What is a derivative?
2018-07-07, By: System Administrator
Derivative is a financial instrument which is derived from another financial instrument and then traded as a product in its own right. Derivatives exist in all asset classes of the financial markets and are commonly used for hedging or speculating, so a company would buy currency forward contracts in order to hedge their risk of loss due to fluctuations in the exchange rate of two currencies. They're also one of the most brain-meltingly complicated to understand and can carry a huge amount of risk.
The Important Categories of Derivatives:
The Derivative products can be categorized into the following main types:
5. Warrants and
6. Leaps & Baskets
Types of Derivatives:
1. OTC (Over The Counter) OTC Derivatives are contracts that are traded/negotiated directly between the contracting parties. The OTC Derivative market is the largest market for derivatives and it is also the most unregulated. There is always an inherent risk of either of the parties not honouring the agreement.
2. ETD (Exchange Traded Derivatives) ETD is those that are traded via regulated/specialized trading exchanges. A derivative exchange acts as the intermediary for all transactions and requires an initial margin to be put up by both the parties of the trade to serve as a guarantee. In India NSE is one of the largest ETD exchange.
Buying and Selling
Derivatives are traded both on exchanges and Over The Counter (OTC). Exchange trading is either through 'open outcry' on the trading floor where traders shout prices to each other and use hand signals or through electronic trading systems. Very few exchanges these days go for open outcry.
OTC trading of derivatives is a bit less transparent and a bit more risky. Privately negotiated, customized contracts are traded directly between buyer and seller which means each side is exposed to the risk of default by the other side. In reality, traders tend to use both OTC and exchange trading alongside each other to hedge their risk.
Problems with Derivatives:
1. Possibility of Huge Losses - The unregulated use of Derivatives can result in huge losses due to the use of Leverage or Borrowing. It is a well known fact that Derivatives allow investors to gain huge sums of money from small movements in the underlying asset's price. However, investors can lose huge amounts of money if the asset moves in the opposite direction. There have been a lot of instances where investors have lost significant amounts of money due to Derivatives.
2. Counterparty Risk - This is the risk that arises if either of the contracting parties fails to honour his end of the contract. This is very common in OTC Derivative products.
3. Posing high risk to small/inexperienced investors - Since the Derivative markets give an opportunity for an individual to earn huge profits, its often lucrative to small/inexperienced investors as well. Speculation in the Derivatives market requires great knowledge of the market and the future price movements on the asset over which the derivative is formed to ensure profit.
Futures and Options
A future is a contract to buy or sell an asset for a specific price at a pre-determined time. If you buy future contract, it means that you promise to pay the price of the asset at a specified time. If you sell a future, you effectively make a promise to transfer the asset to the buyer of the future at a specified price at a particular time.
An option gives the holder of the asset the right to have the opportunity buy or sell the underlying asset at a pre-determined price. An option can be a 'call' (the right to buy) or 'put' (the right to sell).
Who buys and sells derivatives...
The vast majority of financial institutions don't specialize in one asset class only — they buy and sell a wide variety of instruments to manage their risk and turn a profit. These can include fund managers, hedge funds, corporate treasurers and the government and are referred to as the 'buy side' of the market. Hedge funds in particular have driven the huge increase in derivatives trading volume in recent years. A hedge fund is an investment fund used by pension companies or high net worth individuals to make profit on the money they hold.
How To Save Tax In India
2018-07-07, By: System Administrator
When it comes to pay tax do you get these questions in your mind you feel that you are paying excess tax? Do you think that you can save tax? Your tax planning is proper? These are certain steps to follow to save tax.
1. Revise salary and save tax
When you are in job you face many small expenses, which you are required to make. It include your traveling expenses, your expenditure on entertaining clients, study material like books, journals that you need to buy to keep yourself well-informed. These are all part of those expenses that you are forced to do. Therefore you need extra money besides salary to fulfill your requirements.
2. Rent Payment
If we are on rent accommodation and we if we don’t get any rent allowance from company than we cannot show it as investment. Employers give away a part of your remuneration as House Rent Allowance. However, you cannot get complete benefit of HRA for tax saving.
3. Leave Travel Allowances and Medical Expense
You will also get benefit in tax if you produce medical bills. But this depends on cases where the company provides medical allowance to its employees. Therefore it is important to keep a record of all medical bills in a year. However, it is limited to Rs 15,000 in a financial year. Receipts of medical expenses of your relatives and dependents can also be used.
4. Invest and Reduce Taxable Income
Make certain investments under section 80C to get rebate in tax. This amount invested is deducted from the taxable income. Many of such investments come under EEE category. It means you need not to give tax at the time of investment, earning and redemption.
List of Investments Which Saves Tax
Contribution to EPF account
Employee Provident Fund is a retirement saving instrument. Contribution to the EPF is mandatory for the employees of organized sector. The employer also contributes equal amount in the EPF account of employee along with the amount deducted the same amount from the employee’s salary. The contribution to EPF by employer is tax exempt, while contribution by the employee is tax deductible under section 80C.
Deposit in PPF account
PPF account is a government saving scheme, but run for a long term. Anyone can open the PPF account in SBI, post office or other banks. Under section 80C the PPF account provides tax deduction. Investments in tax saving mutual funds like the Equity linked saving scheme are diversified mutual fund scheme. The ELSS invests in share market. It has potential of highest return.
Sukanya Samriddhi Account
It is a saving scheme for the girl child by the government. It gives highest return among all the small saving schemes. The investment and maturity amount is tax-free.
Tax Saving Fixed Deposit
Fixed deposit for tax saving is just like any other fixed deposit of bank. The only difference is the lock in period of 5 years. The interest earning of tax saving FD is subject to tax.
National Saving Certificate (NSC)
It is post office small saving scheme. The national saving certificate is issued for 5 years. The interest rate of this scheme is 8.5%. the NSC gives tax benefit under section 80C. The interest is subject to tax.
Senior Citizen Saving Scheme
This is a small saving scheme by the government, designed for senior citizens. This scheme gives regular income. The interest rate of senior citizen saving scheme is better than NSC or PPF.
5. Expenses Eligible for Tax Saving
Some expenses are also added in the expenses eligible for tax saving to amount limit of 1.5 lakh deductions.
Tuition fees for self and children
Insurance scheme premium
Home loan principal payment- Home loan EMI has two-part, principal and interest. However, the expenses should not exceed 1.5 lakh limits.
6. Medical Insurance Deduction
Medical Insurance expense gives you the deduction, over and above the 1.5 lakh limit. Health insurance premium of the family members also helps to save tax. Even time to time health checkup done will save tax. You can deduce these expenses from your total taxable income.
7. Enjoy Tax Benefit on Home Loan Interest Payment
Home loan interest payment enjoys separate tax saving. It can give a very big tax saving. To get complete benefit the loan amount should be big.
8. Set off Capital Gain, Save Tax
Salaried people need to give capital gains tax on their investments. Shares attract only short-term capital gains tax while property and gold attract both short and long term capital gains taxes. However, you can set off your capital gain from an investment with the capital loss of another investment. The capital loss can be carry forward to 8 years. This will give a fairly good chance of tax saving on account of capital loss. Suppose you incur trading loss in shares. This loss can be carried forward up to seven years. In subsequent years your trading profit can be set off with this big loss.
9. Giving Away Money For Charity, Why Pay Taxes
You can save tax on your donations. Donations to the PM relief fund, some notified NGO and political parties can give you the 100% tax benefit. You can also donate to scientific institutions and religious body and claim tax rebate.
10. On Time Tax Declarations And Investments
Practically, this is the most important tip of tax saving. Employers need to pay advance tax every quarter. Therefore, they deduct TDS every month from your salary. The TDS is deducted according to your projected tax liability for that financial year.
If you don’t declare your planned tax saving, investment and expenses of the year, the projected tax will be higher. Accordingly, the employer would start deducting TDS every month for the first quarter of the financial year. It may happen that when you declare all of your tax saving instruments, it has become very late. The company may have cut more TDS than required. Of course you can claim tax refund while filing income tax return, but for the time being you pay extra taxes. So, give a tax declaration at the beginning of the year.
Bombay Stock Exchange
2018-07-07, By: System Administrator
The Bombay Stock Exchange (BSE) is Asia's oldest stock exchange. Based in Mumbai, India, BSE was established in 1875 as the Native Share & Stock Brokers' Association. Prior to that brokers and traders would gather under banyan trees to conduct transactions.
BSE functions as the first-level regulator in the securities market, providing monitoring and surveillance mechanisms that are able to detect irregularities and manipulations in stock prices. The Exchange also provides counter-party risk management in all transactions that take place on its trading platform through its clearing and settlement services. Shares of more than 5,000 companies are traded on BSE. In addition to equity and debt, the Exchange allows for trading of mutual fund units and derivatives.
Bombay Stock Exchange was recognized as an exchange under the Securities Contracts (Regulation) Act in 1957. Its benchmark index, the Sensitive Index (Sensex) was launched in 1986. In 1995, the BSE launched its fully automated trading platform called BSE On-Line Trading system (BOLT) which fully replaced the open outcry system.
In 2005, the Exchange changed from being simply an association of brokers to become a corporate entity. The administrative structure of the Exchange is headed by a board of directors, below which is a governing council and management that presides over its day-to-day functioning.
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875.
BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatized and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, BSE has two of world's best exchanges, Deutsche Bores and Singapore Exchange, as its strategic partners.
Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market.
Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups.
The BSE Index, S&P BSE SENSEX, is India's first stock market index that enjoys an iconic stature and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The S&P BSE SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the S&P BSE SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Bores. This agreement has made S&P BSE SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iSharesÂ® brand, has created the 'iSharesÂ® S&P BSE SENSEX India Tracker' which tracks the S&P BSE SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market.
The first Exchange Traded Fund (ETF) on S&P BSE SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.
BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT).
BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street.
In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements.
BSE also has a wide range of services to empower investors and facilitate smooth transactions:
Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities.
The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India.
BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform.
Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts.
BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmes
Important functions of stock exchanges
2018-07-07, By: System Administrator
There are certain important functions discussed while talking about stock exchange.
1. To go for fair price: We get fair prices from stock exchanges for securities traded on them. Prices of securities are determined through continuous trading activity in stocks and debentures.
2. Industrial financing: A country’s industrial development is due to the availability of capital. Capital required for investment in industries comes from stock exchanges.
3. Pricing of Securities: Demand and supply factors help to value the securities of the stock market. The growth oriented companies with securities of profitable are taken as high value. For investors this valuation of securities is very useful.
4. Regulation of the corporate sector: Documents of listed companies are mandatory to be submitted in the stock exchange like the annual returns, and provide information regarding plans to merge with or acquire other companies.
5. Optimum resource allocation: Stock exchanges permit for maximum optimum allocation of scare capital resources. Capital is the most essential ingredient needed for businesses. Stock exchanges helps in allocation of capital to companies which are performing well and have potential for profitable growth in the future.
6. Investor education: Stock exchanges give vital information to the investors in their web sites, through advertisement in print media regarding the do’s and don’ts towards investing and encourage conduct of investor awareness programs. This enables investors both in the urban as well in rural areas to become aware of stock market investment and make prudent investment decisions.
7. Mobilization of savings: Stock exchanges play an important role in mobilizing savings of individuals and institutions. Savings so mobilized can be utilized to invest in various projects boosting industrial and economic development of a country.
8. Protection of investors: Companies that are listed in the stock exchanges have to follow certain rules and regulations. They have to submit various documents and returns and provide information regarding any important activity they plan to undertake. Stock exchanges have formulated regulations to ensure safety of investor’s funds.
9. New venture creation: Stock exchanges enable creation of new ventures. Any new venture requires financing. Stock exchanges are an important avenue for new ventures to raise capital for meeting their capital needs. The stock exchange has aided new venture creation by enabling promoters to raise the required funds. For e.g. the phenomenal growth of Reliance can be attributed to the public issues of shares on a large scale which provided the company large funds to employ in large scale projects.
10. Meeting financial needs of government: The government requires funds to undertake various projects and government companies need funds for expansion, diversification etc. The Central and State governments, municipal corporations, state financial corporations etc have raised crores through the issue of shares, bonds etc.
11. Continuous market for securities: The Investors are able to invest in good securities and in case of any risk, it enables people to switch over from one security to another. So stock markets provides a ready and continuous opportunities for securities.
12. Evaluation of securities: It the stock exchange, the prices of securities clearly indicate the performance of the companies. It integrates the demand and supply of securities in an effective manner. It also clearly indicates the stability of companies. Thus, investors are in a better position to take stock of the position and invest according to their requirements.
13. Mobilizes savings: The savings of the public are mobilized through mutual funds, investments trusts and by various other securities. Even those who cannot afford to invest in huge amount of securities are provided opportunities by mutual funds and investment trusts.
14. Healthy speculation: The stock exchange encourages healthy speculation and provides opportunities to shrewd businessmen to speculate and reap rich profits from fluctuations in security prices. The price of security is based on supply and demand position. It creates a healthy trend in the market. Any artificial scarcity is prevented due to the rules and regulations of the market.
15. Mobility of funds: The stock exchange enables both the investors and the companies to sell or buy securities and thereby enable the availability of funds. By this, the money market also is strengthened as even short-term funds are available. The banks also provide funds for dealing in the stock exchanges.
16. Stock exchange Protect investors: As only genuine companies are listed and the activities of the stock exchange are controlled, the funds of the investors are very much protected.
17. Stock exchange helps Capital formation: Stock exchange plays an active role in the capital formation in the country. Companies are able to raise funds either by issuing more shares through rights shares or bonus shares. But when a company wants to go in for diversification, they can issue the shares and raise more funds. Thus, they are able to generate more capital and this promotes economic growth in the country.
18. Proper Canalization of Capital: Stock exchange directs the flow of savings into the most productive and profitable channels.
19. Regulation of Company management: The companies, which want to get their securities listed in the stock exchange, should have to follow certain rules and fulfill certain conditions.
Thus stock exchanges safeguard the interest of the investing public and also regulate company management. 20. Barometer of Business Progress: Stock exchanges function as a barometer of the business conditions in the country. Booms and depressions are reflected by the index of prices of various securities maintained by the stock exchange. By analyzing the ups and downs of the market quotations, the causes for the changes in the business climate can be ascertained.
Understand NSE in Stock Market
2018-07-05, By: System Administrator
National Stock Exchange also called NSE, is a leading stock exchange in India. It is located in Mumbai and was established in November 1992. It is the first electronic trading platform in India.
How to trade on NSE?
NSE is an electronically enabled stock exchange. You and other buyers, enter your trades (shares you wish to buy), on the trading terminals of your broker. Your trades are then transmitted, across the entire trading network of the stock exchange. It is compulsory for you to deal with a registered stock broker, if you want to buy/sell shares on the NSE. The electronic system then matches the buy order, so that your buy order is executed, at the price you specify or lower. If your buy order is higher than other investors, it is matched first.
When you are interested to sell trade in that case you and other sellers, enter your trades on the trading terminals of your broker. Your trades are then transmitted, across the entire trading network of the NSE. The electronic system of the NSE, then matches the sell order, so that your sell order is executed, as per your required price. If your sell order is lower than other investors, it is matched first. When you buy or sell shares on the NSE, your identity is kept a secret.
In case you execute your NSE as same price of another investor. In that case if your order placed first, then your order gets executed first.
What is clearing corporation of the NSE?
If in case you want to buy shares which are listed on the NSE, then keep the money ready for buying these shares. If you are selling shares, you need to keep them ready for delivery. This is known as the pay-in process. After the pay-in process, you have what is the pay-out. According to it when you buy shares listed on the NSE, you are given these shares. If you sell shares, you get the money for these shares.This process of exchanging money and shares is called settlement. A clearing corporation takes care of the settlement process. The National Securities Clearing Corporation Ltd (NSCCL) is the clearing house of the NSE. The clearing house is nothing but a counterparty, to avoid any defaults. It functions as a buyer to the seller and a seller to a buyer. The clearing house collects money from you, called margin money, to avoid any defaults. If you default (do not pay for the shares you buy), NSCCL uses the margin money you have provided, to settle your commitments. NSE offers capital raising abilities for corporations and a trading platform for equities, debt, and derivatives including currencies and mutual fund units. It allows for new listings, initial public offers (IPOs), debt issuances and Indian Depository Receipts (IDRs) by overseas companies raising capital in India.S&P CNX Nifty is the benchmark index introduced by NSE. The exchange offers clearing and settlement services through its wholly-owned unit, the National Securities Clearing Corporation set up in 1995. The other main subsidiaries/ associate companies of NSE include the National Commodity Clearing, National Securities Depository (which is the repository of all securities in electronic form), and National Commodity and Derivatives Exchange.
Your dreams could come true. NSE could become part of your portfolio. Be Wise. Get Rich.
After Hours: Key Movers And Shakers Of Monday's Market
2018-06-06, By: System Administrator
Heavy selling in financials, fmcg and telecom stocks dragged the market lower on monday.
The 30-share pack of bse lost 215 points, or 0.61 per cent, to end at 35,011, while nses nifty50 index shed 68 points, or 0.63 per cent, to close at 10,628, with 15 constituents ending in the green and 35 in the red.
Softbank Succession Plan: Rajeev Misra Seen Taking Over From Masayoshi Son
2018-06-07, By: System Administrator
Industry analysts are seeing the rajeev misras elevation from vision fund chief executive officer to executive vice president of the board of directors as yet another attempt to find a successor to softbank group's founder masayoshi son after he steps down.
Though son has given no indication that he might make way for someone else post his retirement, analysts believe that 56-year-old misra who has more than three decades of experience of working in global tech firms is being prepared to fill in sons shoes.
Misra has worked in companies such as deutsche bank ag as the managing director, global co-head of fixed income, currencies and commodities ubs group ag, fortress investment group llc as the senior managing director and partner and in 2014 joined softbank as head of strategic finance for the group.
Misra who is in-charge of softbanks $100 billion fund has been involved in zeroing in potential companies which would not only give company big return on investment but also make it future ready.
Misra, through the vision fund is trying to consolidate the world's e-commerce and telecom business against titans such as google and amazon.
Stock Market Update: Bank Stocks Settle In The Lower Terrain; BoB, HDFC Bank Top Losers
2018-06-06, By: System Administrator
Defying the negative mood of market, shares of gateway distriparksnse 7.64 % (up 5.30 per cent), vakrangeense -4.96 % (4.97 per cent) and sail (4.65 per cent) closed monday's session jumping up to 5 per cent, emerging as the top gainers on bse. Sun tv network (4.35 per cent), sadbhav engineeringnse 3.20 % (4.04 per cent), religare enterprisesnse 2.87 % (3.49 per cent) and crisil (3.11 per cent) also registered decent gains on monday. Indian equity benchmarks extended losses to ..