margin account at the time entering a futures contract is known as the initial margin.
Marking to Market (MTM): In futures market, while contracts have maturity of several months, profits and losses are settled on day-to-day basis – called mark to market (MTM) settlement.
Open Interest and Volumes Traded: An open interest is the total number of contracts outstanding (yet to be settled) for an underlying asset. The quotes given above show us on 21-July, 2020 Nifty futures has an open Interest of 13287675. It is important to understand that number of long futures as well as number of short futures is 13287675. This is because total number of long futures will always be equal to total number of short futures. Volumes traded give us an idea about the market activity with regards to specific contract over a given period – volume over a day, over a week or month or over entire life of the contract.
Contract Specifications: Contract specifications include the salient features of a derivative contract like contract maturity, contract multiplier also referred to as lot size, contract size, tick size etc
Price band: Price Band is essentially the price range within which a contract is permitted to trade during a day.
Advantages and disadvantages of using futures Contract
1. High liquidity provides in financial instruments.
2. Investors can use futures contracts to speculate on the direction in the price of an underlying asset
3. Pay less brokerage for trade activities using futures investments compared to other investment choices.
4. High leverage in order to gain maximum gains with limited investments
1. Investors have a risk that they can lose more than the initial margin amount since futures use leverage.
2. Investing in a futures contract might cause a company that hedged to miss out on favorable price movements.
3. Margin can be a double-edged sword meaning gains are amplified but so too are losses.
4. The consequence of low commission charges can be over-trading by traders.
5. Future contracts which are not closed before expiry will be physically settled.
It is a contractual agreement between two parties to buy/sell an underlying asset at a certain future date for a particular price that is pre-decided on the date of contract. Both the contracting parties are committed and are obliged to honour the transaction irrespective of price of the underlying asset at the time of delivery. Since forwards are negotiated between two parties, the terms and conditions of contracts are customized. These are Over-the-counter (OTC) contracts.
Major limitations of forwards
1. Liquidity Risk-Liquidity is nothing but the ability of the market participants to buy or sell the desired quantity of an underlying asset. Forwards are not listed or traded on exchanges, which makes it difficult for other market participants to easily access these contracts or contracting parties.
2. Counterparty risk-Counterparty risk is the risk of an economic loss from the failure of counterparty to fulfil its contractual obligation.
What is Options Contract?
An Option is a contract that gives the right, but not an obligation, to buy or sell the underlying asset on or before a stated date/day, at a stated price, for a price. The party taking a long position i.e. buying the option is called buyer/ holder of the option and the party taking a short position i.e. selling the option is called the seller/ writer of the option.
Stock options are traded in contracts of 1 month, 2 months and 3 months, while Nifty index options are traded in contracts of 1 month, 2 months, 3 months and maximum 5 Years. All 1-month Option contracts expire on the last Thursday of the month. Weekly Index option contracts expire on the last Thursday of the week. In case the last Thursday of the week is a trading holiday, the previous trading day is the expiry day.
Types of Options
There are two types of Options:
1. Call Options are investments where the buyer believes the underlying stock's market price will rise above the strike price on or before the expiration date of the option.
2. Put Options are investments where the buyer believes the underlying stock's market price will fall below the strike price on or before the expiration date of the option.
An option premium consists of components, namely Intrinsic value and the Time value.
|· Option premium = Intrinsic value + Time value|
|· Intrinsic value: The Intrinsic value is the amount by which the strike price of an option is In-the-money. The Intrinsic value for call option will be the underlying stock’s price minus its call strike price, whereas for the put option, it is the put strike price minus the underlying stock price. ATM and OTM options don’t have any Intrinsic value.|
|· Time Value: The Time value is also referred to as the Extrinsic value. It is the excess amount over and above an option’s intrinsic value. Time value decreases to zero over time as the option moves closer to expiration. This circumstance is called as Time decay. Options premium depends on time to expiration. Options that would expire after a longer duration of time would be more expensive as compared to those expiring in the current month as the former would have more time value left, increasing the probability of trade going in your favour.|
What Options called at Strike price?
In the money (ITM) option: This option would give holder a positive cash flow, if it were exercised immediately. A call option is said to be ITM, when spot price is higher than strike price. And, a put option is said to be ITM when spot price is lower than strike price. In our examples, call option is in the money.
At the money (ATM) option: At the money option would lead to zero cash flow if it were exercised immediately. Therefore, for both call and put ATM options, strike price is equal to spot price.
Out of the money (OTM) option: Out of the money option is one with strike price worse than the spot price for the holder of option. In other words, this option would give the holder a negative cash flow if it were exercised immediately. A call option is said to be OTM, when spot price is lower than strike price. And a put option is said to be OTM when spot price is higher than strike price. In our examples, put option is out of the money.
Currently all in the money options are physical settled, in case of position is not squared up.
Value of an option (premium)
There are two types of factors that affect the value of the option premium:
· underlying stock price
· the strike price of the option
· the volatility of the underlying stock
· the time to expiration and
· the risk free interest rate
· Market participants" varying estimates of the underlying asset's future volatility
· Individuals" varying estimates of future performance of the underlying asset, based on fundamental or technical analysis
· The effect of supply & demand- both in the options marketplace and in the market for the underlying asset
· The "depth" of the market for that option - the number of transactions and the contract's trading volume on any given day.
Swaps are not exchange oriented and are traded over the counter, usually the dealing are oriented through banks. Swaps can be used to hedge risk of various kinds which includes interest rate risk and currency risk. Currency swaps and interest rates swaps are the two most common kinds of swaps traded in the market.
How to open Derivatives Account
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WHY INVEST IN CURRENCY?
Currency investing has recently attracted more interest as economic uncertainty has enveloped the globe. Historically, trading currencies was reserved to multi-national corporations and well-financed investors, but this market has been opened up to the average investor.
The foreign exchange market (forex) is where currencies are traded. For multinational companies, this market provides a means of doing business in other countries, facilitating the payment of bills in the local currency. For speculators, this market provides opportunities to take advantage of movements in exchange rates. Here are some reasons to consider investing in currencies.
You can use currencies to balance your portfolio, particularly if it is heavily focused in U.S. equities. For example, it you believe the dollar will drop in the future, you can buy one or more currencies that you think will rise.
One difference between stocks and currencies is that stocks move independently of each other while currencies move relative to each other. With currencies, when one is rising, another must be falling.
2:Level Playing Field
Unlike stocks, the news that drives currency prices is available to everyone on a real-time basis. In theory, there are no "insiders" in the foreign exchange market which operates 24 hours a day around the world. Since currency valuations are driven by actual monetary flows and events that influence a country's economic health, you can do your own analysis of how these events might impact its currency.
3:Global Economic Hedge
There is a growing fear that current U. S. fiscal and monetary policies will generate inflation and weaken the dollar over time. Growing budget deficits, record low interest rates and the amount of money being created by the Federal Reserve are all reasons for concern, and these developments are being closely tracked by currency traders.1 The currency market allows you to select currencies based on how you perceive their relative values will change over time. You can bet both ways, either long or short depending on which direction you think a particular currency is headed. You can allocate your risk across the currencies of several countries, allowing you to profit from changing global macroeconomic conditions.
4: Capital Appreciation
Currencies are akin to currencies and stocks because they offer the potential for capital appreciation. If the value of your currencies rises against the dollar, you will profit. If your currencies fall relative to the dollar, you will lose money.
5: Hedge Against Political and Event Risk
Currencies can be played against each other based on your tactical assessment of important events going on around the world. Examples are changes in top leadership, interest rate fluctuations, currency revaluations, wars, political upheavals, trading sanctions, new tariffs, monetary policy changes, trade deficits, recessions, tax changes, import restrictions and health-related epidemics.
6: Risk vs. Reward
Currencies are subject to risks that go well beyond the borders of each country, so an understanding of the interaction of global economies is important. Perception can be more important than reality since it's impossible to know exactly how critical world events will all play out once they start. Any of these events can happen in an instant without warning, making currencies subject to significant short-term volatility.
The risks and rewards of the forex market are amplified by leverage. Your potential profit or loss is multiplied by the leverage ratio, which can be in excess of 100:1. It's similar to trading stocks on margin because you can risk more money than the value of your capital account. This opens the door to profits on tiny moves in currencies if the trade goes in your favor, but your losses are multiplied if it goes in the wrong direction.
To minimize risk, spread your investment like you would with equities, choosing the currencies of countries that you are following closely. It's important that those countries have a stable financial and banking system. Also, if you are going to use leverage, start slow and work your way up.
7: Trade on Low Margin:Currency Futures traders are required to deposit low margins, roughly 3 to 5% of the total value of the contract, much lower compared to other asset classes. The low margin, which again varies across exchanges and currencies, facilitates the taking of large positions at lower capital.
What is currency trading?
Currency trading is the act of buying and selling international currencies. Very often, banks and financial trading institutions engage in the act of currency trading. Individual investors can also engage in currency trading, attempting to benefit from variations in the exchange rate of the currencies. The currency market The currency trading (FOREX) market is the biggest and the fastest growing market in the world economy. Its daily turnover is more than 2.5 trillion dollars, which is 100 times greater than the NASDAQ daily turnover. Every day more than U.S. $3 trillion in currencies change hands in a highly professional interbank market, in which electronic trading platforms link currency traders from banks across the world directly. FX markets are effectively open 24 hours a day thanks to global cooperation among currency traders. At the end of each business day in Asia, traders pass their open currency positions on to their colleagues in Europe, who – at the end of their business day – pass their open positions on to American traders, who just begin their working day and pass positions on to Asia at the end of their business day. And there, the circle begins a new. This makes FX truly global and very liquid.
Exchange rate: The exchange rate is a price - the number of units of one nation’s currency that must be surrendered in order to acquire one unit of another nation’s currency.
Various terminologies in currency market: Spot price:The price at which a currency trades in the spot market. In the case of USD/INR, spot value is T + 2.
Futures price: The price at which the futures contract trades in the futures market.
Contract cycle: The currency futures contracts on the SEBI recognized exchanges have one-month, two-month, and three-month up to twelve-month expiry cycles. Hence, these exchanges will have 12 contracts outstanding at any given point in time.
Final settlement date: The last business day of the month will be termed the Value date/ Final Settlement date of each contract.
Expiry date:It is the date specified in the futures contract. All contracts expire on the last working day (excluding Saturdays) of the contract months. The last day for the trading of the contract shall be two working days prior to the final settlement date or value date.
Contract size:In the case of USD/INR it is USD 1000; EUR/INR it is EUR 1000; GBP/INR it is GBP 1000 and in case of JPY/INR it is JPY 100,000. ( Ref. RBI Circular: RBI/2009-10/290, dated 19th January, by which RBI has allowed trade in EUR/INR, JPY/INR and GBP/INR pairs.)
Basis:Basis can be defined as the futures price minus the spot price. In a normal market, basis will be positive. Futures prices normally exceed spot prices.
Cost of carry:The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. This measures (in currency markets) the storage cost plus the interest that is paid to finance or ‘carry’ the asset till delivery less the income earned on the asset. For currency derivatives carry cost is the rate of interest.
Initial margin:The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin.
Marking-to-market:In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investor's gain or loss depending upon the futures closing price which is known as marking-to-market.
A foreign exchange deal:Its always been done in currency pairs, for example, US Dollar – Indian Rupee contract (USD–INR); British Pound – INR (GBP-INR), Japanese Yen – U.S. Dollar (JPYUSD), U.S. Dollar – Swiss Franc (USD-CHF) etc. Some of the liquid currencies in the world are USD, JPY, EURO, GBP, and CHF and some of the liquid currency contracts are on USD-JPY, USD-EURO, EURO-JPY, USD-GBP, and USD-CHF.
Economic variables which affect foreign exchange market
Interest rates, inflation, and GDP numbers are the main variables; however other economic indicators such as unemployment rate, bop, trade deficit, fiscal deficit, manufacturing indices, consumer prices and retail sales amongst others. News and information regarding a country's economy can have a direct impact on the direction that the country's currency is heading in much the same way that current events and financial news affect stock prices, hence the importance of economic factors. The following eight economic factors will directly affect a currency's movements in the Forex market. Interest rates, inflation, and GDP numbers are the main variables; however other economic indicators such as unemployment rate, bop, trade deficit, fiscal deficit, manufacturing indices, consumer prices and retail sales amongst others.
News and information regarding a country's economy can have a direct impact on the direction that the country's currency is heading in much the same way that current events and financial news affect stock prices, hence the importance of economic factors.
Who can trade in Currency Futures markets in India?
Any resident Indian or company including banks and financial institutions can participate in the futures market. However, at present, Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) are not permitted to participate in currency futures market.
Which currency pairs are listed?
Any currency can be traded on the international level. However, in India only 4 major currencies are traded against the Indian Rupee.
Which are the Exchanges used?
The commonly used exchanges on the national level are - Multi Currency Exchange (MCX- SX), National Stock Exchange (NSE) The most commonly used exchange on the international level - COMEX Who are the Regulators of the Market The currency market is regulated jointly by the Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI).
Currency Contracts Specification-Futures
|Contact Specification - FUTURES|
|Unit of Trading||1-1 untit denotes
|1-1 untit denotes
|1-1 untit denotes
1000 POUND STERLING
|1-1 untit denotes
100000 JAPANEASE YEN.
SELECTING CURRENCY TYPE FOR TRADING
Currency trading have done exceedingly well over the years, in terms of risk management, volumes etc. However, before trading in currency you need to check the following:
The currency you wish to trade is listed on the exchange.
Check the contract specifications of that currency to ensure it suits you best.
There is enough liquidity in the NSE exchange for currencies of interest.
Currency price should be in sync with the physical market prices or its respective benchmark prices.
You can find detailed contract specifications on the websites of the exchanges
CURRENCY PRICE FLUCTUATION
There are circuit limits or daily price range (DPR) to safeguard the interests of general investors from the extreme volatilities in markets for preventing any unexpected fall or rise beyond a limit.Exchange shall compute the Index circuit breaker limits for 10%, 15% and 20% levels on a daily basis based on the previous day's closing level of the index rounded off to the nearest tick size. When the circuit limit is hit, there is a cooling period of fifteen minutes after which the trading will begin again with fresh circuit limits.
TERMINOLOGIES USED IN TRADING
Long- Long means buying a currency in anticipation that the price will move up.
Short – Short means selling a currency in anticipation that the prices will come down.
Stop loss -Stop loss is an order to limit an investor's loss on the position he holds. By placing a Stop Order, Investor actually set a loss level which investor is willing to undertake.
ELIGIBILITY TO OPEN CURRENCY TRADING ACCOUNT
Any individual, Hindu undivided family (HUF), proprietary firm, partnership firm, or a company can open an account with us. Only resident Indians can open currency trading account
HOW TO OPEN CURRENCY TRADING ACCOUNT
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Why Invest In Commodities?
1. Speculation: Trading in commodities is done with a view to make profits.
2. Transparency and Fair Price Discovery: Trading in commodity futures is transparent and a process of fair price discovery is ensured through large-scale participation. The large participation also reflects views and expectations of a wider section of people concerned with that commodity. Online Platform: Producers, traders and processors, exporters/importers get an online platform through MCX / NCDEX for price risk management.
3. Hedging: It provides a platform for producers to hedge their positions according to their exposure in physical commodity.
4. No Insider Trading: Dealing in commodities is free from the evils of insider trading. Besides, there are no company specific risks as those seen in stock markets.
5. Simple Economics: Commodity trading is about the simple economics of demand and supply. More the demand for a commodity higher is its price and vice versa.
6. Trade on Low Margin: Commodity Futures traders are required to deposit low margins, roughly 5 to 10% of the total value of the contract, much lower compared to other asset classes. The low margin, which again varies across exchanges and commodities, facilitates the taking of large positions at lower capital.
7. Seasonality Patterns: Quite often provide clue to both short and long term players.
8. No Counter party Risk: Much like the stock exchanges in the equity market, Commodity Futures market have Clearing Houses, which guarantee that the terms of the contracts are fulfilled, thereby eliminating the counter party risk.
9. Wide Participation: The emergence of online trading would enable growth in the commodity market, much akin to the one seen in the equity market. It would also ensure bringing the market closer to both, the user and the trader.
10. Evolved Pricing: The rise in participation would decrease the risk of cartelisation, ensuring a holistic view on the commodity. Hence, pricing would be more practical and less irrational
Commodities Which We Can Trade
The following commodities are actively traded in these two Exchanges:
Multi Commodity Exchange (MCX)
Bullion: Gold and Silver
Metals: Aluminum, Copper, Zinc etc.
Oil and Oil Seed: Refined Soy Oil, Soy Bean etc.
Energy: Brent crude oil, Crude oil, etc.
Other commodities: Urad, Chana, Wheat, Guar Seed, Sugar, Potato etc.
National Commodity & Derivatives Exchange (NCDEX)
Metals:Aluminum, Copper, Nickel, Sponge iron and Zinc.
Oil and Oil Seed: Castor oil, Crude Palm oil, Soy Oil, Soy Bean etc.
Energy: Brent crude oil, and Furnace oil.
Agro Commodities: Cotton, Chana, Maize, Guar seed, Sugar, Rubber, etc.
For newly listed commodities please visit home page of exchange websites
Exchange Timings To Trade In Commodities
Both MCX and NCDEX provide trading facility from Monday to Saturday.
Monday to Friday: 10.00am - 5.00pm for Agro-based commodities
Monday to Friday: 10.00am - 11.30pm for Precious / Base metals and Energy
Saturdays: 10.00am - 2.00pm for all commodities
Selecting Exchange For Trading
Both the commodity exchanges have done exceedingly well over the years, in terms of risk management, volumes or launching new & better commodity products. However, before choosing an exchange you need to check the following:
The commodity you wish to trade is listed on that exchange.
Check the contract specifications of that commodity to ensure it suits you best.
There is enough liquidity in the exchange for commodities of interest.
Commodity price should be in sync with the physical market prices or its respective benchmark prices.
You can find detailed contract specifications on the websites of the exchanges – www.ncdex.com and www.mcxindia.com
Margin: Margin is the amount that is required in advance to execute trades on the exchanges.
Initial Margin: Initial Margin is the amount of money deposited by both buyers and sellers of futures contract to ensure the performance of trades executed.
Maintenance Margin: Maintenance Margin is an amount over and above the Initial Margin to ensure that the balance in the margin account never goes below a pre-specified level.
Additional Margin: Additional Margin is the margin collected to protect the open positions from unexpected volatility prevailing in the market.
Marked To Market (MTM)?
On the day of entering into the contract, it is the difference of the entry value and closing price for that day. In case of carry forward position, MTM is the difference of the market price less yesterday's closing price.
Commodity Price Fluctuation
There are circuit limits or daily price range (DPR) to safeguard the interests of general investors from the extreme volatilities in markets for preventing any unexpected fall or rise beyond a limit. When the circuit limit is hit, there is a cooling period of fifteen minutes after which the trading will begin again with fresh circuit limits. For updated commodity specific circuit limits, please visit www.ncdex.com and www.mcxindia.com
There is a limit to the quantity one can trade/hold in any given commodity at any point of time. There is a maximum permissible limit on holding a particular commodity for client as well as member. It varies from commodity to commodity and exchange to exchange.
Please see contract specification on exchange website for position limit at client and member level at www.ncdex.com and www.mcxindia.com
You will receive contract notes for your trades. Further, your dealer/relationship manager will update you accordingly.
Terminologies Used In Trading
Long- means buying a commodity in anticipation that the price will move up.
Short - means selling a commodity in anticipation that the prices will come down.
Stop loss - Stop loss is an order to limit an investor's loss on the position he holds. By placing a Stop Order, Investor actually set a loss level which investor is willing to undertake.
Eligibility To Open Commodity Trading Account
Any individual, Hindu undivided family (HUF), proprietary firm, partnership firm, or a company can open an account with us. Only resident Indians can open commodity trading account
you will receive a contract note on your registered address and also in the email id updated with us. However, if a client requires only Digital Contract Note, he/she will have to register for Electronic Contract Note as per the process suggested by SEBI.
Please note that digitally signed contract notes are valid documents under the Information Technology Act 2000 and the same are also available online under My Account which can be used for Income-tax purpose.
If the contract note is not delivered to your email id, there is a high possibility that it may have bounced back, reasons being- email id updated incorrectly, change in email id, email inbox full, etc. In such a scenario our systems will auto generate a hard copy of the contact note copy and dispatch the same through courier services to your registered mailing address.
The service is not chargeable to the client. But incase client requests for additional copies of the same it may be charged.
Types Of Orders
a) Limit Order: It is an order where the user specifies the price at (or better than) which the trade should be executed.
b) Market Order: It is an order which should be executed at whatever be the prevailing price on or after submission of such order. If there is no market at that point of time, it takes the last traded price and remains in the system.
c) Day Order: It is an order which is available for execution during the current trading session until executed or cancelled. All day orders will get cancelled at the end of the day during which such orders were submitted.
d) Stop Loss Order: It is an order placed which is kept by the system in suspended mode and will be visible to the market only when the market price of the relevant commodity reaches or crossed a threshold price, which is called as trigger price as defined by the member. It is used as a tool to limit the loss.
When Can Stop Loss Order Be Placed?
Stop Loss order can be placed while placing a fresh order as well as a square off order.
Basics of Stop Loss Order:
Buy: Market Price < Trigger price <= Order Price. (Trigger price entered should be greater than the market price)
Sell: Market Price > Trigger price >= Order Price. (Trigger price entered should be lesser than the market price)
When the market hits the trigger price, the order is forwarded to the exchange and the same gets traded at a price between the Trigger price and the Order price.
Call And Trade
Call & Trade is a service offered by www.investmentz.com for its customers, which provides customers with a facility to trade over the phone.
It is secure option to place a trade. Once you call our number, our Call & Trade dealer will ask a few questions to verify your identity. Only after your identity is verified, you would be able to place/ modify/ cancel orders.
Options Allowed In Commodity Derivatives?
Options in goods are presently prohibited under Section 19 of the Forward Contracts (Regulation) Act, 1952. No exchange or person can organize or enter into or make or perform options in goods. However the market expects the government to permit options trading in commodities soon.
No. There are no custody charges for holding the demat units
If the trade is squared off sales tax is not applicable. The sales tax is applicable only if a trade results into delivery for the seller. Normally it's the seller's responsibility to collect and pay the sales tax. The sales tax is applicable at the place of delivery. Those who want to give (seller) physical delivery need to have sales tax registration number.
How Is The Futures Contract Defined?
Example: Gold Pure Mumbai 1-Kg future contract expiring on 20th Mar, 2015 is defined as "NCD-FUT-GLDPURMUMK-20-MAR-2015". Wherein "NCD" stands for NCDEX, "FUT" stands for Futures as derivatives product, "GLDPURMUMK" for underlying commodity and "20-MAR-2015" for expiry date
Trade Value Calculation Method
It is not necessary that the unit of quantity and price is the same. For eg. Price for Gold is expressed in Rs per 10 gms but the quantity is submitted in gms. Therefore the quantity can not be multiplied directly. The value of an order/trade can be computed by multiplying the quantity with the price and then the result by the 'multiplier'. For eg. Multiplier incase of Gold is 10.
Dematerialised Or Demat Form Of Commodities
Dematerialisation of commodities implies that these commodities are stored in Exchangedesignated vaults/warehouses and the record of the ownership is in electronic form, just like trading in equity shares. The legal and beneficial owner of the goods gets a credit in his account electronically, which is similar to holding a pass book in the bank. Similarly, transfer of ownership against buy and sale is done from one account to the other, just like money transfer through a cheque.
The depository keeps records of holding and transfers in electronic form. The opening of account and transfer instructions are carried out by the agents of the depository, called Depository Participants (DPs).
Physical Delivery And Demat Delivery
In case of physical delivery, a person gets a warehouse receipt in paper form, while in case of delivery in demat form, he gets a credit entry in his demat account.
Pay-in and Pay-out Time for e-Series Contracts
Funds and delivery pay-in-is at 1:00 pm and pay-out is at 5:30 pm. Pay-in and pay-out for eSeries products are executed on the T+2 basis. Settlement is done from Monday to Friday, excluding holidays notified by the Exchange.
Major Commodity Exchanges In India?
There are three national level commodity exchanges to trade in all permitted commodities. They are:
MCX is an independent and de-mutualised multi commodity exchange. MCX features amongst the world's top three bullion exchanges and top four energy exchanges. Its key shareholders are Financial Technologies (I) Ltd., State Bank of India and it's associates, National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, Corporation Bank, Union Bank of India, Canara Bank, Bank of India, Bank of Baroda, HDFC Bank and SBI Life Insurance Co. Ltd.
A consortium of institutions promotes NCDEX. These include the ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). National Multi Commodity Exchange of India Ltd, Ahmedabad (NMCE)
It is the first de-mutualised electronic multi-commodity Exchange of India. Some of its key promoters are Central Warehousing Corporation (CWC), National Agricultural Co Operative Marketing Federation of India Limited (NAFED), Gujarat Agro Industries Corporation Limited (GAIC) and Punjab National Bank (PNB).
How To Open Commodity Trading Account
An account statement is a document similar to a bank account statement that indicates the mutual fund units owned. A statement is issued each time the investor carries out a transaction.
A write-up has given to shareholders containing the yearly record of a mutual fund's performance. The report also informs the investor about the fund's earnings and operations. Reports are sent out yearly.
Assets are a resource of monetary value such as stocks, bonds, real estate, and cash.
An asset class is a different type of investments such as stocks, bonds, real estate, and cash.
Asset Management Company (AMC)
Asset Management Company (AMC) is the trustee who delegates the task of floating schemes and managing the collected money to a company of professionals, usually experts who are known for smart stock picks. This is an asset management company (AMC). AMC charges a fee for the services it renders to the MF trust. Thus the AMC acts as the investment manager of the trust under the broad supervision and direction of the trustees. The AMC must have a net worth of at least Rs.10 crores at all times and it can not act as a trustee of any other mutual fund.
The percentage of change in net asset value over a year's time, assuming reinvestment of distribution such as dividend payment and bonuses.
Absolute returns over a period (which could be larger or smaller than a year) aggregated to a period of one year.
An Applicable NAV is that at which a transaction is effected. Cut-Off time is set by the fund and all investments or redemptions are processed at that particular NAV. This NAV is relevant if the application is received before that cut-off time on a day. A different NAV holds if received thereafter. Application FormForm prescribed for investors to make applications for subscribing to the units of a fund.
Allocation of the portfolio of a mutual fund in various categories of assets such as equity, debt and others on the basis of the investment objective of the scheme. The process of diversifying investments among different types of assets like stocks, bonds and cash in order to optimise risk / return tradeoff based on a person's financial situation and goals.
Average time to maturity of all fixed-period investments in the portfolio of a scheme.
An increase in an investment's value.
Automatic Investment Plan
Periodic investment of a fixed amount by a unitholder, either directly from his bank account or by issuing post-dated cheques, in his mutual fund account.
Automatic Withdrawal Plan
An automatic withdrawal plan allows an investor to receive periodic payments of fixed amount or units from his investment in a mutual fund scheme. Retirees who want a regular income supplement often choose this.
Average Portfolio Maturity
The average maturity of all the bonds in a bond fund's portfolio.
A mutual fund scheme with an investment objective of both long-term growth and income, through investment in stocks and bonds. Generally, 60% is invested in stocks and 40% in bonds, in order to obtain the highest returns consistent with a low-risk strategy.
A period of time during which securities prices are falling in the stock market.
A Benchmark is a standard which is used for comparison. Usually to provide a point of reference for evaluating a fund's performance. The common benchmarks for equity-oriented funds are the BSE 200 index or the BSE Sensex.
A measure of a fund's volatility in relation to the stock market, as measured by a stated index. By definition, the beta of the stated index is 1; a fund with a higher beta has been more volatile than the market, and a fund with a lower beta has been less volatile than the market. Based on past historical records, a beta higher than 1.0 indicates that when the market rises, the stock will rise to a greater extent than that of the market; likewise, when the market falls, the stock will fall to a greater extent. A beta lower than 1.0 indicates that the stock will usually change to a lesser extent than that of the market. The higher the beta, the greater the investment risk.
The stock of a nationally known company that has a long record of profit, growth, and dividend payment, and a reputation for quality management, products, and services.
Debt security or IOU issued by a government entity or corporation, which generally pays a stated rate of interest, and plans to return the principal amount of the loan on the maturity date. Unlike stockholders, bondholders do not have corporate ownership privileges.
A broker is a licensed person authorised to receive commissions. Brokers are always affiliated with a brokerage company, or broker-dealer network. He is basically a salesman who sells stocks, bonds, or mutual funds.
A bull market is a distinctive time period, during which the prices of securities are rising, usually characterized by high trading volumes.
Basis Point (BP)
The smallest measure used in quoting yields on fixed income securities. One basis point is one percent of one percent, or 0.01%.
An investment strategy that first seeks individual companies with attractive investment potential then considers the economic and industry trends affecting those companies.
Instruments of debt, usually unsecured. They are also usually credit rated.
Debt funds/ securities
A general term for any security representing money loaned that must be repaid to the lender at a future date. Bonds, T-notes, T-bills and money market instruments are debt securities, but they vary in maturities.
A term that denotes the failure to pay the principal or interest on a financial obligation (such as a bond).
Financial instrument whose value is based on the value of another underlying security.
Refers to the selling price of a bond when it's the price is below its maturity value.
The portion of profits that a company or a mutual fund distributes to its shareholders or unitholders.
In a dividend reinvestment plan, the dividend is reinvested in the scheme itself. Hence instead of receiving the dividend, the unit holders receive units. Thus the number of units allotted under the dividend reinvestment plan would be the dividend declared divided by the ex-dividend NAV.
An instrument issued by companies/ mutual funds to an investor for the purpose of payment of dividends
Payout to shareholders resulting from a mutual fund's realized capital gains, interest, or dividend income. A mutual fund dividend, or distribution, may be physically paid to the investor, or it may be reinvested in the fund, giving the investor more shares.
The investment strategy which spreads investments among securities in different industries, with different risk levels, and in different companies, potentially lowering risk by reducing the impact of any one security. Mutual funds are the best method of diversification because their portfolios consist of a variety of securities unless otherwise noted. Mutual funds are a diversified investment by nature.
A decline in an investment's value.
Duration is a measure of a bond's lifetime that accounts for the size and timing of the bond's cash flows. Generally, the shorter the duration, the lower the price volatility, all other things being equal.
The net income for a company during a specific period. It is calculated by subtracting the cost of sales, operating expenses and taxes from revenues, for a specific time period. It is the reason corporations exist and often the single most important determinant of a stock's price.
The load on purchases after the Initial (Public) Offer.
Equity is a type of security representing part ownership in a company/corporation. Common stocks, preferred stock, and convertible stock are types of equity securities, but debt securities are not, as they do not represent ownership.
The load on redemption other than the Contingent Deferred Sales Charge (CDSC) permitted under SEBI Regulations. A fee charged by some funds for redeeming or buying back fund shares. The amount sometimes depends on how long the investment was held, so the longer the time period, the smaller the charge.
A scheme that invests primarily in stocks while seeking to provide relatively high long-term growth of capital.
The date following the record date for a scheme. When a fund's net asset value reduces by an amount equal to dividend distribution.
A fund's operating expenses expressed as a percentage of its average net assets.
Ex Dividend Or Ex Distribution
The date when the dividend is deducted from assets of a fund i.e. from the NAV
The value printed on the face of a stock, bond or other financial instrument or document.
A Fully Convertible Non-Rupee account that can be opened for funds coming in from abroad or from local funds. The funds in the account are held in a foreign currency.
A long-term asset that will not be converted to cash within a year such as a house or a plot of land.
An investment instrument where you invest a fixed amount of money for a fixed period of time at a fixed rate of interest.
Fixed income funds/ Securities
A security that pays a certain rate of return such as a bond but do not offer an investor much potential for growth. This usually refers to government, corporate or municipal bonds, which pay a fixed rate of interest until the bonds mature, or preferred stock, which pays a fixed dividend. A mutual fund investing in these types of securities may also be referred to as a fixed-income investment or security.
A loan in which the interest rates do not change during the entire term of the loan.
Foreign Institutional Investor (FII)
FII means an institution established or incorporated outside India which proposes to make the investment in India in securities and is registered with SEBI.
An interest rate, which is periodically adjusted, usually based on a standard market rate outside the control of the institution. These rates often have a specified floor and ceiling, which limit the floating rate. The opposite of having a floating rate is having a fixed rate.
A lower limit for a price, interest rate, or another numerical factor. The price at which as the order is activated (an order to buy or sell at the market when a definite price is reached either above (for a buy) or below (for a sell) the price that prevailed when the order was given). Also the area of a stock exchange where active trading occurs.
A one-off charge that an investor must pay at the time the units of the scheme are bought.
The original issue price of one unit of a scheme
A mutual fund is a trust under the Indian Trust Act. Each fund manages one or more schemes.
Classification of a scheme depending on the type of assets in which the mutual fund company invests the corpus. It could be a growth, debt, balanced, gilt or liquid scheme
All the schemes, which are managed by one mutual fund.
Fund Management Costs
The Fund Management Costs levied by an AMC on a mutual fund for managing their funds.
The Fund Manager is a person who makes all the final decisions regarding investments of a scheme
Family Of Schemes
A set of schemes with different investment objectives from a single asset management company usually allowing investors to "switch" their investments from one scheme to another at a no charge or a nominal charge.
Fixed Income Security
A Fixed Income Security pays a fixed rate of interest such as a "bond" but does not offer an investor much potential for growth.
A one-time charge that an investor pays at the time of buying units of a scheme.
A type of government security.
Securities that are sold to the public by the government, for example, bonds.
Mutual funds with a primary investment objective of long-term growth of capital. Unlike income, which is somewhat regular and consistent in most cases, growth is much less certain. Growth investments, however, usually outpace the returns on income investments over the long-term (five to ten years, or longer). It invests mainly in common stocks with significant growth potential.
A style of investing that invests in fundamentally sound businesses with the belief that they will go up in price. The stocks in this portfolio are well researched, liquid and of high quality and will usually give you a high P/E ratio and lower dividend yields in comparison to the market.
A scheme where investments are made in equity and convertible debentures. The objective is to provide capital appreciation over a period of time.
The return assured by the mutual funds as a minimum return in certain income plans
The possessions or securities in an investors portfolio.
The end of a scheme's initial offering period and the start of the scheme's formation.
A mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest.
Indexing is an investment strategy that consists of the construction of a portfolio of stocks. It is designed to track the total return performance of an index of stocks.
The possibility that the value of assets or income will be eroded by inflation affecting the purchasing power of a currency. Often mentioned in relation to fixed income funds as they may minimize the possibility of losing principal.
Initial Public Offer (IPO)
An Initial Public Offer (IPO) is a fixed time period during which the first sale of units of a scheme is made available to the public.
Interest rate risk
The risk that a security's value will change due to an increase or decrease in interest rates. A bond's price will always drop as interest rates rise and when interest rates fall, a bond's price will rise.
Security made available to the public. Mutual funds issue shares to investors in return for cash.
Income / Debt Funds
A fund whose primary objective is current income in the form of interest or dividends. Mutual funds that invest primarily in fixed income securities are called income funds.
An index fund is a type of mutual fund in which the portfolios are constructed to mirror a specific market index. Index funds are expected to provide a rate of return over time that will approximate or match, but not exceed, that of the market which they are mirroring.
The central government specifies an index-linked to the wholesale price index. The indices of two years (year of purchase and the year of sale) are used for the purpose of computing capital gains tax. The purchase price is multiplied by the index of the year of sale and the product is divided by the index of the year of purchase. This benefit is available only if the security has been held for more than 12 months. On the sale of equity-oriented mutual fund schemes, one can opt for paying tax at the rate of a flat 10% or go in for paying 20% after taking the benefit of indexation.
An index is a benchmark against which the performance of a scheme is measured. Usually, equity funds use BSE 30 or BSE 200 as the benchmark. For fixed-income funds, it is a bond index. The benchmark index must consist of securities similar to which the scheme invests in.
A fund that tries to mirror the performance of an index by investing in securities making up that index. (note: it is not possible for investors to actually invest in the actual index, such as the BSE 30). This is a passive management style which normally results in lower management fees.
The stated purpose or goal of a security's operations. This term often determines the types of investments the security makes, the results expected, and the level of risk with which it is associated.
High-quality bonds are rated AAA or higher by a rating agency. Investment-grade bonds are considered safe. However, the higher the bond's rating, the lower the interest it offers.
The claims of investors who have loaned to a company. The debts of a company.
The ease with which an asset can be converted to cash. Mutual fund units are generally considered highly liquid investments as they can be sold on any business day at their current net asset value.
A mutual fund that charges an extra sales fee on of the other fees. Loads do not mean a fund is managed better. There are two types of loads; front-end, charged at the time of purchase and back-end, charged at the time of redemption.
Liquid Funds /Money Market Funds
Liquid Funds / Money Market Funds investing only in short-term money market instruments including treasury bills, commercial paper, and certificates of deposit. The objective is to provide liquidity and preserve the capital
Lock In Period
The period after investment in fresh units during which the investor cannot redeem the units.
The potential loss that is possible as a result of short-term volatility of the stock market, indicated by beta. Owning mutual funds shields an investor to some market risk that a stockholder may be vulnerable to because of their diversification.
The date on which the principal amount of a debt instrument or bond becomes due and payable in full.
The amount the issuer agrees to pay out when the bond reaches its maturity date.
Money market funds
A mutual fund that invests in short-term government securities, certificates of deposit and other highly liquid securities such as T- bills and short-term commercial paper, and generally pays money market rates of interest. An investment in a money market fund is neither insured nor guaranteed by the government or by any other entity or institution, so there is no assurance that the share price will be maintained.
Money Market Instruments
Commercial paper, treasury bills, GOI securities with an unexpired maturity up to one year, call money, certificates of deposit and any other instrument specified by the Reserve Bank of India.
Municipal bond fund
A mutual fund consisting of bonds issued by a state, city, or local government entity. The interest these securities pay is generally passed through to shareholders free of tax.
A Mutual Fund is a common pool of money from numerous investors who wish to save money. Each fund's investments are chosen and monitored by qualified professionals who use this money to create a portfolio. That portfolio could consist of stocks, bonds, money market instruments or a combination of those. Mutual funds offer investors the advantages of diversification, professional management, affordability, liquidity, and convenience.
The amount a scheme pays to its asset management company for its services. Typically, a certain percentage of assets under management. A fund's management fee is listed in its offer document.
Attempting to time the purchase and sale of securities or mutual fund units to coincide with market conditions.
The date on which the principal amount of a bond is to be paid in full.
The amount paid by a mutual fund to the asset management company for its services; SEBI restricts this to 2.50% p.a. in equity funds and 2.25% p.a. for equity funds.
The smallest investment amount a scheme will accept to open a new unitholder account.
The market value of one share of a mutual fund on a given day; also known as the bid price. Unlike the public offering price, the NAV includes no sales charges. The NAV is calculated each day by taking the closing market value of all securities owned by a mutual fund, plus all other assets (e.g. cash), and deducting the fund's liabilities. This sum is then divided by the fund's total number of shares outstanding.
Net profit margin
A measure of a company's profitability and efficiency calculated by dividing a measure of net profits (operating profit minus depreciation and income taxes) by sales.
The value found by subtracting total liabilities from total assets.
The net worth of a fund.
No Load Fund
A fund that sells its units to investors without a sales load/charge.
A Non-Resident External Rupee account that NRIs can open with any Indian bank. They can use this account for making investments in India on a repatriable basis.
A Non-Resident Indian who is an Indian citizen or a person of Indian origin but who resides abroad. NRIs have to follow specific rules when investing in India.
An Ordinary Non-Resident Rupee account which can be opened for funds coming in from abroad or from local funds. The amount in the account is, however, non-repatriable.
The offer document or prospectus is a booklet, a legal document that provides information about a specific mutual fund such as the funds investment objectives, load structure, subscription and redemption policies. Its purpose is to also inform investors of potential risks involved before they decide to invest in a fund and provides other information that could help an individual decide whether the investment is appropriate for him. An abridged offer document of the scheme also accompanies the application form of every scheme.
The price at which mutual fund shares are offered for sale to the public. Also known as offering price. The public offering price represents the net asset value plus any applicable initial sales charges.
Offer Document / Prospectus
A legal document, that describes a mutual fund scheme. It contains information required by the Securities and Exchange Board of India explaining the offer, including the terms, issuer, objectives, historical financial statements,
A scheme where investors can buy and redeem their units on any business day. Its units are not listed on any stock exchange but are bought from and sold to the mutual fund.
The day-today costs a mutual fund incurs in conducting business, such as for maintaining offices, staff, and equipment. These expenses are paid from the fund's assets before any earnings are distributed.
The NAV disclosed by the fund for the first time after the closure of an IPO.
How a fund has done in the past and how well it is doing at present. Past performance is often used to get an idea of future performance, however, past performance does not guarantee future performance will be the same.
A pool of individual investments owned by an investor or mutual fund. Portfolios may include a combination of stocks, bonds, and money market instruments. A list of the fund's current portfolio will usually be contained in a mutual fund's annual report.
Preferred stock is a type of capital stock whose holders are paid dividends at a specified rate. It has preference over common stock in the payment of dividends and the liquidation of assets but does not ordinarily carry voting rights. The benefits of owning preferred stock are realized if the company ever goes bankrupt. If this occurs, preferred stock shareholders receive their money first. General (also known as common) stockholders may not receive any money if none is remaining after paying preferred stockholders.
Price-earnings ratio (P/E)
Price-earnings ratio (P/E) is one of the benchmarks used by portfolio managers to help them value companies. It is calculated by dividing a company's share price by its earning per share.
Price Of Units
The price offered by a mutual fund for repurchase or sale of a unit on a daily basis.
An offer document by which a mutual fund invites the public for subscribing to the units of a scheme. This document contains information about the scheme and the AMC so as to enable a prospective investor to make an informed decision.
Principal (or Capital)
The initial amount of money invested, excluding any subsequent earnings.
The promissory note is a document signed by the borrower in which he promises to repay a loan under agreed-upon terms.
Public Offering Price (POP)
The price at which mutual fund shares are offered for sale to the public. Also known as offering price. The public offering price represents the net asset value plus any applicable initial sales charges.
Rate of return is calculated by subtracting the purchase value by the present value and then dividing it by the purchase value. For equities, we often include dividends with the present value.
The rate of return earned on an investment after adjusting for the rate of inflation during the time the investment was held.
Cashing in units by selling them back to the mutual fund.
A Redemption load is a fee charged by some funds for redeeming or buying back fund shares. The amount sometimes depends on how long the investment was held, so the longer the time period, the smaller the charge.
The price at which a mutual fund's units are redeemed or bought back by a fund. The redemption price is usually equal to the current net asset value per unit and less the exit load if applicable.
The return from abroad of the financial assets of an organization or individual, and the conversion of foreign currency to Rupees.
Reserve Bank of India, established under the Reserve Bank of India Act, 1934.
The sum of the income of a fund plus its capital gains.
In general, the risk is the possibility of suffering loss. There are many types of risk, such as credit risk, principal risk, inflation risk, interest rate risk, and investment risk. If you are prepared to accept greater risk, you have the chance of earning higher returns or profits on your money. Low-risk investments, while generally safer, do not usually produce a high return, hence the loss of potential gain.
Risk/ reward trade-off
The compromise made between high- and low-risk investments. High-risk investments generally generate more earnings, while low-risk ones generate a lower rate of return.
The willingness of an investor to tolerate the risk of losing money for the potential to make money.
Rupee Cost Averaging
An investment strategy based on investing equal amounts in a fund at regular intervals. Because more shares are bought when prices are low and fewer shares when prices are high, the average cost of your shares may be lower than the average price over the period you bought them. Rupee cost averaging cannot guarantee a profit or protect against loss in declining markets.
The date by which mutual fund holders are registered as unit owners to receive any future dividend or capital gains distribution.
Redemption Of Units
Buying back/cancellation of the units by a fund on an on-going basis or on the maturity of a scheme. The investor is paid a consideration linked to the NAV of the scheme
The act of returning money to an investor by the fund. This could be on account of rejection of an application to subscribe units or in response to an application made by the investor to the fund to redeem units held by him. Registrar or Transfer Agent
The institution that maintains a registry of unitholders of a fund and their unit ownership. Normally the registrar also distributes dividends and provides periodic statements to unitholders.
A Sales charge are added on to the price of a mutual fund when you buy it.
Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992.
A fund that invests primarily in securities of companies engaged in a specific industry. Sector funds entail more risk but may offer greater potential returns than funds that diversify their portfolios.
The date by which a transaction must be settled, that is, to make the payment of funds and the delivery of securities.
A measure of the degree to which a fund's return varies from the average of the scheme's own return.
A fund that invests primarily in stocks.
The movement of investment from one scheme to another usually within the family of schemes. An investor may switch schemes because of market conditions.
The holdings of a mutual fund, such as stocks or bonds. Stocks are securities representing ownership shares. Bonds are securities representing a contractual debt obligation of the issuer to repay the holder, with interest.
Shareholder (or stockholder)
The owner of shares of stock.
Units of ownership in a corporation. In a mutual fund, the value of each unit is calculated by dividing net assets by the number of shares.
S & P 500 stocks (Standard & Poor's Composite Index of 500 stocks)
The market value-weighted index that measures stock market price movements, based on the aggregate performance of 500 widely held common stocks.
A share of stock represents ownership, or equity, in a corporation. When a company needs money to grow and expand, it may sell part of its ownership to the public in the form of shares (stock). In exchange for the money received from the sale, the company gives shareholders a portion of its future profits, as well as a measure of its decision-making power. These securities generally have the most potential for capital appreciation, but their rights are subordinated in the event of a company liquidation or bankruptcy.
Transferring your investment from one scheme to another. An investor may want to switch due to changing market conditions.
Systematic Investment Plan (SIP)
Allows an investor to periodically invest in units by issuing post-dated cheques. It allows the investor to benefit from rupee cost averaging.
Systematic Withdrawal Plan (SWP)
Permits the investor to receive regular payments of a fixed amount of capital appreciation from his investment in a mutual fund scheme on a periodic basis. Retirees in need of a regular income often opt for this.
The price at which a fund offers to sell one unit of its scheme to investors. This NAV is grossed up with the entry load applicable if any.
A mutual fund can launch more than one scheme. With different schemes, in spite of there being a common trust, the assets contributed by the unitholders of a particular scheme are maintained and managed separately from other schemes and any profit/loss from the assets accrue only to the unitholders of that scheme
The purpose statement consisting of the goal and the avenues of investment released by the fund.
Sector Fund or Specialty Fund
It concentrates its holdings in a specific industry such as health care, energy, insurance, leisure.
Systematic Withdrawal Plan (SWP)/Recurring withdrawal facility (RWF)
A plan offered with some schemes under which post-dated cheques for fixed amounts (as may be fixed by the fund) are issued to the investors for monthly, bi-monthly or quarterly withdrawals. The withdrawals are as per the requirements of the investor specified by him/ her at the time of investment.
Systematic Investment Plan (SIP)/ Recurring investment facility (RIF)
A program that allows an investor to provide post-dated cheques to the mutual fund to allot fresh units at specified intervals (usually monthly or quarterly). On the specified dates, the cheques are realized by the mutual fund and additional units at the prevailing NAV are allotted to the investor. This enables him to invest as little as Rs 1000 a month and take advantage of rupee cost averaging.
Systematic Transfer Program (STP)
A plan that allows the investor to give a mandate to the fund to periodically and systematically transfer a certain amount from one scheme to another.
No tax is withheld or deducted at source, where any income is credited or paid by a mutual fund, as per the provisions of Section 194K and 196A of the Act. -down investing
The-down style of investment management places primary importance on the country or regional allocation. -down managers generally focus on global economic and political trends in selecting the countries or regions where they expect to find investment opportunities. Only then do they employ a more fundamental analysis of individual stocks in order to make their final selections.
Return on an investment over a specified period of time, which includes share-price appreciation, reinvested dividends or interest, and any capital gains.
The costs incurred by the buying and selling of securities including broker commissions and the difference between dealer buying and selling price.
Treasury bills (T-bills)
Short-Term security with a maturity of one year or less.
Treasury bonds (T-bonds)
A long-term debt instrument with a maturity of 10 years or longer.
Treasury notes (T-notes)
A certificate representing an intermediate-term loan to the government with a maturity between two to ten years.
Total Assets Under Management
The market value of the total investments of a fund as on a particular date.
Returns from an investment calculated taking into account income distribution and capital appreciation.
A firm employed by a mutual fund to maintain unitholder records, including purchases, sales, and account balances.
Treasury Bill (T-bill)
A debt security issued by the Indian government, having a maturity of less than a year.
Based on the corpus, it is the number of times at which the fund buys and sells securities each year.
A person or a group of persons having an overall supervisory authority over the fund managers. They ensure that the managers keep to the trust deed, that the unit prices are calculated correctly and the assets of the funds are held safely.
The period of time one can stay invested (eg. number of years to retirement). Longer time horizons can reduce volatility risk.
The interest of the investors in either of the Schemes, which consists of each Unit representing one undivided share in the assets of the Schemes.
A person who holds Unit(s) under a Mutual Fund.
Unrealized Gain Or Loss
Increase or decrease in the prices of securities held by the fund.
The investment approach which favors buying underpriced stocks that have the potential to perform well and increase in price in the future. It first seeks individual companies with attractive investment potential, then considers the economic and industry trends affecting those companies. Value managers usually begin their search with fundamental analysis, in order to find companies whose current prices may fail to reflect their potential longer-term value.
The tendency of an investment or market to rise or fall sharply in price within a short-term period. Volatility is measured by beta.
A time period in a calendar year starting from the first of January and ending on the first of January.
Yield to Maturity (YTM)
The yield earned by a bond if it is held until its maturity date.
The annual rate of return on investment usually expressed as a percentage.
A graph depicting yield vis-a-vis maturity. If short-term rates are lower than long-term rates, it is a positive yield curve, if short-term rates are higher, it is a negative or inverted yield curve. If there is isn't much difference, it is a flat yield curve.
A bond that is sold at a fraction of its face value. It does not, however, provide periodic interest payments but pays principal upon maturity.