Billionaire Carl Icahn- Investment Strategy, Philosophy, Quotes & More-min

Billionaire Carl Icahn: Investment Strategy, Philosophy, Quotes & More

If you’ve been involved in the stock market for quite some time, you must have heard of Carl Icahn. He is a famous American investor and founder and controlling shareholder of Icahn Enterprises. In case you haven’t, don’t worry. In this article, we shall discuss his investing philosophy. So, if you are a newbie in the world of investing, you are surely going to learn something new and informative today.

Apart from being a seasoned investor, Carl Icahn is also an established businessman and a philanthropist. He is the Chairman of Federal-Mogul which is an American developer, supplier, and manufacturer of vehicle safety products and power train components.

During the year 2017, Icahn provided his service to the present US President Donald Trump as a special economic adviser on financial regulation.

He founded his famous Asset Management Company in 1987 named Icahn Enterprises L.P. It is a conglomerate, headquartered at New York, USA. He is having the ultimate controlling power of his company where he owns a 95% stake in the same. The company has invested in diverse industries which include energy, auto parts, metals, casinos, rail cars, real estate, food packaging, and home fashion.

Carl Icahn Investing Philosophy

Let us now understand the investment philosophy of Carl Icahn

As per Mr. Icahn, he is a contrarian investor. He said, “My investment philosophy, generally, with exceptions, is to buy something when no one wants it.”

Carl Icahn looks to invest in those companies with share prices reflecting poor price-to-earnings (P/E) ratios. He hunts for those corporations with stocks having book values exceeding their current market values.

After that, he aggressively invests in the significant portion of equities of those corporations. Consequently, he becomes the largest shareholder of those companies.

Eventually, he calls general meetings to hold elections to form a new Board of Directors or passing the resolution for initiating divestiture of assets to deliver greater value to the shareholders.

Icahn focuses highly on the managerial remuneration. He believes that many top managerial people are highly overpaid and their compensation has little correlation with the equity performance.

You can study Carl Icahn’s portfolio here. From the portfolio of Icahn, we can learn three things about his investing approach.

1. Carl Icahn is more into trading than investing:

An analysis of his portfolio reveals that most of his stocks were bought in the last two years. It is his habit of not keeping stocks in his portfolio for more than one and a half years.

When he invests in a company, he invests to the extent that he becomes the largest stakeholder of the same. So, he gets the authority to call general meetings. He pressurizes such company for using cash or raising a loan to buyback stocks. This results in increasing the stock price in the short run.

Icahn is more concerned with making short term profits and little does he care for the long term viability of the company.

2. He invests in securities with high conviction:

When Icahn invests in a stock, it is highly likely that he has a strong conviction behind the investment. He invests in the equity of a company where he has a gut feeling to earn huge returns.

Icahn purchases stocks of those companies which are poorly managed and not performing profitably. He invests in such companies with the intention to force changes to occur in their operations and management.

He even makes the companies declare big dividend payout to the shareholders if he thinks it will lead to his increase in returns in the long run.

3. Icahn is an activist investor:

He is a frequent stock trader. He majorly invests in equities of the companies with the objective of making changes in those companies. It is an effort he makes to push the price of the stocks.

The management of a company can easily ignore an activist holding a small number of shares in the same. But, if a billionaire investor holds a high percentage of the company, he/she can’t be easily ignored by the company.

Icahn’s investing strategy is simply beyond the reach of individual retail investors. Every investor, whether big or small, should not blindly follow any investor to take any position in a company. But, still, Icahn’s quarterly filing of shareholdings to SEC is certainly worth paying a glance for a few minutes.

Also read: Howard Marks’ Investing Strategies & Lessons

Famous Quotes By Charle Ichan

— Charles Icahn on his investment strategy:

“I look at companies as businesses, while Wall Street analysts look for quarterly earnings performance. I buy assets and potential productivity. Wall Street buys earnings, so they miss a lot of things that I see in certain situations.”

— This is what Icahn has to say on takeovers:

“In takeovers, the metaphor is war. The secret is reserves. You must have reserves stretched way out ahead. You have to know that you could buy the company and not be stretched.”

— Charles Icahn thoughts on ethics:

“I’m happy stockholders benefited. But I’m no Robin Hood. I enjoy making money.”

— Finally, two other remarkable quotes of Charles Icahn:

“I make money. Nothing wrong with that. That’s what I want to do. That’s what I’m here to do. And that’s what I enjoy.”

“CEOs are paid for doing a terrible job. If the system wasn’t so messed up, guys like me wouldn’t make this kind of money.”

quote-some-people-get-rich-studying-artificial-intelligence-me-i-make-money-studying-natural-carl-icahn-87-46-10-min

(Image Credits: Azquotes)

Also read: 31 Hand-Picked Best Quotes on Investing: Buffett, Munger, Graham & More.

Closing Thoughts

In order to be a successful financial investor, an individual needs to be a finance enthusiast first of all. Secondly, he/she needs to study financial markets from various books and also follow the macroeconomic events and global stock markets. Lastly, it is important to study the investment approaches of renowned investors to understand their investing psychology.

Financial Market practitioners majorly advocate value investing to be a successful investor. Of course, it is one of the most successful ways to make wealth but there exist other methods to make money as well.

Carl Icahn is a different type of a stock market investor as compared to the old school value investors like Benjamin Graham and Warren Buffet. Unlike these two gentlemen, Mr. Icahn is more into trading than investing. Carl Icahn also focuses on Corporate Governance of the company whose share he buys. His philosophy is more based on short term profiteering rather than long term value investing.

He is an investor who has let us taste a different flavor of investing. There is no doubt in saying that one can definitely learn a lot as a fresher from the veteran investor.

What are the Different Career Options in the Stock Market in India cover

What are the Different Career Options in Indian Stock Market?

The equity market has opened a lot of career opportunities in recent years. This market is getting bigger day by day and the opportunities for employment in the Stock Market are growing every day. People from all background whether science, commerce or humanities, are showing more and more interests to pursue their career in Stock Market today.

At one hand, many people are opting to become a financial market participant and work independently. On the other, a significant number of Startups are establishing innovative ideas to create disruption in the Indian Securities Market.

In this post, we are going to discuss a few excellent share market career opportunities in India. Let’s get started.

Different Career Options in Indian Stock Market-

Stock Broker

As you might already know, if you want to trade or invest in the Stock Market, you must open a trading and Demat Account. These two accounts are offered by stockbrokers. So, given the largely growing investing population of India, you can easily guess how prospective the career as a Stock Broker could be.

For example, If we take of Mr. Nithin Kamath, the founder of Zerodha (discount broker), he started off his career as an Engineer and subsequently started taking interest in the Stock Market. Later, he found the financial market so fascinating that he switched his profession as an engineer to a Stock Broker. In the year 2018, Zerodha, his stockbroking company was awarded the best discount broker entity in India by NSE.

zerodha kamath

Further, in order to become a Stock Broker or open a stockbroking entity, you don’t require a strict eligibility criterion in terms of academics. Nonetheless, you need to clear NISM exams and get your license from the SEBI. Anyways, if you plan to be a Stock Broker, it is important to gain a practical understanding of the Market. So, it is better to work with a Securities Broker for at least 5 years to gain requisite experience if you are willing to start your own venture.

Next, if you want to get employed in a Stock Broking Firm, you will need to clear 12th standard at the minimum. Graduating in Accounting, Economics or Finance will help you start your career from a decent level. Qualifying Post Graduation is not necessary but it might help in fast promotion in the industry. In case you have qualified professional courses like CFA, CA or FRM, no doubt your career path would become really smooth.

(Note: You can read detailed information regarding making a career as a Stock Market Broker here.)

Financial or Investment Advisor

If you want to start your own consultancy business in the Financial Market, becoming a Financial Advisor or an Investment Advisor is a perspective option.

In recent years, AMFI has been trying hard to bring the income earners in our country to invest in the Mutual Fund industry through their campaign “Mutual fund Sahi hai!”. However, just AMFI is not big enough to educate and convince billions of people in our nation to invest their money in the financial market. As an Investment Advisor, you can reach a plethora of prospective clients.

Preparing customized financial plans, providing consultancy services on wealth management and educating people on financial products can assuredly help you to build a career and make good money in this industry.

To become a Registered Investment Advisor, you will require an education and certification criterion. If you have a graduate degree in Finance/commerce or at least 5 years of work experience with a financial company, you meet the educational criteria. Note that if you are an engineer with just a B.Tech degree, you do not meet the educational criteria by SEBI. Here, you need work experience in the finance field for at least 5 years or a post-graduate degree in finance.

Anyways, if you are a Post Graduate degree in finance, you won’t require any work experience to apply for your license from SEBI. Further, whether you are a Graduate or a Post Graduate, you mandatorily need to clear the NISM Investment Advisory Certification exam to apply for the SEBI registered Investment advisor. Once you meet all the educational and certification criteria, you can apply to SEBI and get your license. (Note: You can read this post to learn further on how to become an Investment advisor in India.)

Besides, completing CA, CFA or CFP will also help you get the required knowledge you need to render professional services to your clients.

Also read: What is SEBI? And What is its role in Financial Market?

investment advisor

Research Analyst

Apart from becoming an investment advisor, Equity Research Analyst is also a lucrative career option nowadays. Let us have a brief understanding of this.

Equity Research includes Buy-Side Research and Sell-Side Research. In the case of the former, the researcher work with a financial service organization which directly invests people’s money in the Stock Market. Here, you need to research the stocks to help the Fund Managers make decisions with respect to managing the available financial assets. In the case of Sell-Side Research, the researchers analyze equities and equity derivatives for the clients who are retail traders and investors.

If you want to start your own business as an independent Research Analyst, the eligibility criteria are similar to Investment Advisory option. Further, if you want to take a job as a Research Analyst, the top financial service entities in India look for candidates who are MBA graduates from Tier 1 institutes. Nonetheless, you can also make a career as a Research Analyst if you have completed CFA or CA. (Note: You can read further regarding Equity Research Analyst profession here.)

Portfolio Management Services (PMS)

If you are a Mutual Fund investor, you might know that your investments are managed by the experienced and skilled Portfolio Managers. The Wealth Management firms operating in India handle clients’ money via professionally qualified Fund Managers. Portfolio Management could be an extremely rewarding career if you are good with managing money and have a strong understanding of the Financial Market.

In order to enter this field, you will require professional qualifications like CA, CFA or MBA (Finance). Moreover, if you are a fresher, it is extremely hard to get into this field. Here, you may need experience of at least a decade of working in the Finance domain as you need to grasp the level of maturity of handling assets which amount in crores. Therefore, if you are considering to become a Portfolio Manager, you may first start working in the marketing and research for 5 to 10 years. (Note: Here is a blog that can answer your additional questions on the career as a Portfolio Manager)

Conclusion

In this article, we tried to cover different career options in Indian stock market. Parting advises- if you are planning to make a living from the Stock Market, you need to have an in-depth understanding of the financial world.

Although possessing academics and professional qualifications are necessary but having practical exposure to how the market exactly works is more important. Besides, whichever stock market career option you choose, having strong communication and analytical skills are always add-on advantages.

tax saving ELSS Equity linked saving scheme

Should you invest in multiple Equity Linked Saving Schemes (ELSS)?

Equity Linked Saving Schemes or ELSS Fund is a variety of Equity Mutual Fund where the majority of the corpus is invested in equities and equity-oriented instruments. It is a tax saving Mutual Fund where your investments are locked in for 3 years.

ELSS are multi-cap equity funds which invest at least 4/5th of their assets in equities. Such stocks could be small-caps, large-caps, or mid-caps. ELSS funds can invest in the companies of any sizes. Apart from investing in the stocks of private companies, these funds also invest in the Government undertakings to a significant extent.

Note: If you are new to ELSS, you can read our previously published article here.

ELSS: A tax saving instrument

Previously people used to find FD, NPS, PPF, and ULIP as effective tax saving schemes. Nowadays, the taxpayers are feeling more interested in investing their savings in ELSS funds for availing tax benefit.

ELSS is not only having the lowest lock-in period but it also yields higher returns than the other conventional tax-saving instruments. If you are going to redeem your ELSS investments after 3 years, your capital gain will be taxed @ 10% if it crosses Rs 1 lakh.

As per section 80C of the Income Tax Act, 1961, you can get the benefit of tax deduction in a financial year up to Rs 1.5 lakhs. ELSS or Equity Linked Saving Scheme is a prescribed instrument under the said section. So, you can easily save your tax liability up to Rs 46, 800 (Tax plus Cess on such Tax).

Investing in ELSS for generating long-term wealth

If you are looking to create long-term wealth but willing to accept the risk, let me tell you that equities or equity-oriented funds are the best for you. Equities can fetch you substantial returns if you are willing to stay invested for the long term.

You can choose any form of Mutual Fund i.e. a small-cap fund, large-cap fund or a mid-cap fund. But, neither of the funds can provide you with tax benefits which ELSS can give. Moreover, if the markets seem to be bearish or moving sideways in the short run, you might feel like redeeming your units immediately.

If you have invested in ELSS, you can’t withdraw your investments before the expiry of three years. In that way, investing in ELSS ensures that you stay invested for a long-term irrespective of short-term volatility. So, if you are interested in staying invested for a considerably long period of time, ELSS is definitely an ideal investment option for you.

Should you go for only one ELSS or multiple?

In an ELSS fund, the underlying portfolio consists of around 70 to 100 stocks. Around 5,000 stocks are listed in the Indian markets. Out of such stocks, the top 250 of them contributes towards 90% of the total market capitalization. So, if you are investing in 6 ELSS funds, it means you are indirectly investing in around 600 stocks. This implies that you will end up investing in the stock market as a whole. Therefore, you are virtually removing all possibilities to beat the stock market.

Investing in excessive ELSS funds means you are indirectly looking to form a market portfolio. So, if you are looking to earn what a market index earns, you can opt for such a portfolio. It is highly probable that you won’t earn more than what the market earns but you are also not going to earn less than the same.

There is another limitation of investing in too many ELSS funds. Investing in an excessive number of ELSS will lead to portfolio overlapping. It means that you will be investing in the same stocks through multiple schemes. This would unnecessarily increase your expense ratio instead of yielding the benefit of diversification.

Well, if you are simply looking to invest in the market portfolio, you should consider investing in an Index Mutual Fund or an Index ETF. Through the passive funds, you will be investing in the market indices at a lower cost.

Let us discuss how the situation might look like if your portfolio consists of a single ELSS. If you own only one ELSS fund, it indicates that you have not diversified your investments at all. It seems to be a risky portfolio as you will be exposing it to the risk of underperformance of the Fund Manager. It is of no doubt that you have a higher chance of beating the market if the underlying assets of your scheme consist of top-performing stocks. But, if the market witnesses a downfall, your portfolio will crash down at a higher rate.

An ideal number of ELSS funds for your portfolio

Now, if you ask how many ELSS funds you should have in your portfolio, the ideal number could be either two or three. An ELSS fund is a multi-cap equity fund. Therefore, if you have chosen two to three ELSS funds in your portfolio, you can certainly form a strong portfolio in all possible ways.

Through a single ELSS fund, it is not possible for you to cover a substantial number of top equities. The likeliness increases if you add one or two more ELSS funds in your armory. If your investments can be spread across a good number of profitable stocks, you are going to make significant returns in the days to come. Although your portfolio expenses in the form of equity ratio will go up, the returns are high enough to cover the same comfortably.

We have discussed earlier that too many funds would lead to portfolio overlapping. But, you would not experience the same if you create your portfolio with two to three funds. Investment in a limited number of schemes is not going to capture the major portion of market capitalization. Therefore, you are not forming a portfolio which can replicate the market. So, whatever you will be earning will supposedly beat the market.

Also read:

Closing thoughts

No assurance can be given whether a portfolio consisting of two to three ELSS funds can alone serve all your wealth generation and tax-saving requirements. Forming a portfolio for an individual is dependent on several factors. If you are an investor with a high-risk appetite you can team up a small-cap equity fund with a ULIP. On the other hand, if you are highly risk-averse, you can go for a debt fund with a PPF.

Through this article, we have tried to give you a general idea regarding the number of ELSS funds which should be there in your portfolio. If you are seeking an investment option which combines wealth creation and tax saving, ELSS is your answer. Otherwise, if you have any specific requirements with respect to profitability, liquidity, and tax benefit, you are free to create your own portfolio accordingly.

tax saving tips trade brains cover-min

15 Must Know Tax Saving Tips in India

If you are an Indian resident, you are required to pay tax on your income (if it crosses the minimum taxable limit) to the Indian Government. Do you ever feel like you are paying an excessive tax? Have you ever thought of saving some tax from your taxable income?

The Income Tax Act, 1961 is a complicated statute in itself. If you are looking to carry out your personal tax planning, you might it find it a real tough job to accomplish.

In this article, we shall talk about the various ways which you can adopt to save your taxes.

15 Must-Know Tax Saving Tips in India

Let us first talk about the tax deductions you can claim by investing in some financial instruments specified u/s 80C. The maximum tax benefit allowed under this section is Rs 1.5 lakh.

1. Public Provident Fund

Investment in PPF (Public Provident Fund) is subjected to EEE tax exemption status. It is a savings scheme established by the Government which comes with a maturity period of 15 years. You can invest in it by visiting any bank or post office in India. Currently, the rate of interest offered on PPF is 8% every year.

2. Employees’ Provident Fund

If you are a salaried individual, you can claim a tax deduction on the contributions you make in your EPF account. The maturity amount and the interest income on EPF have also been exempted from Income Tax provided you have completed 5 years of service.

3. Five-year tax-saver Fixed Deposits

You can invest in 5-year tax-saver FDs to claim a tax deduction in a Financial Year up to Rs 1.5 lakh. These instruments carry a fixed rate of interest varying from 7 to 8% p.a.

4. National Saving Certificate (NSC)

NSC is having a lock-in period of 5 years and offers interest at a fixed rate. At present, the interest rate is 8% p.a. You can get tax benefits on both investments made and interests received.

5. Equity Linked Saving Schemes (ELSS)

ELSS funds invest a minimum of 4/5th of their assets in Equities. They have a lock-in period of 3 years. If your long term capital gain exceeds Rs 1 lakh during redemption, then such gains are subjected to tax @10%.

6. Life Insurance Policies

You can claim a tax deduction for the premiums you pay for various types of life insurance policies which include endowment plan, term plan, and ULIP. But, for availing this tax benefit, the sum assured (insurance cover) must be a minimum of 10 times the amount of premium which you pay.

7. Interests on home loans

When you repay your home loan (procured for acquiring or constructing a house), the principal portion of the same is deductible under Income Tax. The interests that you pay are eligible for tax deduction u/s 24(b) of the said Act while computing income from house property.

8. Senior Citizen Saving Schemes (SCSS)

The contributions made to an SCSS are eligible for a tax deduction. SCSS is having a tenure of 5 years. It is available for investments for those who are above 60 years. The rate of return offered by an SCSS is currently 8.7% per annum which is higher than a bank FD.

(Image credits: Paisabazaar)

Apart from section 80C, there are various other sections in the Income Tax Act of India which provides you with tax benefits.

9. National Pension Scheme (NPS)

Whatever contribution you make in your NPS account, you are eligible to obtain tax benefit up to Rs 1.5 lakh under section 80C. An additional tax deduction to the maximum of Rs 50k u/s 80CCD(1B) is available on your contributions in your NPS account. Investing in NPS lets you invest in both equities and debts at the same time and build a significant retirement corpus.

Also read:

10. Medical Insurance Premiums

You can avail tax deduction up to Rs 25k on medical insurance premiums paid u/s 80D. This tax benefit is allowed to you and your family. For senior citizens, this limit changes to Rs 50k. Again, if you are paying health insurance premiums for yourself and/or your family and senior citizen parents, the maximum combined deduction available is Rs 75k in a Financial Year.

11. House Rent Allowance (HRA)

If you are a salaried employee getting House Rent Allowance (HRA), you can enjoy tax exemption on the same if you stay in a rented house. But, if you don’t get HRA from your job but staying in rented accommodation, you can still claim tax deduction u/s 80GG to the maximum of Rs 60,000 p.a.

12. Home loan for constructing a house property

If you have raised a home loan for acquiring or constructing a house property, the interest payable on the same is tax deductible u/s 24 up to a limit of Rs 2 lakh per year. But, the interesting thing is that, instead of a self-occupied property, if you have given the house on rent, there is no upper limit for it. But, the total loss that you can claim on the head of income from house property is limited to Rs 2 lakh.

13. Partial benefits on Saving Account Interests

The interests that you receive on your Savings Bank Account are tax-free to a limit of Rs 10,000 per year u/s 80TTA. But, if you are a senior citizen, the tax deduction on interests received on both FD and savings account is allowed up to Rs 50,000 u/s 80TTB.

15. Disabled Assessee Deductions

If you are an Assessee suffering from any disability, you can claim tax deduction u/s 80U for yourself. Under this section, the maximum deduction from your taxable income allowed is Rs 1, 25,000.

15. Disabled dependent deductions

You can enjoy tax benefit u/s 80DD if there is any disabled person in your family who is dependent on you for his/her living. This section allows you to claim a deduction of Rs 1.25 lakhs from your taxable income.

Bonus: Donation or relief funds

If you make a donation to any relief fund or charitable institution, the limit of the tax deduction is 50% of your donated amount. Some entities allow 100% tax benefits on the donations made, subject to a maximum of 10% of the adjusted total income. There are some organizations where 100% of your donations are allowed as tax deductions without any conditions.

Closing Thoughts

In this article, we have provided you with some tax-saving tips. If you could follow our guidance, it would help you to plan your personal taxes better. The Income Tax Law of India is itself a huge one. Further, many amendments come every year in the form of a new budget (Finance Act), circulars, notifications, and case laws.

Therefore, we would like to warn you that you should not rely only on our stated tax-saving strategies. For managing your tax compliances in the most effective manner, it is recommended that you consult any tax consultant like a Lawyer or a practicing Chartered Accountant.

We wish you all the best for your personal tax planning.

NISM Certification - A Complete Beginner's Guide

NISM Certification – A Complete Beginner’s Guide

The majority of Commerce students that I come across these days are looking to make their career in the field of Finance. Even, a substantial number of engineering graduates whom I personally know, are currently changing their career to the Financial Services. At present, the Finance industry in India and across the globe is growing at a rapid pace. Therefore, it is of no doubt in saying that professional degrees and courses like MBA (Finance), CFA, FRM, and CFP are attracting a huge number of students every day.

However, apart from these mentioned courses, is there any other course which can give you the license to work as a self-employed individual in the Finance sector? Do you know of any course which is comparatively easier to pursue, affordable and gives you the ticket to pursue a career in the Finance industry?

The answer to both the questions is “NISM certification”.

But hey! Are you hearing the word ‘NISM’ for the first time? Even if yes, then you don’t need to worry at all. In this article, I would share a brief overview of the wide range of NISM courses available and how you can get certified with NISM.

What is NISM?

nism certification

NISM (National Institute of Securities Markets) is headquartered in Navi Mumbai, India and offers a wide range of courses to the Indian students. It is a public trust which was established by SEBI (Securities and Exchange Board of India). SEBI is the apex body which regulates the securities markets in India.

The SCI (School for Certification of Intermediaries) is one of the six schools of excellence at NISM. The SCI is engaged in the development of Certification examinations and Continuing Professional Education (CPE) programmes in the Financial Markets domain. These are conducted for validating and enhancing the abilities of the associates working in the Indian capital markets.

What does the NISM offer?

The NISM campus in Patalganga (Maharashtra) offers two full-time courses in Finance. The first one is PGPSM (Post Graduate Programme in Securities Markets) and the other is PGD (Post Graduate Diploma) in FinTech.

Apart from these two stated courses, NISM also offers a few other long term courses in collaboration with international bodies. You can have a look at those courses clicking here.

Further, there are 22 short term certification courses offered by NISM. In this article, we would predominantly hold a discussion on these certifications. A majority of these short term courses are mandated by SEBI for those who are either self-employed like an investment advisor or research analyst or working in the Financial Services industry in India.

The rests are voluntary certifications which have not been mandatory for the finance professionals. But, the voluntary certifications are beneficial in the sense that they provide advanced knowledge in some specific area.

For example, Mutual Fund Distributors Certification Examination (Series V C) is a voluntary exam but its contents and way of testing the candidates is more difficult than other Mutual Funds exams.

nism courses

Note: You can find the list of all the available 22 courses on the website of NISM here.

How to register for a NISM certification exam?

In order to register for any course offered by NISM, you first need to create your account on the NISM website. Click on this link and it will take you to the home page of the website. While creating your account, make sure you have a digital copy of your photograph, aadhar card and PAN card with you.

After you are done with the account creation, you can choose any module of your choice. To register for any module exam, you have to select the exam date, time and center first. After that, it will take you to the payment gateway.

Once you have paid the required exam fees, you would get the soft copy of the workbook (study material) and the hall ticket in your account. Take a physical printout of your hall ticket and carry it with you to the exam center on the day of your exam.

Also read: Want to Take NSE Certification Exam? Now You Can!

How are the contents of NISM courses?

The NISM provides the students with soft copies of the study materials in the ‘pdf’ format. The content covers both theoretical and practical aspects of the Financial Markets. These courses teach you various jargons which you need to know for pursuing a career in the Financial Markets.

Anyways, you can also enroll in these courses if you are simply interested in gaining knowledge. These programmes teach you the key theoretical concepts of the Stock Market, Mutual Fund, Financial Planning, and many others. The exams are based on MCQ (Multiple Choice Questions) and the students are tested on their conceptual understanding.  Although you don’t get the opportunity to work on demo projects here, you certainly get the chance to solve case study questions in the exams. Further, you cannot carry a scientific calculator in the exam. But, you are definitely allowed to do rough works in MS Excel, OpenOffice or digital calc on the given desktop in the exam hall.

The NISM certification exams majorly focus on the practical understanding rather than emphasizing on mugging up theories. The best feature of these certifications is that the course modules are updated in every year.

How much time does it take for the completion of a NISM course?

In case of a NISM certification examination, you don’t need any significant amount of time to complete the same unlike CA, CFA, or MBA (Finance). Practically speaking, you can book your exam slot at any time. However, it is recommended that you should prepare for at least two weeks to a month before taking any module exam. This is because when you register for an exam, you get the study material covering a minimum of 100 pages which needs a decent time for complete reading.

If you are only looking to clear the exam, you can do the same by referring to the mock tests of private institutions. But, if you are looking to gain knowledge of the financial markets and clear the exams with distinction marks, you must study the workbooks given to you by NISM.

What is the registration fee to be paid to opt for a NISM certification exam?

The registration fee for any exam is pretty reasonable in nature. Here, you don’t need to pay over 30 or 40 thousand rupees to write a semester of MBA or a level exam in CFA.

Today, you can register in a NISM exam for as low as Rs 1200. The module exam with the highest registration fee is Rs 3000. Whenever you are enrolling for an exam of NISM, you have to pay the required fees. If you are unable to attempt that exam or fail in the same, you have to pay the same fee again for re-appearing in the exam.

How’s the difficulty level of a NISM exam?

The difficulty level of the NISM exams is between average to moderately high. For some exams, the contents and way of testing could be more difficult than the rests. The NISM Investment Advisor Exams (Level 1 and 2) contain relatively more practical contents as compared to the other courses. On the other hand, exams like the NISM (Series VI) Depository Operations Certification Examination contain a very high share of theory portion in their syllabus.

In order to pass a module, you need to secure a minimum of 60% score in most of the module exams. Besides, these exams come with negative marking of 25% per question. A very few exams like NISM (Series V A) Mutual Funds Distributors Certification Examination have a minimum passing marks criteria of 50% and also they don’t have any negative marking feature.

Conclusion

NISM exams are definitely one of the best in the industry if you are a fresher and willing to make a career in Finance. These certification exams are sufficient to give you an initial push in your career. They are strong enough to add a few keywords in your resume and make it look better than your peers. But, you must understand that clearing these exams are not going to make you stand at par with the jobseekers having CA, CFA, FRM or MBA (Finance) in their portfolio.

Nonetheless, in case you are looking for a job after graduation, these courses can help you in getting shortlisted on India’s top job websites. It is easy to start your career as a Mutual Fund Selling Agent or an Equity Dealer clearing the required NISM exams. But, if you are aiming for a career in Portfolio Management, Investment Banking or Fund Manager, you should look for the premier courses in Finance.

Open-Ended Vs Closed-Ended Funds Which One to Prefer cover

Open-Ended Vs Closed-Ended Funds: Which One to Prefer?

A few days ago, I was having a discussion on Mutual Funds with a friend of mine. During the conversation, he asked me to state the key parameters which one needs to consider for investing in a Mutual Fund scheme. Another time, a person in my connection lists on LinkedIn texted me and asked when he should invest in an Equity Mutual Fund. He further wanted to know whether he should invest a lump sum or opt for investing through SIPs. Again yesterday, an old friend of mine called me up in the evening and asked in which fund he should be investing given his risk-return profile.

Well, being a Mutual Fund enthusiast and having an experience in Mutual Fund investing of over two years, I frequently come across many such queries on Mutual Funds from my acquaintances. But, there is one thing which has really surprised me is that till date, no one has ever asked me anything regarding Open-ended and Close-ended Mutual Funds.

I think this is something one needs to know if he/she is a fresher in Mutual Fund Investing. Therefore today, I have decided to talk about Open-ended vs Close-ended funds.

Open-ended vs closed-ended funds

On the basis of the structure, a Mutual Fund can be either termed as an Open-ended Mutual Fund or a Close-ended Mutual Fund. Let us first discuss Open-ended funds.

— Open-ended Funds

Open-ended funds can issue any number of units from the market. These work in a similar manner like some collective investment scheme where you can purchase units directly from the Mutual Fund Company instead of an existing unitholder.

Unlike a Close-ended fund, the units in an Open-ended scheme can be purchased or sold even after the NFO (New Fund Offering) period ends. These funds offer units to you on an everyday basis. Further, you can also redeem your units to the Mutual Fund Company any day.

The units of an Open-ended fund are issued at a price which is termed as the Net Asset Value (NAV). The NAV of a scheme is nothing but the market valuation of the assets minus liabilities of the scheme. If the scheme performs well, its NAV goes up and vice versa. So, having a constant look at the NAV of a fund helps an investor to evaluate its performance.

— Closed-Ended Funds

In a Close-ended fund, a fixed number of units are issued at the NAV to the investors in its New Fund Offering (NFO). After that, no fresh units are offered to investors. Therefore, you cannot invest in the units of a Closed-ended fund after its NFO period ends. Furthermore, you cannot redeem your units to the Mutual Fund Company after the NFO period lapses.

In order to provide liquidity to the existing investors, the existing units of a Close-ended scheme are listed on a recognized stock exchange subsequent to the NFO. Any further transactions with respect to those units are taken place in the stock market.

The transactions of the units of a Close-ended fund in the stock exchange are taken place at a price determined by the interaction between demand and supply in the market. Therefore, in a stock exchange, you would get a unit of a close-ended scheme at a price which could be at a premium over or a discount below its NAV.

Difference between open-ended vs closed-ended funds

So far we have understood the basics of Open-ended and Close-ended funds. Let us have a look at the major differences between them.

1. Open Ended schemes are more liquid in nature. You can redeem your units of an Open-ended fund anytime. Closed Ended schemes come with a fixed lock-in period. If you want to redeem your portfolio to the Mutual Fund Company at the NAV, you have to do it within a specified period of time. Otherwise, you have to dispose of it through the stock exchange at the market determined price.

2. Unlike a Close-ended scheme, an Open-ended fund is not traded on any recognized stock exchange: The price of a unit in an Open-ended scheme is majorly influenced by the prices of its underlying securities. On the other hand, the price of a unit in a Closed-ended scheme is more impacted by the market forces as compared to its benchmarks. So, it is easier to evaluate the performance of an Open-ended scheme as compared to a Close-ended fund.

3. Closed-ended funds offer trade opportunity at real-time market prices: As the units in a Closed-ended fund are traded on a stock exchange like shares, this gives you an opportunity trade on them based on real-time market prices. You can apply share trading strategies like limit orders, margin trading, etc.

4. Less-pressure for Closed-ended fund Managers: The Fund Managers in an Open-ended scheme is having no option but to strictly follow the objective of the scheme. Further, they have to face the redemption pressure of the unitholders off and on. The AUM (Assets under Management) for the Fund Managers to handle in a Close-ended scheme stays majorly fixed from the beginning. Therefore, they can manage the same at their own discretion and are not required to face any external pressure or adhere to stringent compliances.

5. The track records of a Closed-ended fund are not available, unlike an Open-ended fund: It is not possible for you to see the performance of a Close-ended fund over different economic cycles. But, in case of an Open-ended fund, you can always take an informed investment decision.

6. In a Close-ended fund, you have to invest a lump sum in a scheme during the time of their NFO issue: It is of no doubt in saying that it is a risky approach in making investments. Whereas, an Open-ended fund allows you to set up a Systematic Investment Plan (SIP) in a scheme of your choice.

Also read:

Closing thoughts

 In an Open-ended fund, many investors look to redeem their portfolio to book quick profits when the NAV goes up by 5 to 10% in the short run. This hurts the long-term investors significantly who stay invested with an aim to achieve higher returns in the long run. In this regard, a Closed-ended fund seems to be a better option. This is because its lock-in period prevents early redemption by the investors and if they redeem in the stock market, the AUM of the scheme still remains unaffected.

Again, if you have a little or no knowledge of the market and looking to earn a return of 15 to 20% annually, an Open-ended fund is ideal for you. In these funds, the NAVs are updated daily and they offer a higher scope of liquidating as compared to the Close-ended ones.

Moreover, Close-ended funds don’t offer any SIP mode for investing. You can only invest in a lump sum mode either in the NFO or in the secondary market. So, you can choose to invest in a Close-ended fund if you want to trade in a Mutual Fund scheme like any share in the stock market. But, if you are a regular income earner who likes to invest on a regular basis, an Open-ended Mutual Fund is always better for you.

It is not so easy to conclude whether opting for an Open-ended fund is better than investing in a Closed-ended scheme. The performance of any Mutual Fund scheme, whether it is Open-ended or Closed-ended, depends on the fund category it belongs and the effectiveness with which the Fund Managers handle its assets. In addition to that, what matters more is the purpose for which you want to invest in a Mutual Fund.

Howard Marks' Investing Strategies & Lessons cover

Howard Marks’ Investing Strategies & Lessons

Howard Marks, born during the 1940s, is a renowned investor and writer in the United States of America. In 2017, he was ranked the #374 richest person in the United States, with a net worth of $1.91 billion by Forbes.

During the early part of his career, Howard Marks worked with Citibank in senior positions. In the year 1985, he joined TCW where he created high yield, convertible securities, and distressed debt groups and led them all by himself.

After working in TCW for a decade, Howard resigned and eventually founded Oaktree Capital Management in Los Angeles with five partners. Interestingly, the partners of Howard in Oaktree are all ex-employees of TCW like him. The Asset Management Firm of Marks started growing in size and operations at a rapid pace with the passage of time. Oaktree focused on distressed debt, high-yield bonds, and private equity. Mr. Howard is currently the Co-chairman of the organization.

He is also a very popular personality among finance enthusiasts in the US and the world. His detailed discussion on investment strategies and insights into the US economy is known as “Oaktree memos”. It contributed highly towards his popularity among the investing community across the world. He has also authored several books on investing which are quite famous around the globe like Mastering The Market Cycle: Getting the odds on your side The Most Important Thing: Uncommon Sense for The Thoughtful Investor.

Investing strategies of Howard Marks

Let us have a look at some pointers which would help you understand the investing philosophy of this famous billionaire investor. 

1. Be a contrarian investor: Howard Marks stated that your behavior as an investor towards the financial market should be different from the other retail investors. When people buy some stock, you have to sell the same and vice versa. You need to observe what others are doing and try to comprehend where they are going wrong.

As per Marks, the market is driven by greed and fear of investors. You should not follow the herd. What others are doing, not necessarily it has to be correct. You can’t afford to get carried away by the actions of the herd. Controlling your emotions is extremely important to achieve success in financial investing.

2. You might face punishing times in your investing career: You can’t expect any industry to perform well every time. It is also not possible for an asset class to provide high returns on all occasions. It might happen that the investing approach of yours fails to generate your target returns on every occasion.

Your portfolio might stay reddened for a substantial period of time. It is pretty okay to incur losses while investing. Losing your corpus in the financial market is a part and parcel of investing.

3. Patience is highly needed to succeed in the financial market: If an asset is underpriced, it doesn’t mean its price is going up tomorrow. Similarly, an overpriced asset doesn’t indicate it will start going bearish soon.

You might come across a plethora of opportunities in the stock market to book quick profits at low risk. But, it is always recommended to stay firm with your investing strategies. Have faith in your investing philosophy to yield returns for you in the long run.

4. Don’t look for “exact bottoms” in the market: Marks said that he looks to buy a stock at a cheap price. He enters into the market when the price is low, not necessarily it has to be the price. It is not always possible that you get to buy all quantities of a share at its rock bottom price.

After an initial investment, when the same stock gets cheaper, Marks again buys more of it. It is not necessary to buy all your shares at the market low to make huge money.

5. Refrain from buying quality stocks at any price: It is not true that you will earn huge profits by investing in high-quality securities. You should look to buy a stock which is trading at a price lower than its intrinsic value.

Investing in stocks at a low purchase price not only generates the scope for future gain, but it also puts a limit on the downside risk. The more is the discount from the fair value (intrinsic value), the greater is the “margin of safety” a stock could provide you with.

6. Psychology is more important than market predictions: You don’t have a crystal ball to predict the future. You can’t forecast how the market will perform tomorrow. You can only mentally prepare yourself from probable situations in the market. For making money in the stock market you require having a deep insight into companies, asset classes, and sectors.

You can’t let your emotions get better of your investment strategies. What matters most is your psychology. You have to be either aggressive or defensive in your approach. It doesn’t matter whether you are investing in stocks or bonds.

It hardly matters whether you pour your money in domestic or international markets. Your returns remain unaffected irrespective of the fact whether you invest in a developed economy or an emerging market. 

Famous quotes by Howard Marks

You can find a plethora of quotes from Marks on the internet. Here are a few quotes which I found worth sharing from his book, The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor’.  

— “The process of intelligently building a portfolio consists of buying the best investments, making room for them by selling lesser ones, and staying clear of the worst.”

— “There are old investors, and there are bold investors, but there are no old bold investors.”

— “There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time. That’s one of the most important things you can know about investment risk.”

Here are two more of my favorite quotes of Howard from his book, ‘Mastering the Market Cycle: Getting the Odds on Your Side’.

— “There are three ingredients for success—aggressiveness, timing, and skill—and if you have enough aggressiveness at the right time, you don’t need that much skill.”

— “What do value investors do? They strive to take advantage of discrepancies between “price” and “value.” In order to do that successfully, they have to (a) quantify an asset’s intrinsic value and how it’s likely to change over time and (b) assess how the current market price compares with the asset’s intrinsic value, past prices for the asset, the prices of other assets, and “theoretically fair” prices for assets in general.”

Also read:

Closing thoughts

Investing requires a person to have patience, dedication, and studying the market thoroughly. In case you want to earn quick profits in the short term, it is possible through trading but not by investing. But, if you are looking to grow your wealth and willing to stay invested for a long time, investing can make it a reality.

Howard Mark has not made huge money in one day. It took him years of experience to reach where he is now. To grow as a fundamental analyst, it is very important to learn from the eminent personalities who have achieved grand success as investors. The investing approach of Marks is immensely informative for any fresher willing to pursue a career in the financial market.

What is National Pension Scheme (NPS)? Advantages, Tax Benefits & More cover

What is National Pension Scheme (NPS)? Advantages, Tax Benefits & More

NPS or National Pension Scheme is a pension plan which was initiated by the Indian Government in January 2004. It was primarily introduced for those Government employees those who joined employments in 2004 and onwards.

Subsequently, the Government of India wanted to develop the habit of savings among the salaried Indians, specifically for retirement. Therefore, from the month of May in 2009, NPS was made available for all employed Indians. PFRDA (Pension Fund Regulatory and Development Authority) is the regulator of NPS in India.

How can you start NPS?

If you are a salaried Indian resident, aged between 18 to 60 years, you are eligible to invest in NPS. You can open your NPS account with any entity called the Point of Presence (POP). POPs mostly include banks and other financial institutions. The authorized branches of a POP are called Point of Presence Service Providers (POP-SPs). POP-SP acts as the collector of its POP.

In order to enroll in an NPS account, at first you have to make an application in a prescribed form. Next, you have to furnish the documents required for complying KYC norms. Once your application is processed, the Central Record-keeping Agency (CRA) will send you your PRAN. After that, you have to pay the minimum account opening fee along with the management fee to activate your NPS account.

Various types of Accounts in NPS

There are two types of accounts in NPS, which are Tier I account and Tier II account.

Tier I account is mandatory for all subscribers of NPS. If you are a Government employee, you are required to contribute 10% of your Basic Salary plus D.A. in NPS. The Government of India also contributes an equal amount in the same account. A minimum of Rs 500 per month is required to be contributed in your NPS account, i.e. Rs 6000 in a year.

In case you are a private employee, you get the option of choosing between NPS and EPF. If you choose NPS, you have to contribute an amount equal to 10% of the sum of your Basic Salary and DA. Your employer will also contribute an equal amount in your account. You can find your employer’s contributions towards your NPS account in Form 16.

Tier II account of NPS is a savings account and you can withdraw money from it anytime. Neither your employer contributes any amount in this account nor do you get any tax exemption on such contribution made. You have to pay Rs 1,000 to open this account. In your subsequent contributions, you have to pay a minimum of Rs 250 on each occasion. Further, every year end, your balance in this account should be at least Rs 2,000 to keep your account operation.

How does NPS work?

An NPS invests in Equities, Corporate Debts, and Government Securities. You can choose any from the Active, Auto or Default plan. In Active plan, maximum 50% of your investments can be allocated to Equities.

In the Auto plan, until you reach 35 years of age, maximum investments that can be made in Equities and Corporate Debts would be 50 and 30%, respectively. After that, in the next 20 years, the investments in Equities and Corporate Debts go down every year by 2 and 1%, respectively.

In the Default plan, maximum 55% in Government Securities, 40% in Corporate Debts, 15% in Equities, and 5% in Money markets can be invested out of the contributions made. If you are a Government employee, please note that you can only opt for the Default option.

The financial assets of your NPS account are managed by an established Fund Management Company. You can choose your fund manager from any of the following:

  1. ICICI Prudential Pension Fund.
  2. LIC Pension Fund.
  3. Kotak Mahindra Pension Fund.
  4. Reliance Capital Pension Fund.
  5. SBI Pension Fund.
  6. UTI Retirement Solutions Pension Fund.
  7. HDFC Pension Management Company.
  8. DSP BlackRock Pension Fund.

How your NPS account provides you with pensions?

When you subscribe to an NPS scheme, you are provided with a Permanent Retirement Account Number (PRAN). While you work, NPS accumulates your savings in your Permanent Retirement Account (PRA).

When you retire, your savings in the PRA will be used for providing you with pensions throughout your retired life. When you retire from your job after reaching a certain age, NPS allows you in withdrawing up to 40% of the corpus in your PRA. The balance corpus continues generating pension amounts for you annually.

You should also keep this in mind that you can only withdraw from your NPS account after three years from your subscription date have been completed. You can withdraw funds only to the maximum of 25% of the amount contributed by you. Furthermore, you are allowed to withdraw to the maximum of three times during your subscription tenure.

Also read:

Benefits of investing in NPS

When it comes to investment management, NPS provides you with a certain amount of flexibility. Your savings in NPS is operated and managed by a private investment entity. If you are dissatisfied with your chosen fund manager, you can shift to another Fund Management Company.

Apart from that, NPS is a safe investment as it is regulated by PFRDA, a statutory body of the Indian Government. NPS has been in India for around 15 years and it has consistently yielded between 8 to 10% returns every year.

One of the greatest perks of investing in NPS is that it provides huge tax benefits to its subscribers. Whatever you contribute to your NPS account is eligible for tax benefit up to Rs 1.5 lakh u/s 80C of Income Tax Act, 1961 for every Financial Year.

Further, a tax benefit of extra Rs 50k out of your employer’s contributions is allowed u/s 80CCD1B for every Financial Year. NPS has an EET status like PPF. This means the investments, returns, and redemptions are all eligible for tax benefits. You can read more on taxation of NPS in this blog.

Closing Thoughts

You must have heard that one should not put all the eggs in a single basket. Diversification is the key to success in the financial market. Diversifying your corpus is difficult if you directly invest in the market. This is because you would require a huge amount of money to create a well-diversified portfolio.

Investing in Mutual Funds can sort this problem to a huge extent. But, it is not going to be of much help to you if you lack the knowledge of picking the right Mutual Fund scheme for your financial needs.

NPS overcomes this shortcoming of Mutual Fund. Here, you don’t need to analyze a plethora of schemes by yourself. You just require picking your desired fund manager who would handle all your investments as per your chosen NPS plan. The beauty of investing in NPS is that you don’t need to possess any practical knowledge of the stock market.

Renting vs buying a home- Which one is better 3

Renting vs buying a home- Which one is better?

Renting vs buying a home has always been a big topic of discussion. Whenever we look for any long-term accommodation, we analyze deeply whether to buy a house property or take it on rent.

Some people say that staying in a rented home is better as we don’t have to spend a huge amount of money upfront. Moreover, when we opt for buying a residence, we mostly prefer raising a home loan which can again be a big commitment. On the other hand, those who advocate acquiring a residential property, state that it feels completely different to live in one’s own house and the house is their biggest asset.

We shall take an example to analyze the question of renting vs buying a home.

Renting vs buying a home

Let us consider two guys, Rohit and Sumit, who have got jobs as freshers in the IT sector in Kolkata. The former has decided to stay in rented accommodation while the latter has chosen to buy a flat on loan.

Let us see how the financial picture of Rohit looks like.

Renting a home

Renting vs buying a home- Which one is better 2

Rohit has decided to stay in a 3-BHK apartment on rent. Let us assume Rohit’s rent to be Rs 20k per month with an average annual appreciation of 5% per annum. This is to be noted that if you take accommodation on rent, your landlord may increase your rent with time so as to adjust inflation.

Coming back to our example, the expected rent of the apartment after 20 years can be assumed to be Rs 40k per month. The monthly rent after 20 further years (a total of 40 years from now) is expected to become Rs 80k per month. If we calculate, we will find that after 40 years, Rohit would have paid Rs 2.9 crores towards the rental of his home.

Pros and cons of staying in rented accommodation:

As Rohit has opted to stay in a rented apartment, he needs to consider a few key things. First, he can’t treat his house as his own home as the legal owner is his landlord. Next, Rohit is always exposed to the risk of losing his shelter as his landlord may ask him to leave anytime (by giving a notice period as per the rent agreement).

Generally, the landlords in the majority of the states in India impose restrictions on the number of years a tenant can stay in his house. This happens as the landlords are not adequately protected by the applicable Indian laws. There are certain restrictions that Rohit will have to face with regard to the renovation of his apartment and keeping pets. Moreover, he has no scope of enjoying complete privacy in rented accommodation.

There are a few advantages too that Rohit can enjoy while staying in his rented residence. He is not required to pay any house taxes. Next, Salaried individuals, who live in rented houses, can claim the House Rent Allowance (HRA) to lower their taxes – partially or wholly. Apart from paying a refundable security deposit and sometimes the maintenance charge, he is not required to pay any further lumpsum amount upfront.

If Rohit changes his job to another location or he is transferred to another location in his existing job, it won’t bother him financially. His contract with the existing landlord will be canceled and he will enter into a fresh contract with a new landlord.

Also read: HRA – House Rent Allowance – Exemption Rules & Tax Deductions

So, far we have discussed only regarding Rohit. Let us now analyze the situation of Sumit.

Buying a home

Renting vs buying a home- Which one is better 1

It was stated earlier that Sumit has decided to buy a similar accommodation like Rohit by borrowing from a Bank. Let us assume the amount of his home loan is Rs 40 lakhs which he has to repay in 2 decades time. The applicable interest rate is 8.3% p.a and Sumit requires paying EMIs of Rs 34,200 for 20 years loan duration. So, if we calculate, the total amount that Sumit has to pay after 20 years, it will amount to Rs 82 lakhs.

After the loan is repaid, Sumit is not required to pay anything at all to the Banker. So, for staying in rented accommodation for 4 decades, Rohit has to pay Rs 2.08 crores more than Sumit. Although Sumit is required to pay Municipal Tax every year, it is a nominal amount and can be ignored in our analysis.

Sumit would get dual income tax benefits every year as long as he is repaying the loan on house property. On one side, his gross total income will get reduced by the Interest on Loans paid by him u/s 24(b) of the Income Tax Act, 1961. On the other side, he would get deduction u/s 80C of the said for the principal amount of loan paid by him. The maximum deduction allowed u/s 24(b) and 80C are Rs 2 lakhs and Rs 1.5 lakhs, respectively.

So, from the above discussion, Sumit’s decision of purchasing a house property seems to be financially more viable than that of Rohit’s choice of rental accommodation.

Pros and cons of staying in buying a home:

Let us discuss some major benefits that Sumit can enjoy by opting for buying an apartment.

It is needless to say that having one’s own house is a sign of pride, sense of achievement and source of privacy. If Sumit is transferred to a new location or takes up a job in another location, he can sublet his property to someone. Even if he doesn’t stay in his house, it doesn’t mean that he has to incur a loss if he has bought the apartment on loan.

Many people say that rentals are always cheaper than EMIs. But, the fact is that, as time passes, the rentals tend to get higher and higher while the amount of existing EMIs doesn’t.

As an owner of the house property, Sumit can obtain any personal loan keeping his apartment on collateral. Today, real estate is a growing industry where the price of properties is going up every single day. Therefore, as Sumit has chosen to buy a house property, he will be investing in a physical asset having huge potential to generate large returns in the days to come.

There are a few shortcomings of buying a house too. Although Sumit will get the house in his own name, he can only enjoy the ownership in a true sense after he has repaid the loan in full. Generally, a Bank charges a down payment while granting the home loan. This upfront payment could be as high as one-fifth of the price of the apartment bought. So, in the short term, Sumit has to incur a heavy payout to buy a house property on loan.

Also read: Are REITS in India a worthy investment option?

Closing Thoughts

The decision of buying vs renting a home is not going to be the same for every individual. Whether you want to buy a house property or take it on rental, it totally depends on your financial situation. If buying accommodation suits my financial situation, it may not suit yours.

Moreover, both the options are having their own perks and shortcomings. In this article, we have evaluated both the options where buying accommodation sounds financially fitter than staying in a rented home.

10 Reasons Why You Should Start a SIP cover

10 Reasons Why You Should Start a SIP

Last Friday, I met my old college friend- Priyanshu. While discussing various stuff, he told me that he has decided not to invest in ‘Fixed Deposits’ anymore. Well, there is no doubt in saying that he has made a good decision. We all know that FD is no longer a strong investment option for creating our desired wealth for the future.

During our conversation, Priyanshu suddenly got eager to know more about investing in Mutual Funds. I told him that Mutual Funds have of late become the talk of the town. I explained to him the benefits of investing in the same. Anyways, he also asked me whether he should invest in Recurring Deposits instead of Mutual Funds. As we went further in our discussion, I realized that he used to think one can invest in Mutual Funds only in a lump sum mode like FDs. But, the fact is that you can even invest in a Mutual Fund through SIPs.

Later, I told him that as he is doing a day job and earning a regular income, he should start investing in the Mutual Funds via SIP mode. Investing through SIPs works in a similar manner like Recurring Deposits (RDs). One key difference between the two is that you get units while investing in Mutual Funds. Another major difference is that through SIP investing you can earn relatively higher returns than RDs. Further, the rate of returns in SIP Mutual Funds is not fixed as in the case of RDs.

In the SIP or Systematic Investment Plan, a fixed sum of money is automatically invested in your chosen Mutual Fund on a specified date of each month. When you set up SIPs, your Bank Account is debited and your desired sum gets invested in your chosen Mutual Fund scheme.

Why You Should Start a SIP?

If you are a beginner in Mutual Fund investing, you might have this doubt why you should opt for investing through the SIP mode. Here are the ten best reasons why you should start a SIP.

1. Automate your investments: You can set up SIPs to activate investments in the Mutual Fund from your Bank Account on a particular date. This results in developing a habit of investing in the Stock Market and helps you create a large corpus in the long run.

2. Developing an investment habit towards your goal: SIP investing builds a regular investing habit for an individual. So, if you have any financial goal, your well planned SIPs can make it more feasible to achieve.

3. Variety of investment plans: SIPs help you invest in Mutual Funds with your desired amount for a chosen term. Moreover, you have a variety of schemes to choose from according to your financial needs like Equity based mutual funds, debt mutual funds, balanced funds, etc.

4. Flexibility in investments: Using a Step-up SIP, you can gradually increase your SIP amount with the increase in your earnings. In Mutual Fund investing, you can choose to stick to your regular SIP amount. But, if you wish, you can also choose to increase or decrease (up to the minimum investment amount) your SIP amount with the help of a Flexi-SIP.

5. Affordable investments: When you invest in the Mutual Funds through SIPs, you can create a huge capital over a long period of time. SIP investing doesn’t require you to invest a large sum of money in every installment. So, your household expenses are not at all hampered due to SIP investing. You can start investing in SIP with an amount as low as Rs 500 per month.

6. Rupee cost averaging: Investing in the Mutual Funds through SIPs fetch you more units when the market moves down and fewer units when it goes up. Therefore, this averages out the overall costs of your investments over time.

7. You do not need to time the market: You don’t need to know whether the Stock Market has hit rock bottom or it has reached its peak. You can invest in the Mutual Funds any time through SIP as its rupee cost averaging feature nullifies the market volatility.

8. Long-term investment: Mutual Funds are typically meant for creating wealth in the long run. Investing through SIP let you invest in the market with small amounts over a long period of time. The higher is the investment horizon, the greater is the scope to earn larger returns.

9. Power of compounding: The returns on your SIP investments are also reinvested in the market. Therefore, you not only earn returns on what you invest but also on your reinvested returns. The longer you stay invested in the market, the greater is your scope of enjoying the power of compounding.

10. Diversification: You get the opportunity to enjoy the benefit of diversification while investing in SIPs. You can easily allocate your investment across diverse asset classes and industries. Diversifying your investment results in reducing your security-specific risks and increases your chances of earning larger returns.

Quick Note: Long term capital gains on an Equity Mutual Fund are tax-free if such gains don’t exceed Rs 1 lakh in a Financial Year. This goes to show that Equity Fund investing via SIPs is a wonderful way to accumulate a huge investment in the long run. Further, Investing in ELSS up to Rs 1.5 lakh in a Financial Year is allowed as a deduction against Gross Total Income for the same period. Setting up SIPs in an ELSS can help you gain tax benefits with ease.

Also read:

Conclusion

Mutual Funds have become extremely popular in recent years among the middle-class Indians because of AMFI’s “Mutual Funds Sahi Hai” campaign. SIP investing is a great way to invest in Mutual Funds for building huge wealth in the future.

People who don’t invest in Mutual Funds are either lacking in knowledge or simply scared to invest in the same. However, the Mutual Fund industry in India is highly regulated by SEBI, which reduces the chances of occurring malpractices to nil.

In this article, we have tried to highlight the major advantages of investing in Mutual Funds via SIP route. Again, you can start investing with as low as Rs 500 per month in a SIP. Mutual Funds can help you fulfill all your financial needs if you invest in it in a systematic manner.

what are bonds cover

What are Bonds? And How to Invest in them in India?

A bond is a financial product which represents some debt. It is a debt security issued by an authorized issuer which can be a company, financial institution, or Government. The issuers offer returns on bonds to the lenders in the form of fixed payment of interest for the money borrowed from them.

A bond is having a fixed maturity period of its own. It is an obligation of the authorized issuer in paying interest and/or repaying the principal at a future date upon maturity. However, such payouts are dependent on the terms and conditions associated with the bonds issued by the said issuer.

Are bonds and stocks the same?

It was stated earlier that bonds are as good as debts. So, if you are a bondholder, it means that you are a lender of funds to the issuer entity. On the other hand, if you own a stock, it indicates that you have a share in the ownership of such issuer organization.

Bonds are having predefined maturity periods while stocks don’t. Anyways, if you invest in stocks, you can sell them off any day. But, if you are a holder of bonds, you have to wait for its maturity period to end to get back your investments. 

What are the different types of bonds available for investing?

  1. Zero-coupon bonds: These bonds are available for investing at a discount on the face values. After the expiry of their maturity period, they are redeemed at par.
  2. G-Sec bonds: These bonds are considered as one of the safest bonds as they are issued by the Government of India.
  3. Corporate bonds: These bonds are issued by corporate The companies borrow funds from the people and pay them regular interests.
  4. Inflation-linked bonds: The principal amounts and interest payments of these bonds are indexed to inflation.
  5. Convertible bonds: A bondholder is having the option of converting these bonds into equities as per predetermined terms.
  6. Sovereign gold bonds: These bonds are issued by the Indian Government and offer the safest way of investing in digital Gold.

Why would you invest in bonds?

Here are a few best reasons why one should invest in bonds:

  1. Bonds are less riskier than equities. Therefore, investing in bonds will ensure that your corpus is protected.
  2. It is highly likely that the returns on equities are higher than bonds. But, this is also to be considered that investment in equities carries a higher risk than bonds. The payment of interests on bonds is ideally assured while equities don’t make any such promise of paying regular dividends.
  3. If you don’t want to pay tax at all then you can invest in tax-free investment bonds. So, if you fall in the higher tax bracket, not only you keep on growing your wealth but also enjoy full tax advantage on the returns on such bonds.

TOP TAX SAVING BONDS IN INDIA-min

(Source & Image credits: Karvy)

How to Invest in Bonds in India? 

If you want to invest in Bonds in India, either you would be investing in corporate bonds or Government bonds. Let’s first talk about investing in corporate bonds.

You can buy Corporate bonds from the primary markets when the issuing company issues new bonds. In order to invest in them, you are required to file an application form and submit the same to any branch of the issuer along with prescribed documents and application fee. In case you are having Demat Account, your bonds will be credited to the same. However, if you don’t have one, then you would receive them in their physical format. You can also buy corporate bonds from the secondary markets subject to their availability.

Government bonds are not traded like shares on the stock exchange or secondary market. They are sold through their official distributors. These bonds are also made available by the designated branches of post offices and banks. For investing in these bonds, you can submit your application form, necessary documents, and required fees in any of the said places. Once your application is processed, you would receive bonds in your name.

Instead of buying bonds directly from the companies and Government, you can also invest in them through the bond brokers in India. Investing in bonds through brokers is more convenient. You can invest in bonds through their online platforms like websites and mobile applications. Brokers like ICICI direct, HDFC Securities etc offer their clients to invest in bonds along with equities. Here, to comply with KYC requirements, you are not required to pay any visit to their physical offices. They are the investment service providers and act as middlemen between you and the issuer organizations.

icici direct bonds

The bond brokers are the market makers of bonds in India. Over 90% of the bonds which are traded in India are privately placed instruments. Therefore, they are not advertised at all. The bond brokers are playing an important role in creating a deep and wide bond market in our country.

Also read:

Conclusion

In India, the majority of the people are interested in investing their money in their Bank Fixed Deposit Accounts. The next preferred investment options are the tax saving instruments like NSC and PPF. Financial literacy is not at all strong in our country. Therefore, most people are unaware of the fact that diverse investment options are available. A good number of Indians simply feel afraid to invest because of the lack of proper financial education.

The bond market in India is not as deep as what exists in western countries. Therefore, the number of individual investors in the Indian bond market is pretty low. Due to AMFI, Mutual Funds have started gaining substantial popularity in the last few years in India. So, the retail investors have started investing in bonds not directly but through debt mutual funds.

The investors in the Indian bond market majorly consist of Banks and Financial Institutions. Advertising is not permitted in India with regard to investing in bonds. If any authority takes the initiative to encourage bond investing, then India can witness a more liquid bond market someday.

ETF EXCHANGE TRADED FUNDS

What is ETF (Exchange Traded Fund)? And How to Invest in them?

Exchange Traded Fund or ETF is getting a lot of attention among the investing population lately because of the ease and flexibility it offers to the investors. It is a basket of securities like mutual funds but can be bought and sold through a brokerage firm on a stock exchange.

In this post, we are going to discuss what exactly is an Exchange Traded Fund and how to invest in them. But before we start discussing ETFs, let’s brush up the basics of mutual funds as they are somewhere related.

Mutual Funds

Mutual Fund is a financial product where a Mutual Fund company pools funds from its investors and in return, allot them units. The amount collected is invested in a portfolio of securities which are traded in the markets. Mutual Fund schemes are low-cost investment options which help you to plan your personal finance effectively. You can start investing in mutual funds with an amount as low as Rs 500 per month via SIPs. Through Mutual Funds, you can invest your savings across diverse asset classes, industries, and economies.

In Mutual Fund investing, you can either choose to be an ‘Active’ investor or opt for ‘Passive’ investing style. The Mutual Fund schemes where the underlying assets are frequently churned to outperform their benchmarks are known as active funds. Passively managed funds are those which replicate the portfolios of their benchmark indices.

ETFs are the best representatives of passively managed funds. Let’s have a discussion on ETF basics.

Exchange Traded Funds

An ETF or Exchange Traded Fund is a variety of Mutual Fund which tracks any particular index, be it an index of stock, commodity or any other security. ETF invests in a portfolio of assets of a specific nature. For example, you can invest in a Gold ETF or Bond ETF or Currency ETF.

ETFs trade in the stock exchanges and therefore can be bought and sold during market hours like any instruments listed in a stock exchange. The price at which an ETF is usually traded is close to its Net Asset Value (NAV). In order to invest in an ETF, you need to have your own Share Trading Account and Demat account.

You can earn income from your ETF investments in two ways. Firstly, you can earn in the form of dividends. The second one is that you can trade your ETF units like shares and generate income in the form of capital gains.

Some people have this doubt in their minds whether ETF is the same as Index Funds or not. Well, what is the reality then? Let’s dig deep into it.

ETF vs Index Funds

An Index Fund is also a variety of Mutual Fund like ETF. The portfolio of an Index Fund is built in such a manner that its components look similar to that of a specific stock market index. An index fund aims in replicating the performance of a particular benchmark index.

On the other hand, an ETF is a special form of Mutual Fund consisting of similar securities, falling under any specific market index. An ETF is the only type of Mutual Fund which is traded like shares in a stock exchange. Its composition is similar to any index like Sensex or Nifty.

So, both ETF and Index Fund look quite similar except the fact that the ETF is traded in the stock market.

Is this the only difference between the said two investment options? The answer is a big no. Let’s have a look at some more key differences between the two:

  1. You can invest in an Index Fund only during a specified time in a day. But, you would be happy to know that you can trade in the ETFs throughout the day.
  2. The price of any ETF keeps fluctuating throughout the trading hours. On the other hand, the price of an Index Fund is fixed only at the end of the trading day.
  3. The basis for the pricing of an ETF is the demand and supply of the same in the market. Whereas, the pricing of an Index Fund depends on its NAV.
  4. To invest in an ETF, you will have to incur expenses in the form of brokerage. But, for investing in an Index Fund, there is no such transaction charge applicable.
  5. The expense ratio of an ETF is comparatively lower than that of an Index Fund.
  6. If you want to invest in an ETF in the Indian market, the minimum investment required is Rs.10,000. Whereas, you can invest in an Index Fund by paying a minimum lump sum of Rs.5,000. Moreover, you can choose to invest in the Index Funds with a minimum amount of Rs.500, if you choose the SIP (Systematic Investment Plan) route. Please note that investing in an ETF via SIP is not applicable.

Why you should invest in an ETF?

The next question that can come to your mind is why you should invest in an ETF? I can state a couple of reasons in favor of this.

Investing in an ETF is certainly convenient. Buying and selling an ETF unit can be done by having a look at the market price available on the trading platform. The exchanges where the ETFs are listed are well regulated by the concerned authorities. This has resulted in increasing transparency in the trading of ETFs.

Furthermore, you can choose to invest in ETFs as the expense ratio is much lower than any other Mutual Fund. Again, if you are unable to figure out which stocks to invest in, you can invest in a sector-specific ETF instead with a small corpus. 

performance of ETF in India

(Updated till 2nd May 2019 | Source: Moneycontrol)

How to invest in ETF in India?

In order to invest in an ETF you need to ensure the following two things:

  1. You are mandatorily required to open a Share Trading Account with any Stock Broker/ Sub-broker.
  2. You must also possess a Demat Account in your name for the purpose of holding the ETF units which you are going to buy.

Now, to apply for the above two things, you have to submit the following documents for complying with the KYC (Know Your Customer) norms:

  1. A copy of your Passport, Driving License, or PAN Card as your identity proof.
  2. A copy of your Passport or any Utility bill as a proof of your address.
  3. A copy of your Bank Account statement for the last 6 months.

After you have got access to your online trading platform, you can carry out any ETF transaction. You can invest in ETFs via any of the following two modes:

  1. You can place your order in the market through the online trading terminal provided to you. Trading in ETFs is no different than carrying out transactions with respect to stocks listed in the stock market.
  2. The second option is that you can place your order by calling your Broker over the phone and let them know about your trade requirements. 

Also read:

Closing thoughts

If you are willing to take part directly in the stock market but unable to figure out which security to pick, you can start investing with ETFs. In case you are an existing investor in the market and looking to try something different, you can look to include ETFs in your portfolio.

In India, people are still predominantly interested in investing in traditional saving schemes like PPF, FD, and NSC. Stock Market investing is yet to get popular among the Indians at a significant level. Not even ten percent of the income earners in our nation are having their Stock Trading Accounts. Therefore, there is no doubt in saying that the number of participants in ETFs in our economy is still pretty less.

AMFI has been working hard in the last few years to popularize the concept of Mutual Fund investing in our country. So, as the Indian Mutual Fund industry grows, it is expected that more and more investors will show an inclination towards ETFs.

What are STP and SWP in Mutual Funds_ A Beginner's Guide cover

What are STP and SWP in Mutual Funds? A Beginner’s Guide!

Systematic transfer plan (STP) and Systematic withdrawal plan (SWP)

In India, the Mutual Fund industry has started growing off late due to the immense efforts by Association of Mutual Funds in India (AMFI). Previously people used to be more interested in parking their money in Fixed Deposits and Recurring Deposits. Today, many Indians are looking to invest in Mutual Funds for gaining higher returns, ensuring larger security, and enjoying more liquidity.

Unfortunately, the percentage of Indian population investing in the Mutual Funds would not even cross the one-fifth of the total number of income earning Indians. At present, as high as 80% of the Indian income earners are either unaware of Mutual Funds or they have a plethora of misconceptions regarding the same.

One of the myths that many Indians have is that SIP is a feature of the Mutual Fund. The fact is that SIP is a mode of investing in Mutual Funds. You can invest in Mutual Funds either via lump sum mode or through SIPs. Let us have a basic understanding of SIP.

1. Systematic Investment Plan (SIP)

SIP means Systematic Investment Plan. You can invest a fixed sum of money at specified intervals of time, over a time period in a systematic manner. You can choose to make SIP investments yearly, half-yearly, monthly, weekly, or even daily.

SIPs are similar to Recurring Deposits. You are required to invest your money on a predetermined date and the Mutual Fund Company will provide you units based on that day’s NAV.

If you are looking to invest in the Mutual Funds via SIPs, you do not need to time the market. The major benefit that SIPs provide you is ‘rupee cost averaging.’ Therefore, your investments are not subjected to the risk of market fluctuations as SIP investing averages out the cost of your investments.

Now, there are two crucial concepts associated with SIP. The first one is the Systematic Withdrawal Plan or SWP.

2. Systematic withdrawal plan (SWP)

SWPs allow you in withdrawing a specific amount of money at regular intervals of time. SWP plans are more suited for retired people who are looking for a regular income to meet their expenses, preferably on a monthly basis.

After investing a lump sum amount in a Mutual Fund, the fixed amount and frequency of withdrawal are to be set by you. Not only SWPs help in providing you with periodic income but also protects you from the ups and downs of the stock market.

SWPs work in the manner opposite to SIPs. In case of SIPs, your money is invested in the Mutual Funds from your Bank Account. While, in case of SWPs, your Mutual Funds units are redeemed and gets deposited in your Bank Account.

Let us consider an example to understand how SWPs work in reality. Suppose Mr. Akash is having 10,000 units of a Mutual Fund on 1st January. He wishes to withdraw Rs 5,000 per month through SWP for the next three months. Therefore he sets up an SWP to give effect to it.

The units from your Mutual Fund holdings will be redeemed automatically to provide you with a regular income of Rs 5000 per month. The table shared below explains the process.

Date Opening Units NAV Units redeemed Closing units
1st Jan 10000 20 250 (5000/20) 9750
1st Feb 9750 16 312.50 (5000/16) 9437.50
1st March 9437.50 15 333.33 (5000/15) 9104.17

Now let us discuss the second key concept i.e. Systematic Transfer Plan (STP) 

3. Systematic Transfer Plan (STP)

STPs allows you to transfer your money from an Equity Mutual Fund scheme to a Debt scheme. The opposite can also take place. STP acts as protection against market volatility. STP is an automated way of transferring your money from one Mutual Fund scheme to another.

Whenever you feel that the investment made by you in an Equity Fund is being exposed to a higher risk, you can transfer your units to a Debt scheme periodically. Therefore, you can set up STPs which transfers your funds from your Equity scheme to a Debt Fund. When the market settles itself, you can again transfer the money from that Debt Fund to an Equity scheme.

Let us now understand how STPs work. You need to select a Mutual Fund from which your funds should be transferred to another scheme. You can set up STPs in a manner where a transfer can take place. It could be yearly, quarterly, monthly, weekly, or even daily.

STP means redeeming units of a scheme and investing the proceeds in the units of another scheme. Generally, STPs are allowed to an investor by a Mutual Fund company only within the schemes of the same company.

Through setting up STPs, you can keep earning your returns on a consistent basis. Moreover, your investments are also protected against adverse market circumstances. STPs also help you enjoy the benefit of ‘rupee cost averaging’ similar to SIPs.

STPs help you in rebalancing your portfolio. You can keep your funds moving from debts to equity when the Stock Market witnesses a bullish trend. Similarly, you can move your Equity investments away from the market and invest in Debt schemes when the market corrects itself.

Also read:

Systematic transfer plan (STP) and Systematic withdrawal plan (SWP)-min

(Image Credits: Edelweiss)

Taxation rules

Investing via SIPs is not going to fetch you any tax benefit unless you invest in an ELSS scheme. Under section 80C of the Income Tax Act, 1961, you can enjoy a tax deduction on your investments up to Rs 1.5 lakh. This tax benefit is available if you invest in any prescribed securities including ELSS.

SWPs result in the redemption of units of a Mutual Fund. Let us assume that you have invested in a Debt scheme and set up an STP to transfer money to an Equity Fund. Assuming 3 years have not been completed, any capital gain you make due to the redemption of units in Debt Fund will be taxable as per your tax slab. If you withdraw your investments after 3 years, capital gains are taxable @10% and 20%, with indexation and without indexation, respectively.

STPs also result in the transfer of units and therefore the capital gains are subjected to Income Tax. Suppose, you shift your investments from an Equity Fund to Debt scheme within 1 year, the capital gain tax is chargeable @15%. If 1 year exceeds, the tax is attracted @10%, provided capital gains in a Financial Year exceeds Rs 1 lakh.

Also read: Mutual Fund Taxation – How Mutual Fund Returns Are Taxed in India?

Closing Thoughts

If you lack both time and knowledge for Stock Market investing, you can invest your money in the Stock Market via Mutual Funds. For investing in Mutual Funds, you require making use of SIPs, STPs, and SWPs in any phase of your investment journey.

When you earn regular income in our life, investing in Mutual Funds via SIPs seems ideal. As per changing market circumstances, you can set up STPs to maximize your returns by minimizing your corpus loss. SWPs usually come in the picture when you stop earning income actively and looking for a passive source of regular income for the rest of your life.

Mutual Fund is a great investment option for growing your long term wealth. The systematic arrangement of your investments and withdrawals in the form of SIPs, STPs and SWPs help you live a financially disciplined life.

10 Common mistakes while investing in mutual funds cover 2

10 Common Mistakes While Investing in Mutual Funds

Mutual Fund investment is the talk of the town. These days, many people who earlier used to invest in the traditional saving schemes like PPF and FD are showing more interest in investing in Mutual Fund.

Ideally, if you don’t have a good knowledge of analyzing the security market, instead of directly investing in stocks, buying through Mutual Funds is a lot safer and more convenient. For the middle-class Indians, Mutual Fund investing is a wonderful way of fulfilling their desired goals. You can even start investing with as low as Rs 500 per month.

Irrespective of these advantages, there are many people- especially novice investors, who make a plethora of mistakes investing in Mutual Funds. In this post, we are going to discuss ten of the most common mistakes while investing in mutual funds.

10 Common mistakes while investing in mutual funds

Here are some of the general mistakes which you should avoid while investing in Mutual Funds:

1. Not defining any goal: You should clearly define your financial goals before you jump into Mutual Funds. One requires specifying his/her short and long term goals before deciding over the investment portfolio. If you are planning to go for a tour abroad after a year from now, investing in a Debt Fund seems more appropriate. On the other hand, if you wish to retire after 30 years from today, you should set up your SIPs in an Equity Fund to have a large corpus in hand during your retirement.

2. Not researching the fund properly before investing: Investing in the financial market makes no sense if you haven’t done proper research. Before investing in a Mutual Fund scheme, you need to know its fund type, exit load, historical returns, asset size, expense ratio, etc. You need to have a clear idea about your own risk-return profile before you invest your savings in some scheme. This article can provide you with the necessary guidance regarding making the selection of the right Mutual Fund.

3.  Reacting to short term market fluctuations: There are many investors who get scared when the market witnesses a bearish trend. You need to understand that Mutual Fund investing is basically meant for generating long term wealth. So, you should not react to any sharp correction in the market or short term volatility. Moreover, you should refrain from blindly following the stock market analysts and business channels on television. If you don’t keep yourself away from the noise, your chances of making larger returns from Mutual Funds will decrease.

4. Not having a long-term mindset: People generally invest in the Equity Funds to make huge money. Equity Funds can only generate long term wealth if you stay invested for a substantially long period of time. Many people sell their funds losing their enthusiasm and patience after suffering from short term losses. This doesn’t make any sense if you are aiming for quick money from an Equity Fund scheme.

mutual fund memes

5. Waiting for the perfect time to start investing: I have recently talked to some friend, to whom I had explained about Mutual Fund investing a year back. I was taken aback knowing that he is yet to start investing. He still couldn’t commence investing because he has been looking for the perfect time to invest. I must tell you that when it comes to investing, you should never think of timing the market. Timing the market is important only when you look to trade, and not invest. The market goes through several ups and down in order to reach to point B from point A over a significant period of time.

6. Not having an emergency fund: Many investors invest their entire savings in the Mutual Funds at one go. Therefore, it goes without saying that they don’t have sufficient money for meeting emergencies like medical expenses. So, for paying such expenses, they have no option but redeeming their units and end up paying exit load. Exit load is one type of charge which is levied by a Mutual Fund company if you redeem any units within a specific period of time from the date of investment.

7. Inadequate investment amount: In case of Mutual Fund investing, you should increase your SIPs in accordance with the growth in your income. Many investors don’t understand the importance of this. Therefore, their SIPs remain the same over time and fail to generate their desired wealth in the long run. Moreover, the inflation rate goes up with time. So, this is also a reason that one should step up his/her SIPs with time to achieve the desired corpus.

8. The dilemma of dividend funds: You will find many people opting for Dividend based Mutual Funds. This is to be noted that the dividends from a Mutual Fund are paid to the investors out of that fund’s AUM. This results in decreasing the NAV of the units of such Mutual Fund. Mutual Funds work best only if you stay invested for a significant term and let the power of compounding play its role. So, if you invest in a growth plan instead of a dividend plan, the amount which you are not going to receive as the dividend is reinvested in the market. This results in creating more wealth in the future as compared to the earlier plan.

9. Not diversifying your mutual fund portfolio enough: When an investor invests in too many schemes of a particular type, he/she thinks that diversification is achieved. You should understand that each Mutual Fund scheme is a portfolio of diversified securities in itself. Therefore, investing in multiple schemes of a specific nature results in nothing but portfolio overlapping at a higher expense ratio. Instead of opting for it, investing in 2 or 3 schemes to the maximum helps in achieving the benefit of diversification.

10. Not monitoring your fund’s performances periodically: Among the investors who invest in the market regularly, only a few them track their investments periodically. If you review the performance of your portfolio timely, it would keep you aligned with your financial goals. Lack of periodic evaluation of funds results in keeping your portfolio filled with junk investments which keep pulling your mean portfolio returns down.

Also read:

Closing thoughts

AMFI came out with the campaign “Mutual Funds Sahi Hai” two years back. This four words campaign means that Mutual Funds are good in all respects. The main objective of this campaign was to create awareness among the Indians regarding Mutual Funds and bring more investors in the stock market.

However, it doesn’t mean that you can invest in any Mutual Fund scheme blindly. You must have heard this famous dialogue, “Mutual fund investments are subject to market risksPlease read all scheme-related documents carefully before investing.” Mutual Funds investments don’t guarantee a fixed return. You need to go through all relevant documents and analyze the key aspects of a scheme, before investing in the same.

In this post, we tried to cover some major mistakes which a plenty of investors make while investing in Mutual Funds. If you prevent yourself from committing these mistakes, we hope that you would become a better investor in the long run. Happy Investing!

3 Past Biggest Scams That Shook Indian Stock Market cover-min

3 Past Biggest Scams That Shook Indian Stock Market

Do you know that if you had invested Rs 100 in the Sensex in 1979, your corpus would have become over Rs 30,000 by the end of 2017?

There is no doubt in saying that the Indian stock market has yielded enormous returns to the investors in the last few decades. However, there were also times, when the market witnessed extreme malpractices carried out by a few wicked minds. Many people with foul intentions applied brainstorming techniques to manipulate the Indian stock market prices. You can have a look at this blog to understand a few common types of scams in the Indian stock market.

In simple words, a scam is referred to as the process of obtaining money from someone by deceiving him/her. The majority of the securities market scams that took place in India eventually led to a lot of financial distress to the retail investors. They adversely affected the normal functioning of the markets and degraded the trusts of lakhs of investors on the Indian share market.

3 Past Biggest Scams That Shook Indian Stock Market

Although there are hundreds of scams reported by the equity investors every year, let us have a brief study of three of the past biggest scams that shook the Indian share market.

1) Harshad Mehta Scam

During the early 1990s, Harshad Mehta, a stockbroker, started facilitating transactions of ready forward deals among the Indian banks, acting as an intermediary. In this process, he used to raise funds from the banks and subsequently illegally invest the same in the stocks listed in the Bombay Stock Exchange to inflate the stock prices artificially.

harshad mehta scam

Because of this malpractice, the Sensex moved upwards at a fast pace and reached 4,500 points in no time. The retail investors started feeling tempted seeing the sudden rise of the market. A huge number of investors started investing their money in the stock market to make quick money.

During the period from April 1991 to May 1992, it is estimated that around five thousand crore rupees were diverted by Harshad Mehta from the Indian banking sector to the Bombay stock exchange. After the fraud was revealed, the Indian stock market crashed consequently. And as guessed, Harshad was not in a position to repay crores of money to the Indian banks.

Conclusively, Harshad Mehta was sentenced to jail for 9 years by the honorable court and was also banned to carry out any share trading activity in his lifetime.

(Credits: Finnovationz)

2) Ketan Parekh Scam

ketan parekh

After the Harshad Mehta scam, a Chartered Accountant named “Ketan Parekh” had similar plans of arranging comparable securities scam. Coincidently, Ketan used to work as a trainee under Harshad Mehta earlier and hence also known as the heir of Harshad Mehta’s scam technique.

However, Ketan Parekh not only used to procure funds from the banks but also other financial institutions. Like Harshad Mehta, he also used to inflate the stock prices artificially. Apart from the Bombay Stock Exchange, the other stock markets where Ketan Parekh actively operated were the Calcutta Stock Exchange and the Allahabad Stock Exchange.

Nonetheless, Parekh used to deal mostly in ten specific stocks, also known as the K-10 stocks. He applied the concept of circular trading for inflating their stock prices. You might be surprised to know that even the promoters of some companies paid him to boost their stock prices in the market. Anyways, after the Union budget in 2001 was announced, the Sensex crashed by 176 points. The Government of India carried out an intensive investigation into this matter.

At last, it was the Central Bank who determined Ketan Parekh to be the mastermind behind this scam and he was barred from trading in the Indian stock exchanges till 2017.

3) Satyam Scam

satyam ramalinga raju

The Chairman of  Satyam Computer Services Limited (SCSL), Mr. Ramalinga Raju confessed to SEBI of the manipulation done by him in the accounts of the Company. This corporate scandal was carried on from 2003 till 2008. It is estimated that the fraud took place for around Rs five thousand crores of cash balances as the company by falsifying revenues, margins.

The stock price of Satyam fell drastically after this incident. Eventually, CBI took charge of conducting the investigation into the matter. They filed three partial charge sheets against Satyam. Subsequently, these three partial charges were merged into one charge sheet.

In April 2009, Raju and nine others involved in the fraud were sentenced to jail by the honorable court. Consequently, Mahindra Group acquired SCSL and it was renamed as Mahindra Satyam. It subsequently merged within Tech Mahindra in 2013.

BONUS

Apart from the above-mentioned scams, here are a few other famous corporate scandals which also deserve to be mentioned in this post.

1) Saradha Scam

Sudipta Sen, the Chairman of the Chit-fund company called Saradha Group, operated a plethora of investment schemes. The schemes were called the Ponzi schemes and did not use any proper investment model. This scheme is alleged to have cheated over a million investors.

The Saradha Group collected huge funds from the innocent investors in West Bengal, Assam, Jharkhand, and Odisha. The money collected was used to be invested in real estates, media industry, Bengali film production houses and many more. The Saradha scam came to the fore in April 2013 when Sudipta Sen fled leaving behind an 18-page letter.

Although the Saradha scam didn’t have any direct impact on the Indian stock market, it had an indirect impact on the stock exchange. The Foreign Institutional Investors (FII) took a step back seeing such unregulated Ponzi schemes being floated in the market.

2) NSEL Scam

National Spot Exchange Ltd (NSEL) is a company which was promoted by Financial Technologies Indian Ltd and the NAFE. Two individuals named Jignesh Shah and Shreekant Javalgekar were held guilty for this scam. The Funds that were procured from the ignorant investors were siphoned off. This is because most of the underlying commodities did not have any existence at all. The transactions of commodities were being carried out only on the paper.

NSEL attracted the attention of the retail investors by offering them fixed returns on paired contracts in commodities. Around 300 brokers have been alleged role in the ₹5,500-crore NSEL scam in 2013.

Also read: NSEL scam: 300 brokers face criminal action

Closing Thoughts

Securities and Exchange Board of India (SEBI) was established in India in the early 1990s to administer and regulate the functioning of the Indian securities markets. It is the apex authority which regulates the affairs of Indian securities market participants. If you are a follower of the financial market, you would know the frequent amendments that come every year in the SEBI Act and Regulations.

Although the occurrence of stock market scams and corporate scandals has reduced subsequent to the establishment of SEBI, but haven’t completely stopped.

Additional resources to read:

reits in india cover

Are REITS in India a worthy investment option?

In developed Asian countries like Singapore and Hong-Kong, REITs or Real Estate Investment Trust is a popular investment option. However, the concept of REITs in India is yet to gain popularity among the Indians.

In simple words, a REIT is a collective investment scheme just like a Mutual Fund. It is an investment vehicle which pools your savings and invests in the portfolio of income generating properties. REITs are licensed to operate in India by the SEBI.

Structure of REITs

Although REITs are similar to Mutual Funds, they have a three-tier structure. A REIT consists of a Sponsor, a Fund Management Company, and a Trustee.

The sponsor is responsible to set up the REIT while the Fund Management Company selects and operates the real estate portfolio of the same. The Trustee ensures that the investors’ money is managed in the interest of the latter. Trustees have defined responsibilities which involve complying with all applicable rules and regulations that protect the investors’ rights.

How does REITs work?

A REIT pools money from investors and spends that sum in diverse real estates. It creates a portfolio of real estate assets including Offices, Residential Properties, Hospitals, Restaurants, Hotels, Warehouses, Corporate Buildings, etc.

A REIT is a trust which requires to be registered with a stock exchange. It issues its units via an IPO or Initial Public Offering. These units are consequently traded as securities in the stock exchange.

You can invest in the units of the REIT scheme in a similar way that you invest in shares, either in the primary market or the secondary market. The minimum ticket size of investing in a REIT fixed by the SEBI is Rs 2 lakh.

Now, the next big question is how to make money by REITs?

You can get returns from REITs in the form of dividends. Besides, you can also earn income in the form of capital gains if the REIT makes any profit by selling any of its property.

Quick Note: The minimum assets that a REIT is required to own are fixed at Rs 500 crore by the SEBI. Further, SEBI has made a rule that the minimum issue size has to be less than Rs 250 crore.

Perks of investing in REITs in India

As per SEBI guidelines, REITs are required to pay you at least 90% of their rental incomes every 6 months. Moreover, when REITs dispose of any of their properties, they have to distribute a minimum of 90% of such capital gains to their investors.

The activities of REITs have been also made transparent by the SEBI. A REIT has to compulsorily disclose the full valuation of their investments every year. Further, they are also required to update the same on a half-yearly basis.

Further, REITs are required to invest their money in a minimum of two projects as per SEBI. If a REIT chooses to invest only in 2 projects, it has to mandatorily invest 60% of its assets in a single project.

Besides, REITs have to allocate 80% of their assets in finished and revenue generating projects. They can invest the rest 20% of their money in under construction projects, mortgage-based securities, Government securities, cash & cash equivalents, and many others. 

Should you invest in REITs in India or actual properties?

house

Living in own house is in the bucket list of the majority of the income earning Indians. Moreover, unlike stocks or equity market, the valuations of properties don’t fluctuate drastically. Ideally, the intrinsic value of properties keeps moving upwards and hence, investing in the real estate sector seems an appropriate idea for a majority of Indians.

Furthermore, one can also earn a significant income in the form of rentals by investing in a property. And that’s why, even after owning a house property, many people prefer buying their second or third home for earning income in the form of rental (and of course, capital appreciation over time).

Nonetheless, the ticket size of investing in real estate varies from a few lakhs to over crores which might not be affordable for the major earning population of India. Here, in order to earn a regular income, investing in REITs seems more bearable because of the lower ticket size and diversification benefits.

Overall, if you are looking to invest in the Real Estate sector of India but do not have a huge corpus, REIT seems to be a more appropriate investment option for you.

Also read:

Closing Thoughts

REITs in India provide diversified and secured investment opportunities in the real estate sector. They are managed by professionals having years of experience and expertise who ensure to provide maximum returns to the investors at reduced risks.

By now, although investing in real estate seems profitable, but it is not free from limitations.

Firstly, no doubt, it is a profitable investment alternative for creating huge wealth but, it is only affordable for the upper-middle-class families and the affluent people. Second, both capital appreciation and rental income from properties depend on a lot of factors like infrastructure, location, industrial development, which may not always be in favor of investors.

Third, the Real estate in India has been affected by liquidity crunch in the past owing to low demand and unsold inventory. And lastly, although the Indian real estate sector is functioning under the regulations of SEBI, becoming an organized industry is still a distant future.

What is the Difference Between DVR and Normal Share cover

What is the Difference Between DVR and Normal Share?

Have you ever heard of DVR shares? In the year 2008, Tata Motors came out with the DVR shares for the first time in India. These DVR shares of Tata Motors trade at a discount of 50% compared to their normal shares. Later, this DVR issue approach of Tata Motors was followed by multiple companies like Jain Irrigation, Future Enterprises, Pantaloons India, etc.

What are DVR Shares?

First of all, many people have a misconception that DVR shares are similar to preferred shares. However, in reality, both these shares are different. Preferred shares usually do not carry voting rights.

On the other hand, DVR shares are similar to normal Equity shares. One notable difference in DVR and normal share is that the DVR equity shares have differential voting rights. A DVR share may have higher or lesser voting rights compared to an ordinary share. Another major difference is that the holders of DVR shares receive a higher dividend than ordinary shareholders.

Although both DVR shares and ordinary shares are traded in a similar way in the stock market, however, DVR shares are traded at a discount as they have generally offer lesser voting rights.

Why companies issue DVR shares?

Issuing DVR shares help the company in raising equity capital without adversely affecting its management and control. In other words, DVR shares result in bringing passive investors in the company’s list of members and can also protect the company from a hostile takeover in some scenarios. Moreover, as these company generally issues DVR shares at a considerably discounted price, this makes such shares attractive to prospective investors. Therefore, it enhances the likelihood of the company to raise a huge equity share capital.

Are DVR Shares good for retailers?

As stated earlier, DVR shares have generally fewer voting rights. However, if you are a retail investor with a small number of shares in a company, this type of share may be suitable as you are more concerned with dividends than voting rights.

Further, as these shares trade at a discounted price compared to the normal share, they may be more attractive for retail investors over normal shares. You can definitely consider investing in DVR shares of a company if you are looking to generate long-term wealth rather than seeking control in the issuer entity.

Also read: Case Study: Tata Motors Vs Maruti Suzuki

Closing Thoughts

The concept of DVR shares looks like an attractive alternative for investors so far. After all, retail investors are more interested in getting dividends than attending Annual general meetings (AGMs). However, the concept of DVR shares is yet not flourishing in the Indian securities market because of a few common reasons.

For example, TATA Motors offer DVR shares, but only with 5% dividend advantage. Therefore, hypothetically, if dividend per ordinary share is Rs 10, the dividend on a DVR share is Rs 10.5.  This makes the investors analyze whether it is worth waiving around 90% of voting rights for receiving a dividend hike of just 5%. (A Tata Motor DVR has 10 percent voting right as compared to an ordinary Tata Motor share).

Further, the majority of Institutional investors are more interested in checking a company rather than enjoying higher dividends. Therefore, financial Institutions show less interest in the DVR shares as they seek participation in managing the affairs of the company.

Overall, although the DVR shares seem to be advantageous for both the issuer company and the shareholders, one simply can’t ignore their shortcomings. Nonetheless, if these cons can be worked upon, the DVR shares can eventually become one of the best financial instruments in the Indian financial market.

investing in gold in india cover

Is Investing in Gold a good idea in India?

A large proportion of the Indian population considers Gold as one of the best options to invest in India. Here, gold is not only treated as a satisfactory long term wealth creator but also auspicious and a symbol of social status. As per the World Gold Council, India ranks second in the globe in Gold consumption, after China. Up to 20-25% of the world’s Gold is consumed in India in the form of jewellery, bars, coins etc.

Ironically, a few years back, the fixed deposit was considered more promising investment options for the middle-class Indians. However, nowadays, the interest earned on FDs has gone substantially down, because of which FDs don’t seem to be as genuine potential wealth generating option like earlier. These days, people are again revealing a lot more inclination towards Gold investment.

Anyways, Gold is a long term investment option and not suitable for earning short term gains. Moreover, the prices of Gold fluctuate in a cyclical manner. Therefore, one cannot expect Gold to perform well all the time.

Why should you invest in Gold?

Indians have been investing in gold for thousands of years and it has so far proved to be a solid investment option. Here are a few best reasons why you should invest in gold:

— Gold acts as a hedge against inflation: History states that Gold has performed relatively better compared to equities or other investment options in the scenarios of high inflation. Stock prices do not have any functional relationship with inflation. However, as Gold belongs to the commodity market when the economy witnesses rising inflation, the Gold price goes up.

bloomberg report gold inflation

(Image credits: Goldsilver.com)

— Investing in gold won’t cost you a fortune: Unlike investing in real estate (which requires a bigger investment amount) or equities (which require paperwork to open your trading account), investing in gold is easier for most of the average Indians and does not require a big amount to get started.

— Investment in gold offers high liquidity: If you own a Gold coin or jewellery, you can easily liquidate it as you can sell your physical gold at a local jewellery shop anytime. Although stocks and mutual funds can also be converted into cash fast. However, such instruments do take a few days time to process the redemption and the selling amount to get credited in your bank. As compared to these securities, Gold offer higher liquidity.

— Gold investment can help you to balance the risk in your portfolio: In order to reduce the portfolio risk, it is important to diversify your investments. Gold, having a negative correlation with Equities, can help you in diversifying your portfolio in a convenient way. Whenever your equity portfolio is going through a bear phase, a notional loss on the same can be absorbed by your gold investments.

Also read: How Does The Stock Market Affect The Economy?

How to invest in gold?

First of all, Gold investments do not only mean investing in physical Gold like gold coin or jewellery. There are various other ways available for investing in Gold in India.

Although investing in Gold via jewellery is decent in terms of generating long term wealth. However, keep in mind that when you purchase Gold jewellery, you have to pay the making charges too. Despite, when you sell that jewellery, you will only get the price for the Gold (and not the making charges that you paid earlier). Instead of investing in Gold jewellery, opting for Gold coins or bars seems a better choice. The latter is more profitable because here you do not need to pay the making charges.

Anyways, you can also invest in gold via Gold Mutual Funds. These funds invest in those companies which carry out extraction and mining of Gold or marketing of the same. The Gold Fund schemes are managed by skilled and experienced Fund Managers and are highly liquid. Therefore, investing in these Funds is a convenient option if you are looking to invest in gold. Nonetheless, the cons associated with the gold fund is that you might have to pay an exit load on your investments. Apart from that, you also have to pay an expense ratio which is deducted from your NAV every year for management and operational expenses.

Further, Gold ETF is another option while investing in gold. It works in a similar manner like Gold Mutual Funds but the same is traded on a stock exchange. However, you need to have your own Trading and Demat Account with a broker to invest in a Gold ETF. In addition, Gold ETF does not allow you to invest via SIP mode, unlike Gold Mutual Funds.

Lastly, if you want to invest in gold via the direct stock market, you can opt for investing in Gold mining companies. Investing in Gold mining stocks means investing in companies engaged in the mining and marketing of Gold. The performance of these stocks is not only related to the fundamental factors of the companies but is also dependent on the Gold rates.

Cons of investing in Gold

No investment option is perfect and gold investing also have some limitations. Here are a few key pointers which you should keep in mind while you invest in Gold:

— Gold does not generate sufficient returns like stocks or bonds: Gold is not a passive investment option. Investing in gold does not offer dividends or interests. Therefore, the only way to make a profit from Gold investment is by selling off.

–  Your Gold investment may demand safety against theft or robbery: Gold is a valuable asset. If you are planning to keep physical Gold, storing the same might be a matter of concern. Alternatively, you may store your physical gold in a bank ‘locker’ but this may cost you periodical maintenance charges.

gold safety thief

— Investing in Gold is not tax-free: When you purchase physical Gold, you will be charged GST on the same. Moreover, Gold is treated as a capital asset. Therefore, whenever you sell Gold for profit, a tax on short term capital gain or long term capital gain is applicable. You can read this blog to know more about taxation of Gold in India.

— Gold investing is cyclical: As we discussed earlier, the prices of Equities and Gold usually move in the opposite direction. When the stock market witnesses a bearish (downward) trend, the Gold price goes up and investors find Gold an attractive investment option during these times. However, when the cycle changes and the stock market goes in a bull run, the gold price starts going downwards and gold investing may be ignored by the investors.

Conclusion

In this post, we covered the basics of investing in Gold. If you are seeking a regular source of income through your investments, Gold may never serve this purpose. However, if you want to hedge your existing investments in Equities and Bonds, you should consider investing in Gold. Further, if you are planning to invest in Gold for the very first time, it is recommended to start investing via Gold Mutual Funds or Gold ETF.

Apart from acting as a hedge against inflation, Gold comes in handy during the situation of financial crisis. Nevertheless, you should not treat Gold as your only choice, but consider it as one of the investment options in your portfolio. Ideally, you should allocate up to a maximum of 10% of your portfolio in Gold.

Whether you invest in Gold or not is solely your choice. However, what matters more is the clarity in your mind regarding why you are investing in the same.

sebi securites and exchange board of india

What is SEBI? And What is its role in Financial Market?

The capital market started emerging as a new sensation in India during the end of the 1970s. However, with the popularity of stocks, a number of malpractices also started rising like price rigging, unofficial private placements, non-compliance with the provisions of the Companies Act, insider trading, violation of stock exchange rules and regulations, delay in making delivery of shares and many others.

As this time, the Indian Government realized the need for establishing an authority to reduce these malpractices and regulate the working of the Indian securities market as the majority of Indian People started losing their trust in the stock market.

Soon after, SEBI (Securities and Exchange Board of India) was set up in the year 1988.

Initially, SEBI acted as a watchdog and lacked the authority of controlling and regulating the affairs of the Indian capital market. Nonetheless, in the year 1992, it got the statutory status and became an autonomous body to control the activities of the entire stock market of the country.  The statutory status of the SEBI authorized it to conduct the following activities:-

  1. SEBI got the power of regulating and approving the by-laws of stock exchanges.
  2. It could inspect the accounting books of the recognized stock exchanges in the country. It could also call for periodical returns from such stock exchanges.
  3. SEBI became empowered to inspect the books and records of financial Intermediaries.
  4. It could constrain companies for getting listed on any stock exchange.
  5. It could also handle the registration of stockbrokers.

SEBI is headquartered in Mumbai and having its regional offices in New Delhi, Chennai, Kolkata, and Ahmedabad. You can also find SEBI’s local offices in Jaipur, Guwahati, Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.

At present, 17 stock exchanges are currently operating in India, including NSE and BSE. The operations of all these stock exchanges are regulated by the guidelines of SEBI.

The organizational structure of SEBI

Mr. Ajay Tyagi is the current chairman of SEBI. He was appointed on the 10th of January, 2017 and took over the charge with effect from 1st March 2017 from Mr. U.K. Sinha.

SEBI consists of one chairman and other board members. The honorable chairman is nominated by the Central Government. Out of the eight board members, two members are nominated by the Union Finance Ministry and one member is nominated by the RBI. The rest five members of the board are nominated by the Union Government.

The objectives of SEBI

SEBI’s responsibility is to ensure that the securities market in India functions in an orderly manner. It is made to protect the interests of investors and traders in the Indian stock market by providing a healthy environment in securities and to promote the development of, and to regulate the equity market.

Further, as stated earlier, one of the prime reason for establishing SEBI was to prevent malpractices in the Indian capital market.

SEBI’s main roles in the Indian financial market

In order to achieve its objectives, SEBI takes care of the three most important financial market participants.

— Issuer of securities. These are the companies listed in the stock exchange which raise funds through the issue of shares. SEBI ensures that the issue of IPOs and FPOs can take place in a transparent and healthy way.

— Players in the capital market i.e. the traders and investor. The capital markets are functioning only because the traders exist. SEBI is responsible for ensuring that the investors don’t become victims of any stock market manipulation or fraud.

— Financial Intermediaries. They act as mediators in the securities market and ensure that the stock market transactions take place in a smooth and secure manner. SEBI monitors the activities of the stock market intermediaries like brokers and sub-brokers.

The functions of SEBI

The SEBI carries out the following three key functions to perform its roles.

1. Protective Functions: SEBI performs these functions for protecting the interests of the investors and financial institutions. Protective functions include checking price rigging, prevention of insider trading, promoting fair practices, creating awareness among investors and prohibition of fraudulent and unfair trade practices.

2. Regulatory Functions: Through regulatory functions, SEBI monitors the functioning of the financial market intermediaries. It designs the guidelines and code of conduct for financial intermediaries and regulates mergers, amalgamations, and takeovers takeover of companies.

SEBI also conducts inquiries and audit of stock exchanges. It acts as a registrar for the brokers, sub-brokers, merchant bankers and many others. SEBI has the power to levy fees on the capital market participants. Apart from controlling the intermediaries, SEBI also regulates the credit rating agencies.

3. Development Functions: Among the list of SEBI’s development functions, one of them is imparting training to intermediaries. SEBI promotes fair trading and malpractices reduction. It also educates and makes investors aware of the stock market by utilizing the funds available in IEPF.

Conclusion

The stock market is one of the most crucial indicators of a country’s economic health. If people lose faith in the market, the number of participants will go down. Furthermore, the country will also start losing FDIs and FIIs considerably which will substantially hamper the country’s foreign exchange inflows.

Before SEBI was established many scams and malpractices took place in the Indian stock market. One of the famous Indian stock market scams was “Harshad Mehta scam.”

After SEBI came into power, stock market affairs started becoming healthier and more transparent. Nonetheless, some securities mark scams have taken place even after SEBI came into power. One famous such scam was “Ketan Parekh scam

Although unfair activities do happen in the Indian capital market even as of today, their frequency is quite less. Moreover, the security market statutes and regulations are updated time and again. Therefore, day by day, SEBI is getting more and more stringent with its authority.

wpChatIcon