An overview of Intraday Trading vs Long-term Investing: The stock market is risky but equally rewarding. There are basically two ways by which people make money in the stock market – trading or investing. Here, you may either invest for the long-term or trade to build wealth through day trading (also known as Intraday trading). However, both these are two different approaches to make money in the equity markets.
When you invest in stocks for the long-term, it primarily means that you hold on to the investment for a longer period of time, probably between three to five years or more. In comparison, intraday trading means that you square off all your positions before the end of trading hours on the same day. You do not hold the shares for more than a day i.e. do not take delivery of the shares when you undertake intraday trading.
In this post, we are going to discuss the difference between Intraday trading and long-term investment. Here, we’ll look into different factors like holding period, capital growth potential, risks involved, and more. Let’s get started.
Differences between Intraday Trading vs Long-term Investing
1. Holding period
Long-term stocks are held for several years and any fluctuations in the short-term do not affect your investment decision. Here, holding period may vary from two years to even several decades. In comparison, in Intraday trading you do not keep any position open at the end of the hours on a trading day. A holding period maybe between just a minute to a few hours.
2. Capital growth
When the price moves in the expected direction, the trader will exit his intraday stock position. For example, if you have purchased 100 shares of ABC Limited at INR 50 and the price increases to INR 55, you will sell the shares and book the profits. Similarly, you will cut your loss in case the price decreases, using tools like stop loss.
However, with long-term investments, short-term price fluctuations do not affect your decision. The stocks are held for several years allowing you to build wealth through capital appreciation.
3. Risks Involved
There are inherent risks to intraday trading as well as long-term investing. However, the risks in day trading are higher as price volatility can be significant in just a few hours. Because daily market fluctuations do not affect long-term stocks, risks involved with long-term investments are lower. Here, investors have the potential to create wealth through dividends and price appreciation over the years.
4. Art versus skill
Day traders require technical skills to analyze and study market trends. Moreover, Intraday trading is also related to market psychology. On the other hand, long-term investing requires skills to identify good and reliable stocks. Here, investment decisions are primarily based on the business model, financial strength, and company philosophy.
5. Investor profile
Traders want to potentially earn higher profits from the daily price fluctuations. However, here if you miss the right time, it may result in huge losses. Intraday stocks are identified based on price volatility during the trading hours. On the other hand, long-term investors do not rely on trends and invest based on the fundamentals and value of the company over the years. They patiently hold on to the shares until the desired price levels are reached.
Let us now look at the pros and cons of intraday trading and long-term investing.
Pros and Cons of Intraday Trading vs Long-term Investing
— Pros of intraday trading
While Intraday trading, substantial profits may be earned in a shorter period
You require a lesser principal amount and enjoy benefits of margins.
You do not have to lock-in your investment for the long-term enabling you to trade more frequently for higher profits
Most reliable brokers like mastertrust offer margin trading on intraday stocks providing higher leverage for your capital
— Cons of intraday trading
The price volatility increases the risk of losing money
Knowledge of technical analysis is necessary and you cannot rely on tips received from others
— Pros of long-term investing
Historically, when you invest in the equity market for a longer period, you are able to earn returns that are more than the rate of inflation, which allows you to build wealth over the years
Long-term stocks benefit from economic growth resulting in higher revenue through an increase in consumer demand, which bodes well for an increase in its share price.
Long-term investing not only provides capital growth through price appreciation but also allows you to earn more returns through periodic dividends.
These days, it is very easy to invest in shares for the long-term through a stockbroker or online platforms.
— Cons of long-term investing
There is an inherent risk of losing the principal in case the company does not perform as per expectations resulting in the decline of its share price.
Share prices change from one minute to the next. Many times, the investment may be based on emotions rather than sticking to the fundamentals.
Long-term investing means a long holding period that may last for three to five years or longer. This also means that you won’t be able to leverage your money to earn higher returns, from other alternatives.
Both intraday trading vs long-term investing are proven ways to make money from the stock market. The decision to invest for the long-term or intraday totally depends on your requirements, financial goals, investment horizon, and risk profile. Further, here the diversification to allocate your money to various assets should be based on your financial goals.
Seek expert advice from professionals at mastertrust to know the best investment strategy to meet your goals. This stockbroker offers online broking, in-depth research and analysis, and investment advice at affordable charges. Open demat account and start trading today!
List of Biggest Stockbrokers in India (Updated: 30th April 2020) In this article, we are going to look at the 15 Biggest Stockbrokers in India based on their total number of unique active clients.
There are over three hundred stockbrokers in India registered with SEBI and different stock exchanges. Even on National Stock Exchange (NSE), there are 120 registered stockbrokers in India as of 30th April 2020. When you are looking for the best stock broker to open your demat and trading account, one of the most straightforward factors to look into is its total number of active clients. Although a large client base doesn’t guarantee a better service, however, being a big firm, it reduces the possibility of the brokerage firm disappearing or running out of the service soon enough.
These days, one and all stockbrokers will argue that they are trustworthy as they are registered with SEBI. However, just because they are registered with SEBI doesn’t make them reliable for the long term. Time and again, a lot of such small brokers are either expelled out of the exchange or simply go out of the business and files bankrupt. And this leads to a lot of trouble for their current clients.
Therefore, a safer option for the customers to avoid any such kind of inconvenience is by opening their trading account with the biggest stockbrokers in the Industry.
15 Biggest Stockbrokers in India with Highest Active Clients
Several websites rank stockbrokers in India based on different factors like their brand value, trading platforms, customer services, facilities offered, complaint ratio, etc. However, in this article, we are not going to look into these factors.
Here, we are going to look at just one factor, i.e. the total number of unique active clients for that stockbroker. In this post, the stockbroker with the highest number of clients is ranked first, followed by the subsequent stockbrokers with top active clients.
For this approach, we are going to use the data available on the NSE India website. The national stock exchange website provides the details of the monthly total number of unique clients of the different stockbrokers registered with it. Here’s a quick link to the page. You can also download the spreadsheet available on this page to analyze the stockbrokers further.
Here are the 15 Biggest Stockbrokers in India based on the total number of unique active clients:
Name of Stockbroker
# of Active Clients
ZERODHA BROKING LIMITED
ICICI SECURITIES LIMITED
HDFC SECURITIES LTD.
RKSV SECURITIES INDIA PRIVATE LIMITED (Upstox)
ANGEL BROKING LIMITED
KOTAK SECURITIES LTD.
5PAISA CAPITAL LIMITED
MOTILAL OSWAL FINANCIAL SERVICES LIMITED
AXIS SECURITIES LIMITED
SBICAP SECURITIES LIMITED
KARVY STOCK BROKING LTD.
IIFL SECURITIES LIMITED
GEOJIT FINANCIAL SERVICES LIMITED
EDELWEISS BROKING LIMITED
Please note that the total number of active clients of all stockbrokers is 1,11,98,563 as of April 2020, mentioned on the NSE India website.
From the above table, you can quickly notice that Zerodha is the biggest stockbroker with the highest numbers of unique clients registered on the National stock exchange in India.
As of April 2020, Zerodha constitutes around 14.28% of the total market share of the active clients registered on the National Stock Exchange. It has over 15.9 lakh active customers compared to a total of over 1.11 Crore active clients of all stockbrokers on the NSE.
What makes this list even more interesting is that Zerodha was just founded in 2010 and still has been able to outrank all the old and well-matured traditional brokers. It is the only broker with a discount brokerage business model in the top ten list. Anyways, Angel broking has also started a similar discount brokerage model recently, along with its full-service model.
According to the above table, Zerodha is closely followed by ICICI securities, which ranks second and has over 10.81 lakhs unique clients.
The other most prominent stockbrokers in this list are HDFC Securities (7.26 Lakh clients), Upstox (6.75 Lakh Clients), Angel Broking (6.29 lakh clients), Kotak Securities (5.83 lakh clients), Sharekhan (5.47 lakh clients), 5Paisa (4.89 lakh clients), Motilal Oswal Group (3.85 lakh clients) and Axis Securities (2.71 lakh clients). Together these 15 biggest stockbrokers constitute over 71.48% of the total share of the unique clients registered on NSE.
Explaining the Harshad Mehta Scam of 1992: The magnitude of the Harshad Mehta scam was soo big, that if put into perspective today, it brought a bear market in the Dalal street. If we look into the numbers, this single man deceived the entire nation with an amount of over Rs 24,000 crores (which is way bigger than Nirav Modi or Vijay Mallaya scams).
Today we take a look at how the Harshad Mehta scam was executed and possibly try to understand how he was able to fool the entire Dalal market and even the Indian banking systems. Further, we’ll also discuss why he plays such a considerable role in our pop culture and that too not as an antagonist.
Table of Contents
Harshad Mehta’s Rs 40 Journey
Perhaps what makes the Harshad Mehta story even more interesting is that despite migrating to Mumbai with only Rs. 40 in his pocket he managed to influence the country in such a massive way. Once he discovered his interest in the stock market he worked for broker Prasann Panjivandas in the 1980s. Harshad considered Prasann Panjivandas as his guru. Over the next decade, he went on to work for several brokerage firms eventually opening up his own brokerage under the name GrowMore Research and Asset Management.
By the 1990s, Harshad Mehta had risen to such prominence in the Stock market that he was known as the ‘Amitabh Bachchan of the Stock Market’. Terms such as ‘The Big Bull’ and ‘ Raging Bull’ were regularly used in reference to him. Over time he became particularly known for his wealth in the 1990s which he did not shy away from boasting about through his 15,000 sq. ft. penthouse and array of cars. He was described by Journalist Suchita Dalal as charismatic, ebullient, and recklessly ambitious. Perhaps it was this recklessness that led to his downfall through his ambitious schemes.
The Broken Financial Environment of the 1990s
The year 1991 marks the year of liberalization of the Indian economy. Today we are grateful for this opening-up, however, Indian businesses found their own set of challenges. The public sector was forced to face increased competition and was under pressure to display profitability in the new environment. The private sector, however, responded positively to this news as this would mean more funds from foreign investments.
The new reforms also were welcomed by the private sector as they now were allowed entry into new sectors of businesses that were earlier reserved for the government enterprises. The stock market reacted positively to this with the Bombay Stock Exchange touching 4500 points in March 1992. But liberalization was not the only factor responsible for this. The period also an increase in demand for funds. The Banks were pressured into taking advantage of the situation to improve their bottom line.
The banks are required to maintain a certain threshold of government fixed interest bonds. The governments issue these bonds with the aim of developing the infrastructure of the country. Million-dollar development projects are taken up by the government which are financed through these bonds. How much is to be invested in these bonds depends on the bank’s Demand and Time Liabilities. The minimum threshold that the banks had to maintain as bonds in the 1990s was set at 38.5%. This minimum percentage that banks have to maintain in the form of bonds or other liquid assets is known as the Statutory Liquidity Ratio(SLR).
Along with this, the banks were also pressured to maintain profitability. Banks were, however, barred from participating in the stock market. Hence they were not able to enjoy the benefits of the Stock Market leap during 1991 and 1992. Or at least they were not supposed to.
What did banks do if they couldn’t maintain the SLR ratio?
The banks at times may have temporary surges in the Net Demand and Time Liabilities. In such times banks would be required to increase their bond holdings. Instead of going through the whole process of purchasing bonds the banks were allowed to lend and borrow these liquid securities through a system called Ready Forward Deals (RFD). An RFD is a secured short term loan (15 days) from one bank to another. The collateral here is government bonds.
Instead of actually transferring the bonds the banks would transfer something called Bank Receipts (BR). This is because the bond certificates held by the banks would be of bonds worth 100 crores whereas the requirements by the banks to maintain their SLR would be much lower. Hence BR’s were a much more convenient way of short term transfer.
The BR’s were a form of short term IOU’s (I Owe You). However, when an RF deal was exercised they never looked like loan transfer but a buy and sale of securities represented by BR’s. The borrowing banks would sell some securities represented by BR’s to the lending banks in exchange for cash. Then at the end of the period say 15 days the borrowing bank would buy the BR back (securities) at a higher price from the lending bank. The difference in the buy snd sell prices would represent the interest to be paid to the lending banks. Due to the BR’s, the actual transfer of securities doesn’t take place. BR’s could simply be canceled and returned once the deal was completed.
Was the use of Bank Receipts (BR) allowed?
The RBI set up a Public Debt Office (PDO) facility to act as the custodian for such transfer of bonds. As per the RBI BR’s were not permitted to be used for such purposes. However, the PDO facility was plagued with inefficiencies. Hence the majority of the banks resorted to BR. This system existed with the knowledge of the RBI which allowed it to flourish as long as the system worked.
What roles did the brokers play here?
Brokers in the markets played the role of intermediaries between two banks in the RFD system. They were supposed to act as middlemen helping borrowing banks meet lending banks. A brokers’ role should have ended here where it is done in exchange for a commission.
Where the actual exchange of securities and payments should have taken place only between the bank’s brokers soon found a way to play a larger role. Eventually, all transfer of securities and payments were made to the broker. Banks also began welcoming these because of the following reasons
Liquidity: Brokers provided a quick and easier alternative to dealing with in comparison to dealing with another bank. Loans and payments would hence be provided on short notice in a quick manner.
Secrecy: When deals were made through a broker it would not be possible for the lending banks to find out where the loans were being moved to. Similarly, the borrowing banks too would not be concerned where the loans would be coming from. The dealings were both done only with the broker.
Credit Worthiness: When banks would deal with each other, the transaction would be placed depending on the creditworthiness of the borrowing bank. However, once brokers took over the settlement process this benefitted the borrowing banks as they would have loans available regardless of their creditworthiness. The lending banks would lend based on the trust and creditworthiness of the broker.
Brokers entering the settlement process made it possible that the two banks would not even know with whom they have dealt with until they have already entered into the agreement. The loans were viewed as loans to the brokers and loans from the brokers. Brokers were now indispensable.
The Role played by Harshad Mehta.
Harshad Mehta used to broker the RF deals as mentioned above. He managed to convince the banks to have the cheques drawn in his name. He would then manage to transfer the money deposited in his account into the stock markets. Harshad Mehta then took advantage of the broken system and took the scam to new levels.
In a normal RF deal, there would be only 2 banks involved. Securities would be taken from a bank in exchange for cash. What Harshad Mehta did here was that when a bank would request its securities or cash back he would rope in a third bank. And eventually a fourth bank so on and so forth. Instead of having just two banks involved, there were now multiple banks all connected by a web of RF deals.
Harshad Mehta and the Bear Cartels
Harshad Mehta used the money he got out of the banking system to combat the Bear Cartels in the stock market. The Bear Cartels were operated by Hiten Dalal, A. D. Narottam and others. They too operated with money cheated out from the banks. The Bear Cartels would aim at driving the prices low in the market which eventually undervalued various securities. The Bear Cartels would then purchase these securities at a cheap price and make huge profits once the prices normalized.
Harshad Mehta countered this by pumping money from the stock market to keep the demand up. He argued that the market has simply corrected the undervalued stock when it revalued the company at a price equivalent to the cost of building a similar enterprise. He put forward this theory with the name replacement cost theory. This theory was a fallacy on his behalf or an illusion he resented to the public to justify his investments. Such was his influence in the stock market that his words would be blindly followed similar to that of a religious guru.
He would use the money from the banks which was temporarily in his account to hike up the demand of certain shares. He selected well-established companies like ACC, Sterlite Industries, and Videocon. His investments along with the market reaction would result in these shares being exclusively traded. The price of ACC rose from Rs.200 to nearly Rs. 9000 in a span of 2 months.
The banks were aware of Harshad Mehta’s actions but chose to look away as they too would benefit from the profits Harshad would make from the stock market. He would transfer a percentage to the banks. This would also enable banks to maintain profitability.
The Scam within the Scam
Harshad Mehta noticed early on the dependence of the RF deals on BR’s. In addition to this, the RF deal system also placed a great deal of reliance on prominent brokers like Harshad Mehta. So he along with two other banks namely Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) decided to further exploit the system. With the help of these two banks, he was able to forge BR’s. The BR’s that were forged were not backed by any securities. This meant that they were just pieces of paper with no real value. This is similar to a situation where you can avail loans with no collateral. Harshad Mehta further would pump this money into the stock market increasing his amount of influence.
The RBI is supposed to conduct on-site inspections and audits of the investment accounts of the banks. A thorough audit would reveal that amount represented by BR’s in circulation was significantly higher than the government bonds actually held by the banks. When the RBI did notice irregularities it did not act decisively against Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB).
Another method through which the collateral was eliminated was by forging government bonds themselves. Here the BR’s are skipped and fake government bonds are created. This is because PSU bonds are represented by allotment letters making it easier for them to be forged. However, this forgery amounted for a very small amount of funds misappropriated.
Exposing the Harshad Mehta Scam
Journalist Sucheta Dalal was intrigued by the luxurious lifestyle of Harshad Mehta. She was particularly drawn to the fleet of cars owned by Harshad Mehta. They included Toyota Corolla, Lexus Starlet, and Toyota Sera which were rarities and a dream even for the rich in India during the 1990s. This further interest had her further investigate the sources through which Harshad Mehta amassed such wealth. Sucheta Dalal exposed the scam on 23rd April 1992 in the columns of Times of India.
It has been alleged that the Bear Cartel ganged up on Mehta and blew the whistle on him to get rid of him and the bullish run altogether.
Aftermath of Harshad Mehta Scam Exposure
— Effect on the Stock Market
Less than 2 months after the scam was exposed, the stock market had already lost a trillion rupees. The RBI created a committee to investigate the matter. The Committee was called the Janakiraman Committee. As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a trillion or 1 lakh crores.
This major fall, however, cannot be attributed to the scam alone but also to the governments’ harsh response. In an attempt to ensure that all the parties involved are brought to justice, the government did not permit the sale of any shares that had gone through the brokers in the last one year. This affected not only the brokers but also the innocent shareholders who may have gone through these brokers to purchase securities. The shares came to be known as tainted shares. Their value was reduced to pieces of paper as their holder was not allowed to sell them. This just resulted in a worsened financial environment.
— Effect on the Political environment
The opposition demanded the resignation of the then Finance Minister Manmohan Singh and the RBI Governor S. Venkitaramanan. Singh even offered his resignation but this was rejected by prime minister P. V. Narasimha Rao.
— Effect on the Banking Sector
When the scam was exposed the banks started demanding their money back and recovery efforts made them realize that there were no securities backing the loan either. The Investments in the stock market by Harshad Mehta were tainted and had reduced by a significant value. A number of bankers were convicted. It also led to the suicide of the chairman of Vijaya bank.
— Further Investigation
The investigations revealed many players like Citibank, brokers like Pallav Sheth and Ajay Kayan, industrialists like Aditya Birla, Hemendra Kothari, a number of politicians, and the RBI Governor all had played a role in the rigging of the share market. The then minister P. Chidambaram also had utilized Harshad Mehta’s services and invested in Harshad Mehtas Growmore firm through his shell companies.
— Effect on Harshad Mehta’s Life
Harshad Mehta was charged with 72 criminal offenses and more than 600 criminal action suits. After spending 3 months in custody Mehta was released on a bail. The drama however never subdued but only intensified. In a press conference, Harshad Mehta claimed that he had bribed the then Prime Minister P.V. Narasimha Rao for Rs 1 crore to secure his release.
Harshad Mehta even displayed the suitcase in which he allegedly carried the cash. However he CBI never found any concrete evidence of this. Harshad Mehta was now also barred from participating in the stock market.
Investigators felt that Harshad Mehta was not the original perpetrator who forged the bank receipts. It was clear that Harshad Mehta capitalized and made profits using these methods. They also saw the possibility of the bear cartels ganging up on Harshad Mehta to get rid of the bearish markets by blowing the whistle on him and having the scam exposed through Sucheta Dalal. This, however, drew the investigators’ attention to the bear cartel as well as they too had used the same means as Harshad Mehta. These other brokers were eventually tried too.
In addition to this, the IT department claimed an income tax owed to them Rs.11,174 crores. Harshad Mehta’s firm GrowMore had significant clientele and the IT department had linked all the transactions that may have involved Harshad Mehta or his firm with Harshad Mehta’s income. His lawyer addressed this as bizarre as Harshad Mehtas lifetime assets were worth around Rs.3000 crores. He highlighted the possibility where by making Harshad Mehta the face of the scam allowed other powerful players a chance to have the focus lifted away from them and escape or slowly be exonerated.
Life after Release and Death
Harshad Mehta made a comeback as a market guru sharing advice on his website and newspaper columns. In September 1999 the Bombay Highcourt convicted him and sentenced him to 5 years of imprisonment. Mehta died while in criminal custody after suffering from cardiac arrest in Thane Prison on 31st December at the age of 48.
Despite the scam, Harshad Mehta is still looked up to in certain circles, As reported by Economic Times some financial experts believe that Harshad Mehta did not commit any fraud, “he simply exploited loopholes in the system”. When Harshad Mehta was first released out of prison in 1992 he was greeted with cheers and applause as his return would signify the return of his bullish trend. It is doubted that if businessmen who have been embroiled in scandals with the likes of Vijay Mallya, Nirav Modi will receive the same welcome.
The Harshad Mehta scam can be looked on from two sides. The first as a scam where Harshad looted the stock market and the public or the second way where Harshad Mehta was made the scapegoat as someone had to be blamed and at the same time kept other influential people away from the limelight. The Year 1991 is generally referred to as the year of progress due to liberalization but if seen from this perspective discussed here it just makes one exclaim “ What a mess!”.
Understanding Free Cash Flow (FCF) Meaning & Calculations: Hi Investors. One of the most popular topics in company valuation is the Free cash flow. If you are involved in the fundamental analysis of stocks, you definitely have heard about this term. Nevertheless, for beginners, free cash flow can be a mystery.
In this post, we are going to discuss what exactly is a free cash flow and why it is important to evaluate while researching a company. This might be one of the most important articles for the people interested to learn stock valuations. Therefore, read this post completely. Let’s get started.
Table of Contents
1. What is a Free Cash Flow (FCF)?
Free cash flow is the excess cash that a company is able to generate after spending the money required for its operation or to expand its asset base. It represents the cash that is available for all the investors of the company. Now, you might be wondering what is so ‘FREE’ about this cash flow and how it is different from the earnings of the company?
Here you need to understand that not all income is equal to cash. If a company is making earnings, it doesn’t mean that it can spend all the income directly. The company can only spend free cash. There is a crucial difference between ‘cash’ versus ‘cash that can be taken out of a business’, or in accounting terms: cash from operating activities and free cash flow (FCF).
The cash from operating activities is the amount of cash generated by the business operations of a company. However, not all of the cash from operating activities can be taken out of the business because some of it is required to keep the company operational. These expenses are called capital expenditures (CAPEX).
On the other hand, free cash flow is the cash that a company is able to generate after spending the money required to stay in business. This is the cash at the end of the year, after deducting all operating expenses, expenditures, investments etc and is available for distribution to all stakeholders of a company (Stakeholders include both equity and debt investors.)
It’s important for an investor to look into the free cash flow of a company carefully because it is a relatively more accurate method to find the profitability of a company than the company’s earnings.
This is because earnings show the current profitability of the company. On the other hand, the free cash flow signals the future growth prospects of the company as this is the cash that allows the company to pursue opportunities to enhance shareholder’s value. Free cash flow reflects the ease with which businesses can grow or pay dividends to the shareholder.
The excess cash can be utilized by the company in expanding their portfolio, developing new products, making useful acquisitions, paying dividends, reducing debt or to pursue any other growth opportunity.
Further, free cash flow is also used as the input while calculating the intrinsic value of a company using the popular valuation technique- Discounted cash flow (DCF) Model.
(Besides, as free cash flow is the additional money that can be taken out of the company without affecting the running of the business, it is also called the “Owner’s Earnings”.)
3. How to calculate free cash flow of a stock?
Companies in the stock market are not obliged to publish their free cash flow. That’s why you can’t find FCF directly in the financial statements of the companies. However, the good point is that it is easy to calculate them.
To calculate the free cash flow of a stock, you’ll require its financial statements i.e income statement, balance sheet, and cash flow statements. There are two calculation methods to find Free cash flow of a company.
Method 1: From the Income statement & Balance sheet
FCF = EBIT (1-tax rate) +(depreciation & amortisation) -(change in net working capital) – (capital expenditure)
Method 2: From the cash flow statement
This is the more popular approach to calculate FCF of a company. Here, Free cash flow is calculated as cash from operations minus capital expenditures (from the cash flow from investing activities).
FCF = Cash flow from operating activities – capital expenditures
Quick Note: To make things simpler, Yahoo Finance has already made the free cash flow of the companies available on their website. Just go to the Stock page –> Financials –> Cashflow statement, and you can find the Free cashflow of the company for last multiple years.
In addition, you can also find the free cash flow of companies on other financial websites like Screener.in, Tickertape, etc. Nevertheless, we advise our readers to do the calculations themselves to avoid any computer-based miscalculations.
4. How to analyze the free cash flow of a company?
While studying the cash flow of a company, it is important to find out where the cash is coming from. The cash can be generated either from the earnings or debts. While an increase in cash flow because of the increase in earnings is a good sign. However, the same is not true with debts.
Moreover, if two companies have the same free cash flow, it doesn’t mean that they have a similar future prospect. Few industries have a higher capital expenditure compared to other industries. Further, if the Capex is high, you need to investigate whether the reason for the high capital expenditure is due to expenses in growth or expenditure. In order to learn these, you have to read the quarterly/annual reports of the companies carefully.
A consistently declining or negative free cash flow of a can be a warning sign for the investors. Negative free cash flow is dangerous because it may lead to slow down in the business. Further, if the company didn’t improve its free cash flow, it might face insufficient liquidity to stay in the business.
Quick Note: If you want to learn free cash flow and discounted cash flow (DCF) model in depth, feel free to check out this online course: HOW TO PICK WINNING STOCKS? Enroll now and learn stock valuation techniques today.
In this post, we discussed the Free cash flow (FCF). It is a measure of a company’s financial performance. Free cash flow represents how much cash a company has left from its operations i.e. the cash that could be used to pursue opportunities that improve shareholder value.
However, the absolute value of the free cash value doesn’t tell you the whole story. You have to find out where this cash is coming from and how the company is using it. Whether they are spending this money effectively on operations like giving healthy dividends, buybacks, acquisitions etc- or not. And finally, a consistent negative free cash flow of a company might be a warning sign for the investors.
That’s all for this post. I hope it was useful to you. If you’ve got any doubts related to finding the free cash flow of a company, comment below. I’ll be happy to help. Happy Investing!!
An overview of Coffee Can Investing Approach: A middle class Indian would spend most of his youth being forced into education, his early adulthood building a career, and taking care of his parents. He would be hit by a midlife crisis before 50. His late adulthood would be spent preparing for retirement i.e. if he hasn’t started already and ultimately banks on his kids to take care of him. As young adults, the kids now take up the responsibility with pride as is demanded by the Indian tradition and culture.
A squirrel life, on the other hand, lives chiefly on trees as they forage for food and escape predators. One thing that is interesting about squirrels is that they too try and stock up on nuts for the future. Unfortunately for the squirrels and fortunately for us, millions of trees are accidentally planted by squirrels who bury nuts and then forget where they hid them. Because of a squirrels life spanning only 11-12 months, they do not generally get to reap the benefits of an oak they planted, as oaks take up to 30 years to grow. But they still live in forests that may well have been accidentally planted by squirrel fathers decades ago.
What does it take to retire?
Humans, unlike the squirrel, have an average lifespan of 79 years. Yet we see the middle-class Indian category struggling and not reaping any benefits. According to Saurabh Mukerjea, for a couple to retire and survive for another 25 years with a reasonably good lifestyle post-retirement, they’ll need a crore a year pre-tax which is 60-70 lakhs post-tax.
This does sound reasonable considering the expenses of their adolescent children, the fragility of their health, and most importantly inflation a few years hence. This will mean that for a family to retire in a good shape they’ll need to have financial assets of at least 15 crores. Need a minute? Today we discuss an investment strategy called Coffee Can Investing that shines some light on what seeds to plant for our 15 crore oaks in the long term.
Table of Contents
What is coffee can investing?
Coffee Can Investing was first coined by Robert G. Kirby in a paper written by him in 1984. The strategy gets its name because in the old west people who invest in the stock market would receive physical certificates of proof which they would put away in coffee cans. They would hide these cans in their mattresses later forgetting about them.
These stocks would eventually grow enormously making its holder rich when he found it again. The success of Coffee Can Investing depends entirely on the wisdom and foresight used to select stocks in the portfolio.
The Story behind Coffee Can Investing
Robert Kirby first observed the pattern dramatically in the 1950s when working in a large investment counsel organization. One of their woman clients who had just been widowed approached him. She wanted the securities inherited from her husband to be added to her portfolio under the organization. Her husband, who was a lawyer, would look after her financials.
Robert Kirby noticed that the husband had been piggybacking on the advice she would get from the advisors within the company. He would apply the advice as directed by the advisors to his wife’s portfolio. But when it came to his portfolio he would only follow those that were related to buying shares. He paid no attention whatsoever to the sell recommendations. He would simply put $5,000 in all purchases.
When Robert Kirby reviewed the portfolio created, the husband had many stocks that were worth only $1000. However, there were quite a few considerable investments that were now worth $100,000. One jumbo holding worth $800,000 exceeded his wife’s whole portfolio. These were shares of a company called Haloid. This investment later turned out to be a zillion shares of Xerox.
This surprised Kirby as the wifes’ portfolio was no match to that of her deceased husband. This happened despite the wifes’ portfolio being managed by an Investment organization. And all he did was buy the shares as suggested by the investment counsel organization but ignore the sell orders even if the stocks were moving negatively.
Coffee Can Investing and Index Funds
When Kirby first wrote the paper in 1984, he noticed that there was an increase in the index funds following. This has continued to this day. An Index in a market creates a portfolio of the top securities held in that market. The Index, however, does not hold the securities. The US has the S&P 500 Index. What Index Funds do is create an actual portfolio by investing in the securities.
In the paper, Kirby criticizes these funds as they are required to trade securities on a regular basis to keep up with the portfolio the index would have. Kirby also explains how the S&P 500 Index made several hundred stock additions and eliminations. An Index fund would actively be required to trade on these stocks. The transaction costs on these alone would have a huge impact on the portfolio and the index funds growth. Hence Kirby introduced Coffee Can Investing. He identified that leaving the stocks alone was one of the reasons why the widows’ husband had grown his portfolio enormously in the 1950s. And he also considered transaction costs from trading as the greatest detriment to superior investment returns.
What is required for a Coffee Can Strategy?
To tap into these superior investment returns of Coffee Can Investing one would have to
Carefully assess and select stocks based on the company’s performance.
Invest and forget about them for a long period of time. In Coffee Can Investing to reap the maximum benefits, one would have to let the investments be for at least a period of 10 years.
How to pick stocks for this approach?
In their book, ‘Coffee Can Investing: The low-risk road to stupendous wealth’ Saurabh Mukherjea, Rakshit Ranjan, and Pranab Uniyal discuss how to pick stocks to create a Coffee Can portfolio. According to them, the stocks considered must be filtered in the following manner.
1. The company selected must have a market cap of at least 500 crores.
This is because we will need a company that has established itself. Also because we will need the past records of the company for at least 10 years.
2. Revenue growth of the company must be at least 10% each year for the last 10 years.
3. The ROCE of the companies must be more than 15%
The ROCE will show if the management is capable of allocating that the money put by you into the company correctly. ( ROCE = Net Income/ Shareholders Equity)
The stocks selected in the portfolio still have to be diversified. The investment must be done across industries and also across different capital classes. This would, however, depend on the investor and vary accordingly. The investor would have to keep in mind that the scope for growth is limited when the companies are too big. The potential for smaller companies to grow is much higher. This, however, does not stand true for longer periods. In long term say 20 years this benefit no longer would exist with the companies in the small-cap in comparison to large-caps.
Results of Coffee Can Investing Approach
After studying trends and putting together a portfolio, The book ‘Coffee Can Investing: The low-risk road to stupendous wealth’ brings forward the concept of Patience Premium. As per Patience Premium, a period greater than one year would give you a higher probability of higher returns. Investors are not really rewarded much for periods like 1 year or even up to 7 years. The chances of returns as per the book even reduce during the 3 to 5 year period. After the 7-year and 10-year mark, the patience premium is much higher.
The best-case scenario occurs when patience premium combines with quality premium. Quality premium is the premium associated with the quality companies selected in the portfolio. A dream mix would be of good quality companies selected as per the Coffee Can portfolio filter and an investor letting the investment be for a long period. With both the premiums combined the probability of losing money is -3% yearly. After a period of 10 years, the returns would stand at 20%. They would, however, remain stagnated after this period. Hence 10 years onward the returns expected will be more or less 20%.
Why do the returns stagnate after 10 years?
Pranab Uniyal explains this citing reference to the book ‘Mathematics of everyday life’. According to the book, large numbers behave differently from small numbers. They use a dice analogy to explain this. Say 3 people were each to roll a dice 5 times. The average obtained from rolling the dice 5 times will vary or have an extremely high probability to vary from each other. On the other hand, if all of them roll the dice say 1000 times, the average will cumulate to 3.5 for all of them.
Similarly in investing. Short periods will subject us to market volatility, which would be the easiest way to lose our investment and the results would vary too much to different investors. However, when we look at longer periods say 10 years if different investors create a Coffee Can portfolio the returns would converge at 20% yearly.
Greater the Risk, Greater the reward?
The book also challenges the quote on every investor’s tongue which says more the risk, higher the reward. Coffee Can Investing provides a way for investors to earn huge returns on their investments instead of gambling in the short term. These returns can only be achieved however only if the portfolio is held for a long period of time. One of the major reasons the investor earns here is by saving up on all the transaction costs.
Why not select assets outside the stock market?
Only 2% of the Indian population indulges in the Indian stock markets. Over 95% prefer to invest their savings in Land and Gold. This could be because we as people tend to put our trust in assets that we can see and touch. Also, a great deal of cultural influence is at play when it comes to gold.
The land came to be considered as one of the best investments due to the boom in the period between 2003 to 2013. Due to this India has currently become one of the priciest markets in the world. But the prices are not followed by an apt demand. This has left a lot of unsold properties in the market. This has made land and gold one of the worst investments in recent times especially if one wants to stay ahead of inflation. And an even worse investment if they want to compete with the stock market.
Benefits of Coffee Can Investing
1. Minimum Expenses
Coffee Can Investing can be said to have been built on this factor. Apart from the cost that occurs during the one-time investment, there will be no more transaction cost for the remaining 10 year period. Tracking an index involves multiple additions and eliminations to a fund portfolio. Due to this, the investments are affected regularly from brokerage and other expenses transaction costs.
In addition to this investment management firms have their own set of charges charged to the investors. Expenses to the investment manager are spread to all the funds and not just Index funds. Also, the quest for alpha in the market has investment managers charging investors for their apparent skills. However, for the period the investors remain the market we rarely see them beat the markets.
A Coffee Can Portfolio created by the individual would not have an Expense Ratio. Also, investors rarely consider how taxes affect their investments. Regular purchases and sales would result in added taxes on any profit earned.
2. No need for tracking the portfolio.
This is also one of the necessities of Coffee Can Investing. Once we have filtered and achieved a portfolio of quality stock the only thing that is required is for them to be put aside and left alone for a decade.
When we invest we unfortunately always try and keep track of what is going on with the company. CEO changes, political and other economic changes would all stimulate us to act on our holdings. In fact, a Coffee Can Portfolio would even require us to not even look at our stocks during the pandemic.
3. Not Affected by volatility
The filters to create a suitable coffee can portfolio ensures that only the best stocks as per the present scenario make it to your portfolio. However, in the short term, these stocks will face very high volatility in reaction to the market, political, and other changes. In the long term, the stocks will only be judged by their intrinsic quality. However, even if a few stocks turn out to be bad investments it is best to cite what Kirby saw in the deceased husbands’ portfolio. There were stocks that did not perform as well as the others but they were more than made up for by the stocks that performed better. In the long term, the portfolio will face reduced impact from market volatility.
4. Outperformance by 8-10%
According to ‘Coffee Can Investing’ a portfolio that has followed all the steps will be performing better than the market and beating it by 8-10%
Why don’t funds just follow Coffee Can Investing?
If this investment strategy enables you to outperform the market by such a large margin then the question arises as to why shouldn’t mutual funds just follow this investing strategy.
— One of the major reasons is the wait for 10 years. In Coffee Can to judge how you have performed, you will have to wait for over a decade. Very few investors would be willing to commit to such a fund.
– Imagine a scenario where a fund does start coffee can investing. It would have to set up a team that would prepare a portfolio for the fund. What next? Coffee can would require you to simply ignore the investment for the next decade. Setting up a fund only as Coffee Can will have a huge setup cost at the beginning with returns only after a decade. In regular investment firms, the employees are rewarded for the right decisions, investments, and performance. These benefits would only be available to the employees of such firms only after a decade. This would be highly unfair to them.
Despite Coffee Can Investing not being popular in the Indian markets there still are a few Asset management companies still offering the coffee can route.
Coffee Can Investing makes us question if we really are investors. Or due to our reaction to every market change has resulted in us inadvertently become traders. Traders holding the facade of an investor.
At the end of his paper where Robert Kirby introduced Coffee Can Investing, he makes it clear that his argument wasn’t against index funds. They were directed towards the transaction costs, brokerage fees, taxes that are associated with every trade. Instead, if the stocks are just left alone they would perform much better
What should an Investor with limited liquidity do?
If we take a regular Indian Investor, for him to be expected to contribute a huge amount for the one-time investment would be unrealistic. Instead if one would want to follow coffee can investing but is not able to set aside a huge amount at once it would be better if he does the following.
Create a coffee can portfolio where the investor invests what he can and set it aside for a decade. When he has saved enough again say in a year, create a coffee can portfolio which is completely independent of the one he created earlier with no references to it. It should be solely based on the market conditions prevalent filtering companies based on the present scenario and set it aside for a decade.
Coffee Can Investing: The Book
For a thorough study, I would recommend giving ‘Coffee Can Investing: The low-risk road to stupendous wealth’ by Saurabh Mukherjea, Rakshit Ranjan, and Pranab Uniyal a read. Although there might be quite a few books out there on investing there are very few books written keeping the Indian Markets particularly in mind.
It would be highly rewarding to break the loop mentioned in the introduction. Happy Investing.
A detailed study on the 20 Lakh Crore Relief Package in India (First Tranche): Prime Minister Narendra Modi’s address to the nation on Tuesday will be remembered by many for a right smart spell due to two reasons. Firstly because the number we couldn’t fathom – 20 Lac Crore (20000000000000- 10% of our GDP) is now our relief package. Secondly for the word ‘Aatma Nirbhar’ (Self Reliance).
However, if observed the address holds much more gravity, especially in our preparation for the post lockdown economy. The direction chosen to move in is towards an Aatma Nirbhar Bharat. To achieve this the Abhiyan has focused on the five important pillars- the economy, infrastructure, system, vibrant demography, and demand. It seems like a throwback to the 20th century Swadeshi movement with national leaders calling for local purchases. It is however evident that the economy can be saved from being plundered by COVID-19 by robust demand for Indian products.
Finance Minister (FinMin) Nirmala Sitharaman announced on Wednesday the First Tranche of measures that would be taken to attempt at reviving the economy. The focus would be on the factors of production. However, the traditional factors have been recast to suit the purpose of this Abhiyan. They are:
Ease of doing business
Compliance and Regulation
Due Diligence Observed
The FinMin also clarified that becoming ‘Aatma Nirbhar’ would not mean turning into an isolationist state that only looks inward. But instead, it talks about a country that can rest on its strengths and at the same time contribute to the globe. Today we have a closer look at the measures of the first tranche, the reasons for their implementation, and the path intended.
Table of Contents
Measures to revive the economy -Tranche1
Nirmala Sitharaman announced the fifteen measures to revive the economy. They are directed towards the following sectors/measures:
MSME (Micro Small Medium Enterprises)
The FinMin has focussed a considerable portion of the relief towards Micro Small and Medium Enterprises( MSME). Of the 15 key decisions, 6 are directed towards the MSME. MSMEs are our nation’s dominant job creator by employing 11 crore people.
MSMEs contribute to 45% of the country’s manufacturing output, 40% of exports, and to 30% of the GDP. Considering the figures a relief package not directed towards the MSMEs survival would result in their closure and eventually mass unemployment accelerating the GDP decline. From the numbers above it becomes evident that ensuring their survival would mean saving the economy.
It can be noticed from above that there is a huge gap between credit requirements and credit available to MSMEs. Such a huge lending ability to bridge the gap is only possessed by financial corporations in the country. The government would not be able to fulfill the requirements simply because it does not have that much money to be directed towards MSMEs during an ongoing pandemic.
What are the means adopted to achieve this?
The government has two options here. Either directly give loans to the MSMEs or to take over the credit risk of the loans received by MSMEs from other sources. It becomes evident that the government has chosen the latter as the measures in Tranch 1 focus on this.
If in a normal situation if an MSME would approach banks he would be required to place a collateral of a value higher than the loan in exchange. The property available with MSMEs will be affected too as the outbreak has caused a fall in their prices as well. The Government of India(GOI) has rolled out measures where instead of collateral it acts as the guarantor for the loan. This means that in a case where the MSMEs fail to repay, the banks would still be able to recover the loan from the government. With the government acting as a guarantor the banks are encouraged to give out more loans to the MSME’s
The reforms that enabled this are:
1. Three Lakh Crore collateral-free automatic loans for MSMEs
Here MSMEs that have no more than 25 crores outstanding in loans and a turnover of at least Rs. 100 crores are eligible. An emergency credit line to businesses and MSMEs has been set up from NBFCs and banks for up to 20% of the outstanding credit as of 29/02/20.
The loans will be provided with a 4-year tenure with no requirement for the principal to be paid for the next 12 months. They will be required to pay interest however but at a capped limit set by the GOI. Here the GOI will act as 100% guarantor for both loans and interest. This scheme can be availed till 31st October 2020.
The Finance Ministry has estimated that this will help 45 Lakh business units to resume business utility and safeguard jobs.
2. Rs 20,000 crores subordinated debt for stressed MSMEs
Here the GOI will facilitate a provision for Rs. 20,000 crore as subordinate debt. This is aimed at MSMEs that are stressed and would be considered NPA (Non-Performing Assets) but still have managed to keep functioning. These MSMEs classified as NPAs would not be provided credit by NBFCs or banks. Here the promoter of the MSME will be given debt by the banks which will then be infused by promoters as equity in the firm. This will increase his respective ownership but will be liable for the debt received.
3. Rs. 50,000 crore, equity infusion for MSMEs through FOF.
The GOI here will set up a Fund of Fund which in turn will invest in its daughter funds. These daughter funds will provide equity funding to MSMEs that show growth potential. The GOI will invest 10,000 crores into the FOF. The remaining amount will be funded from institutions like LIC and SBI.
The MSME, however, will be encouraged to get listed on the main board of the stock exchange.
4. New Definition of MSMEs.
The FinMin pointed out before the announcement that this change of definition will be in favor of MSMEs. The new definition will revise investment slabs for those companies to be considered as Micro Small and Medium. In addition to the investment, it will also consider the turnover before classifying an MSME.
The new definition will also have no distinction between the MSME involved in manufacturing and service.
Micro will be those with investment up to 1 crore whose turnover is LESS than 5 crores.
Small will be with investment up to 10 crores whose turnover is LESS than 50 crores.
Medium will be those with investment up to 20 crores and a turnover of LESS than 100 crores
5. For government procurement tenders up to 200 crores will no longer be on the global tender route.
According to this global tenders that are worth up to 200 crores will no longer be available to global players.
This reform would encourage and provide MSMEs with the opportunity to procure these tenders without facing global competition.
6. Other incentives for MSMEs
MSMEs in the post lockdown environment will face problems of marketing and liquidity due to social distancing requirements. For these reasons, the GOI will launch an e-market linkage for MSMEs which will be promoted as a replacement for trade fairs and exhibitions. Fintech also will be applied to enhance transaction-based lending using data generated by e-market linkage.
In addition to this, all dues from the GOI and Central Public Sector Enterprises (CPSE) will be released in 45 days.
This reform focusses on ensuring that the MSMEs are able to restart their business with ease after the lockdown as well. At the same time, their liquidity position would be improved to meet their immediate needs from the dues received.
Provident Fund Contribution
7. Reduction in rates for those covered in the first relief package.
Under the Pradhan Mantri Garib Kalyan package of Rs 1.7 lakh crores announced in the first phase of the lockdown, the GOI announced that it would contribute the employer’s portion to the PF. The companies eligible for this relief were those who had 100 employees earning less than 15000 per month. This relief was announced for a period of 3 months.
Moreover, this relief currently helps a total of 6 Lakh establishments during the months of March, April, and May. The FinMin announced that these establishments that are currently eligible would have these benefits extended to both the employees and the employer’s contributions respectively. The GOI will now pay 24% to the PF for a period of 3 months.
8. Reduction in rates for those not covered in the first relief package.
The FinMin also announced that those who were not covered earlier would now only be required to contribute 10% instead of the earlier 12% rate. This 10% contribution will be for both the employers and the employees for the next 3 months.
However, for state PSU and CPSE, the employer’s contribution will remain at 12% but the employees will be required to contribute only 10%.
The main aim of the PF contribution from the govt or rate reduction is to transfer more money into the hands of the employers and employees. The employers would have greater liquidity and hence would be able to use this to better survive. The employees, on the other hand, would have more cash in their hand which would cause a spurt in the demand in the economy. This will create liquidity of 6750 crores available to the employers and employees for the next 3 months.
9. 30,000 crore special liquidity scheme for NBFC/ HFC/ MFI
The scheme is available to those NBFC’s that are finding it difficult to raise debt in the COVID-19 environment. The special liquidity scheme of 30,000 crores was launched for this. Under the scheme, investment was made by buying investment-grade debt papers of NBFC HFC and MFIs. It is not necessary for the companies to be graded highly and be of high quality.
Purchasers of these debt papers will receive a guarantee from the GOI.
10. Rs. 45,000 crore Partial-Credit Guarantee Scheme(PCGS) 2.0 for NBFC’s.
With the PCGS already in place, the PCGS scheme is said to supplement it. This scheme will enable finance corporations that have low credit ratings to raise finances. In PCGS 2.0 the existing PCGS scheme will now be extended to cover borrowings such as primary issuance of bonds and commercial papers of these entities. Here ‘AA’ papers and below including unrated papers will also be eligible for investment. This will particularly benefit MFI that do not have ratings high enough to attract investments.
In this scheme, the first 20% of the loss will be borne by the guarantor i.e. GOI.
The main aim of both schemes is to provide liquidity to NBFC’s, MFI, and HFC. If they are provided with the liquidity it will lead to increased lending to MSMEs. So it can be said that even these 2 schemes are aimed at the MSMEs.
11. 90,000 crore liquidity injections of Discoms.
The working of the electricity sector requires Power Generation Companies(Gencos) to transfer electricity to Distribution Companie(Discoms) in respective states which is then transferred to the consumers and respectively paid for. The payments then trickle down to the Gencos. The Discoms currently owe Rs 94,000 crores to the Gencos. The lockdown unfortunately only alleviated the problems and troubles of the electricity sector as many industries were shut causing a fall in the demand. In the electricity sector, the units produced cannot be stored. Hence a fall in the demand causes a loss.
The FinMin unveiled that both PFC and REC will together infuse a total of 90,000 crores into all the Discoms against all the receivables they have. These 90,000 crores in loans will be extended against the state government guarantees with the exclusive purpose of discharging liabilities of Discoms and Gencos.
The loans, however, will be given to the Discoms for specific activities and reforms which include
Introducing digital payment facility by Discoms where necessary.
Liquidation of outstanding dues to state govt.
Plan to reduce financial and operational losses.
The benefits of this have also been aimed at being passed onto the consumers in the form of rebates for the power tariffs paid.
12. Relief to contractors
Central Agencies ( like Railways, Ministry of Road Transport and Highway, Central Public Works Department) have been directed to extend all contracts for up to 6 months. This covers both construction works and goods and service contracts. It covers obligations like completion of work, intermediate milestones, and extension of the concession period in PPP(Public-Private Partnerships) contracts.
To ease cash flows the GOI will partially release bank guarantees, to the extent contracts are partially completed. This move will also improve the cash flows for the contractors as they will be provided with liquidity which will help them meet immediate business needs when the lockdown is lifted.
TCS Chief Strategist Himanshu Chaturvedi said ‘ The Governments Aatma Nirbhar Bharat Initiative has recognized infrastructure as one of the 5 pillars. This is an acknowledgment of the sector’s role in India’s development and large scale employment generation.
13. Relief to Real Estate
According to this measure, the real estate is to treat COVID-19 as a ‘force majeure'(unforeseeable circumstances that prevent someone from fulfilling a contract) and extend registration and completion date by 6 months. The regulatory authorities may extend this for another period of 3 months if necessary. This was done so that the home buyers may get new timelines for delivery.
The GOI has also decided to provide projects that have been stalled due to a lack of funds with financial support. Projects that are NPA’s or undergoing NCLT will also be eligible for the proceedings. The maximum finance for a single project has been capped at 400 crores.
In order to provide more funds at the disposal of the taxpayer the rates of TDS for non-salaried specified payments made to residents and rates of the tax collected at source for the specified receipts shall be reduced by 25% of the existing rates.
This will be applicable for the rest of the year starting from 14/05/2020 to 31/03/21. These measures are estimated to release liquidity of Rs. 50,000 crore.
It has to be noted that this doesn’t bring down the tax liability of taxpayers, it leaves more money with them during the course of the FY. Individuals will still have to pay their tax liability every quarter or annually.
15. Other Measures
All pending refunds to charitable trusts, non-corporate business, from the GOI shall be issued immediately.
Income tax returns extended from 31st July 2020 and 31st October to 30th November 2020. The tax audit has been postponed from 30th September 2020 to 31st October 2020.
Ernst and Young Chief policy advisor D.K. Srivastava estimated that the measures announced on Wednesday amounted to Rs 5.94 lac crore, which includes both the liquidity financing measures and credit guarantees, although the direct fiscal cost to the govt. In the current financial year may only be Rs 16500 crore. As mentioned earlier the government has taken over the credit risk that the MSMEs and various financial institutions.
Hence the amount that the government would invest will depend on how much of the loans taken by the MSMEs and various financial institutions will default on. Furthermore, the real trajectory of the relief package can only be understood after it is viewed together with the measures in the Second and Third Tranch. Even more so on how many of these are successfully implemented. It still goes without saying that tranch 1 is nothing short of impressive.
Zerodha vs Angel Broking Comparison: Zerodha and Angel Broking are two of the best and biggest discount brokers in India. In this article, we are going to compare Zerodha vs Angel Broking by looking into their brokerage charges, account opening charges, maintenance charges, exposure margin, trading platforms, pros, cons, and more.
This comparison between Zerodha vs Angel Broking will highlight the major differences between these two stockbrokers and help you choose the best between them based on your preferences.
Table of Contents
Zerodha, founded in 2010 by Nitin Kamath, is the biggest stock broker in India and perfect for traders & investors looking for low brokerage, easy interface, and reliable trading platform. It has over +2.2 million clients that contribute to over 15% of daily retail trading volumes across BSE, NSE, and MCX.
In terms of brokerage charges, Zerodha offers a zero brokerage for delivery equity investment & direct mutual fund investments. For all intraday, F&O, currency, and commodity trades across NSE, BSE, MCX, it offers a flat brokerage of ₹20 irrespective of the trading volume. Therefore, you can save a lot of brokerage charges on your trades using Zerodha as your broker.
Incorporated in 1987, Angel broking is a big brand having +30 Years of experience in the broking world and +1 million happy customers. They have a presence in over 1800+ cities in India and a strong network of 8500+ sub-brokers. Angel Broking offers the trading facility in Equity, F&O, Commodities, and currency across BSE, NSE, NCDEX & MCX.
In the past, Angel Broking worked as a full-service broker and offered a percentage based brokerage charge to its clients for over two decades. However, they recently changed their business model (Nov 2019) from percentage brokerage to flat rates to compete with rapidly growing discount brokers like Zerodha, 5Paisa, Upstox, etc.
Angel Broking now offers a flat rate brokerage plan, named ‘Angel iTrade PRIME’. Here, the delivery trading is FREE of cost. And for all other segments i.e. Intraday, F&O, Currencies & Commodities, they charge a fixed rate of ₹20 per trade. The same simple rate is applicable across all exchanges and segments.
One of the key advantages of trading with Angel Broking is that they provide investment advisory, guidance, and recommendations to their clients for investing in the stock market. Further, they also offer research reports on companies along with many other value-adding tools and services to their clients for free.
Zerodha is the largest stockbroker in India with +1.5 million clients and +10% of daily retail trading volumes across NSE, BSE, MCX. Located at Bangalore, Zerodha offers zerod brokerage on delivery trading and a flat rate of 0.03% or Rs 20 per executed on all other segments.
Incorporated in 1987, Angel broking is a big brand having +30 Years of experience in the broking world and +1 million happy customers. They have a presence in over 1800+ cities in India and a strong network of 8500+ sub-brokers. Angel Broking offers free delivery trades and flat charge of Rs 20 for all other trades
# of Active Clients on NSE (Nov 2019)
Full-Service Flat rate Broker
NSE, BSE, MCX, NCDEX
NSE, BSE, MCX, NCDEX
Free for Delivery Trading and Rs 20 for all other trades
Free delivery trades and flat charge of Rs 20 for all other trades
Angel iTrade, Angel Broking Mobile App, Angel SpeedPro, Angel BEE
Rs 20/ trade or 0.03% whichever is lower
Rs 20 per trade
Equity Future Charges
Rs 20/ trade or 0.03% whichever is lower
Rs 20 per trade
Equity Options Charges
Flat Rs. 20 per executed order
Rs 20 per trade
Currency future charges
Rs 20/ trade or 0.03% whichever is lower
Rs 20 per trade
Currency options charges
Rs 20/ trade or 0.03% whichever is lower
Rs 20 per trade
Rs 20/ trade or 0.03% whichever is lower
Rs 20 per trade
Minimum brokerage fees
Flat Charges Rs 20
Call & Trade Charges
Rs 20 per executed order
Additional Rs 20 per executed order
Equity Margin Delivery
No margin for delivery - Cash and carry
Upto 3x for equity cash
Equity Margin Intraday
Upto 20x (Based on stock)
Equity margin futures
Intraday - 40%(2.5x), Carry forward - 100%(1x) of Total margin
Upto 10x (Buying/Selling)
Equity margin options
Intraday - 40%(2.5x), Carry forward - 100%(1x) of Total margin
Upto 10x (Selling) and 3x (Buying)
Intraday - 40%(2.5x), Carry forward - 100%(1x) of Total margin
Intraday - 40%(2.5x), Carry forward - 100%(1x) of Total margin
Intraday - 40%(2.5x), Carry forward - 100%(1x) of Total margin
Upto 8x (Selling) and 3x (Buying)
Yes, with IDFC Bank
Research & Tips
Span Margin Calculator
Training & Education
Margin Against Shares (Equity Cash)
Margin Against Shares (Equity F&O)
Direct Mutual fund investments, Kite APIs, Sentinel, Streak, Sensibull
Research reports, Portfolio management system (PMS), Insurances
Zero brokerage charges for delivery trading, Simple and flat brokerage model in all other segments, Excellent trading platforms, Easy & fast online account opening, Direct mutual fund investments, Maximum brokearge of Rs 20
Free delivery trades; Full-Service Broker with Flat charges; Services offered in Equity, Mutual funds, Commodities, IPOs, PMS, Life insurances; Customised trading help; Robo Order, High Margin
*Disclaimer: All pricing data was obtained from the published stockbroker’s web site as of 02/04/2020 and is believed to be accurate, but is not guaranteed. Account opening charges, margins, etc can vary from time to time depending on the active campaigns by the brokers and hence recommended to refer to the broker’s website for the latest updates.
Both Zerodha and Angel Broking offers low (flat) brokerage and fast trading platforms for their clients.
Zerodha, being the biggest discount broker in India with over 22 lakh clients obviously adds trust and brand value. Moreover, Zerodha’s innovative initiatives like educational facility (Varsity), free direct mutual fund investments through COIN, investment in IPO’s from the same dashboard, partner portals like Streak, Sensibull, etc create more value for their clients.
On the other hand, Angel broking has built its reputation with over +30 years of experience in the broking industry. Since Angel Broking is a full-service broker, it offers a lot more segments than Zerodha like Portfolio management Services & Life Insurance. Moreover, a few notable advantages of Angel Broking over Zerodha is that they offer Research reports and robo-advisory to their clients, which Zerodha don’t.
Overall, if you’re looking for full-service facilities like investment advisory, Research reports, Robo-advisory, PMS, etc, then Angel Broking is a good alternative.
Nonetheless, if you wish to trade/invest on your own, but looking for essential add-on products like learning platform, Sensibull, Streak, etc and a user-friendly innovative trading platform, Zerodha is the go-to broker. Zerodha offers a little more benefits compared to Angel Broking for independent traders and investors.
Understanding Blue Ocean Strategy with Examples, Pros, Cons & More: Hello readers! It is a new day and we are back with a new topic of discussion exclusively for you all!
Almost all of us have been to beaches for a weekend getaway or long vacations! If not holidays, we have definitely come across visuals of oceans and seas on social media and televisions. Haven’t we? Well, oceans are vast, deep, massive, wide and are the most baffling natural wonders of the world. Proper explorations and researches can give way to incredible discoveries and provide us information about its scopes and untapped prospects.
In a similar fashion, a path-breaking strategy, known as Blue Ocean Strategy, was introduced by W. Chan Kim and Renée Mauborgne. It is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business.
A Blue Ocean Analogy is utilized to unlock the wider, unfathomable, powerful and vast potential in the unexplored market space in terms of profitable growth. This strategic planning theory is an escape from the general notion of benchmarking the competition and focusing on lump sum figures.
Table of Contents
What exactly is a Blue Ocean Strategy?
Blue Ocean Strategy is all about devising and acquiring the uncontested market forum by spawning a new demand.
Since the industries are in a state of non-existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd.
In other words, the strategy spurs companies to offer extremely valuable products to the consumers. Thus, it supports the company to incur large profits and surpass the competition. The price tags of the products are generally kept on the steeper side because of their monopoly. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent space.
The kind of leadership and management required to initiate a Blue Ocean Strategy differs from the management of corporations that have short-term ambitions and mainly concentrates on increasing shareholder value by pushing up the stock prices via buybacks, mergers, and acquisitions. The Blue Ocean Strategy can be applied to all the sectors or, businesses and is not limited to just one kind.
On the contrary to the concept of Blue Ocean Industries, there exists Red Ocean Industries. Let us understand the concept in brief before moving to further analysis.
Red Ocean Industries
Red Oceans are those industries that are currently in existence or, what we call the contested market forum.
In Red Oceans, there are well-defined industry perimeters that are known and out in open to all. Due to the acquaintance with the competitive rules and acceptance of the drawn boundaries, the market space gets crowded and there is a consequent reduction in growth and profitability. When the product comes under the burden of pricing pressure there is always a chance that a firm’s operations could come under notable menace.
Companies under Red oceans strive to outperform their rivals by grasping a higher proportion of existing market share at another company’s loss. In order to keep themselves afloat in the marketplace, proponents of Red Ocean Strategy concentrate on creating competitive advantages by examining the blueprints of their peers/competitors. Such a saturated market space makes way for a toxic competition which ends up as nothing but an ocean full of rivals fighting over a dwindling profit pool. Such firms mainly seek to capture and redistribute wealth instead of creating wealth.
These kinds of market forums can be correlated with the shark-infested ocean waters which remain spilled with blood. Hence, the coinage of the term Red Oceans. Thus, the business world has pulled up their socks and is striving to skip the “Red Oceans” to create their very own “Blue Oceans”.
Let us learn how organizations that have followed the path of Blue Ocean Strategy has undergone outstanding growth and profitability!
Uber Cab is a brainchild of the Blue Ocean Strategy and has dramatically transformed the picture of the transportation industry by discarding the nuisance of booking cabs, denial of services, meter issues and unwanted arguments.
It is a ridesharing service that enables customers to book their rides with the ease of swipes and taps. It also permits users to trace a driver’s progression towards the pickup point in real-time through the medium of a smartphone application called Uber App.
Uber devised a new market by the amalgamation advanced technology and modern devices. It tried to differentiate itself from the regular cab companies and in turn developed a low-cost business model that offers flexible payments, pricing strategies and generates good revenues for both the drivers and the company. In the initial stages, Uber was successful in capturing the uncontested market space but was eventually flooded by the competitors. In spite of that, it continues to command the market and is speedily expanding across the world. As of 2019, Uber approximately has 110 million riders worldwide and holds 69% of the market share in the United States.
Apple headed into the space of digital music with its unique and eminent product ie. iTunes in 2003. In previous days, conventional mediums like compact discs (CD) were put to use to disseminate and listen to music.
When iTunes ventured into the market, it solved the basic problems which were faced by the recording industry. As a result, iTunes cut down the practice of illegally downloading music while simultaneously catering to the demand for single songs versus entire albums in a digitalized version. High-quality music at a reasonable price offered by Apple became a talk of the town. All the available Apple products have iTunes to download music and have largely ruled the market space for decades. It is also recognized for driving the growth of digital music.
These examples of the Blue Ocean Strategy can enlighten future startups regarding the execution of a strategic planning scheme and successfully unlocking new demand.
How to find and develop/Launch them?
Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. When there is limited scope for further growth, businesses try and search for verticals for discovering new business lines where they can enjoy the advantage of uncontested market share or ‘Blue Ocean’.
In order to find and identify an attractive Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The Four Actions Framework emulates strategic triumphs and guides towards the path of launching a Blue Ocean initiative.
The framework poses four key questions, namely:
It includes points that must be blossomed by industry in reference to the line of products, price tags and caliber of services. A startup must analyze the pros and cons of the existing organizations and their strategies for key aspects of differentiation.
It points out the arenas of an organization’s product or, service which foreplays a crucial character in the industry but is not absolutely essential in nature. Therefore, the proportion of the products can be curtailed without entirely eradicating them.
It points out the arenas of an organization or industry which could be eliminated absolutely for the purpose of cutting down the costs and also to fabricate a completely new market. At times, newly invented products can lead to self-assassination of the existing products and thus, leads to an unwillingness to interfere with the current revenue source.
It nudges the companies to shape up trailblazing products. The introduction of an entirely new product line or, service leads to the establishment of a new market and points of differentiation. Identification of the needs of the target market provides sound knowledge regarding the addition of unique measures and consequently tracking the progress for illustrating a Blue Ocean.
Now that we have discussed the Blue ocean strategy and how to find them, let us also discuss the pros and cons of this strategy.
Pros of Blue Ocean Strategy
Here are a few of the advantages of using the blue ocean strategy:
Blue Ocean Strategy cooperates with organizations to find uncontested markets and avoid matured and saturated markets.
It assists to move from the impediments of competing within the existing industry and cost structure and to gradually migrate towards constructive value improvement. In short, it demonstrates how to break free from the traditional strategic models and to expand profitability and demand for the industry by using the analysis.
Value innovation is the backbone of a Blue Ocean Strategy. Value innovation is the alliance of innovation with price, utility, and cost positions. It eventually creates new value/demand for consumers and thereby, expands the chances of growth potential.
Blue Ocean Strategy enables a fundamental transformation in mindset. It develops mental horizons and helps in recognizing the opportunities.
Blue Ocean Strategy is based on “time and again” proven data rather than unproven theories. It is based on practical approaches that have proven results during live market executions.
Products under the concept of the Blue Ocean Strategy doesn’t make a consumer choose between value and affordability. It is the simultaneous pursual of differentiation and low-cost theorem.
Creating blue oceans is non-zero-sum with high payoff possibilities.
Cons of Blue Ocean Strategy
Let’s us also look at a few of the common cons of using this strategy:
It’s quite difficult to come up with futuristic ideas and identify colossal and untapped markets.
Nominating an articulate Blue Ocean Strategy is a result of a calculated and detailed research process backed by extensive analysis. It is to be kept in mind that there is no magic formula or, silver bullet.
Venturing into a market in the early phase comes with baggage of risk. There is a high possibility that the customers might not understand the grass root of the products and services because of the absence of a fully developed technology.
Production of a new market is never easy because an organization has to be smart and clear regarding its customer base and ways to impart education about new ideas, new products, and new solutions. It also requires clarity about the trade-offs, obstacles and the workforce.
Opting for a different ocean i.e the Blue Ocean, requires a lot of patience, persistence trust, preparation, and faith. It is also extremely paramount to look at initial indicators for confirming the fact that “fishing” is not being done in a dead sea.
On finding a new ocean, other sharks from the saturated markets aka the Red Oceans and other adjacent oceans will be lured to the new market. Thus, building strategically defensive alternatives would be a wise step. Defensive alternatives majorly consist of brand power, technological advancement, and speed of execution.
Let us quickly summarise what we discussed in this article.
A path-breaking strategy known as Blue Ocean Strategy is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. It is all about devising and acquiring the uncontested market forum by spawning a new demand. Since, the industries are in a state of non- existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent.
These days, the Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. In order to find and identify an attractive Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The framework poses four key questions, namely, Raise, Reduce, Eliminate & Create.
That’s all for this article. Let me know what you think about the blue ocean strategy in the comment section below. Cheers!
Understanding Why Alcohol Prohibition Lifted in India: On May 4th the Central Government lifted the prohibition on liquor sales. What followed was a parade through all news outlets exhibiting Indians risking their lives in thousands just to feel half-seas over. Media focus on movie box office records has been replaced by alcohol day to day sales records being reported during the pandemic. Today we try to unravel why the center decided to do so and what possible implication it could lead to.
Table of Contents
What does alcohol mean to the government?
— Alcohol and the Soviet Union
Mikhael Gorbachev, although some might know him as the Soviet Union President during its collapse, our generation will famously remember his character played in the TV show Chernobyl ( Another disaster he oversaw as President). In 1985 Gorbachev started an anti-alcohol campaign due to its ill effects on health and crime in society.
In the first half of the 1980s, 13000-14000 deaths were drunk accidents. Over 800,000 people were caught for drunk driving and by 1985 these numbers kept increasing. The soviet union faced multiple problems due to the influence of alcohol. Accidents at work were common and at a period the condition worsened to a point where crops were not even gathered due to intoxicated farmworkers (Socialism, SMH).
Gorbachev’s campaign was a success and the government claimed increased life expectancy in males and even reduced crime rate. But all this was just a silver lining to a darker cloud. The loss of 100 billion rubles of revenue from alcohol sales led to an economic crisis after the alcohol sales moved to the black market. The campaign ended in 1987. The Berlin wall fell in 1989. The Soviet Union collapsed in 1991.
The data presented above shows the revenue a state earns from the sale of alcohol. Alcohol revenues make up to 20% of a state’s revenue. In the midst of the pandemic states like Delhi have faced a 90% fall in their revenues. For the state governments to fight the virus without any source of income will only lead to a nationwide economic crisis.
Punjab was the only state to officially request the government to ease restrictions over the sale of alcohol. Several other states like Karnataka, Maharashtra, Haryana, Rajasthan, Kerala, Tamil Nadu, Goa, and those in the Northeast raised the issue informally.
The states named in no way represent a stereotype of the people’s dependence on alcohol but instead how the state governments depend on alcohol. Investing in alcohol has been the simplest and most profitable source of income for the state governments. In 2017 as per the Kerela State Beverages Corporation (BEVCO) earned around Rs.600 for every Rs. 100 spent on alcohol. This example sums up why a government would actually consider investing in alcohol-based businesses. It incomes earned also explain why the prohibition on alcohol sale had to be lifted.
Problems with alcohol prohibition
Gujarat, Bihar, Nagaland, and Mizoram are the states in India that have prohibited all sale of alcohol to its citizens. It can already be estimated that just like Delhi, these states too will face a huge loss of revenue due to the lockdown. But these are just the beginning of their financial troubles as they would not be able to raise revenue from alcohol sales either.
If we believe that these dry states are successful in the prohibition of liquor it would present us to be too naive. By banning liquor the governments have only succeeded in diverting the funds from their pockets to the black markets.
Similar bootlegging practices can be expected in a nationwide prohibition. But what is even more troubling features of the prohibition are the thefts and the scams. An alcohol store, for example, was looted for 4.18 lakhs in Bengaluru. Scams promising delivery of alcohol had already begun to see the light of day during the 40 days of prohibition.
Even the manufacturing of illicit liquor saw an increase. The consumption of such illicit liquor is much more dangerous and harmful to health. All these crimes have resulted in wastage of police resources. The energies that could be focussed on controlling the virus were spread to solve these cases which could have been avoided.
Raising the price of Alchohol
After the confusion and the idea of social distancing being flouted on the first day of the alcohol prohibition being lifted, the government resorted to discourage guzzlers by raising the taxes. The Delhi government added a 70% corona tax. The state of West Bengal levied a 30% tax. However, the highest increase in the prices was from the Andhra Pradesh government. The prices were 75% higher after 3 revisions. The Karnataka and Tamil Nadu government also raised the excise on alcohol.
— The relation between prices and Alcohol
The reasons for the increased price lie in obtaining the twin objective of raising revenues and discouraging alcohol purchase. This is so that lesser people venture out of their homes in search of alcohol. A survey conducted in North West England with 22,780 in 2008 speaks differently. It was conducted to explore alcohol consumption changes if the prices were adjusted.
According to the survey, 80.3% considered a lower alcohol price would increase consumption. 22.1% considered that rising prices would reduce consumption. This meant that alcohol consumption was lower price elastic. This meant that you could lower alcohol prices to increase its consumption but an increase in price would still keep consumption at the regular levels. In other words, you can increase the harm by reducing the prices but not reduce the harmful effects of alcohol by increasing prices.
— Alcohol and Growth
( Source: The prices above are from the year 2017. The government would earn over 600% in the case above)
In India, a major portion of alcohol consumption is from the middle and lower-income groups. An increase in the prices of alcohol would not discourage a habitual drinker as discussed earlier. This increase would just decrease the disposable income or savings available for essential goods. Their spending on alcohol would deprive their children of nutrition and families of other essentials.
We just had a look at the impact of increased prices from an individual’s perspective. Let us have a look at what would be the case if due to this the consumption of essential goods is reduced in the economy. At the end of the day, it is essential goods that have the ability to kickstart the economy and not alcohol products. It is the demand for essential products that will enable industries to employ more labor. A study of the US states between 1971 to 2007 found that a 10% increase in per capita beer consumption resulted in a 0.41 percentage point drop in the annual income growth. The government has successfully increased its revenue but unfortunately directed demand away from essential products.
The points raised above have built walls to every decision taken in association with alcohol prohibition being lifted. The only exception being the decision to lift the prohibition itself.
Firstly the economy is too dependant on alcohol. The government cannot harvest any other source of income and liquor stores increase the risk of contraction. Secondly raising taxes does not discourage drinkers. Instead, it slows the opening of the economy. Thirdly a complete alcohol prohibition will only finance the black market and increases other crimes.
The following action taken by some state governments or possible consideration would help the government find a middle ground. Their application through states would result in being beneficial to both the government and the people.
— Open Alcohol outlets only after planning for appropriate social distancing measures.
The Supreme court on May 1st suggested the states to consider home delivery of alcohol. This would not only encourage social distancing the increased demand for home delivery would increase employment in the home delivery service. The food delivery company Zomato has already shown interest. This can be taken up by other delivery apps too. In a worst-case scenario even if any one of the parties comes in contact with someone who has contracted the virus, the linkage would be able to be traced by the app. This, however, should only be applied after ensuring age restriction are in place. West Bengal and Chattisgarh have already adopted the home delivery model.
The Delhi government has started issuing E-Tokens to buy liquor. Allowing only limited people at a set time only at particular stores with the pass. This also could also enforce social distancing but still involves the risk of venturing out.
— Reduce the price to levels the same as before the lockdown
The price increase has to be curbed. It is understood that the government is in dire need of income. This, however, will not even benefit the economy in the long term perspective as all revenue will stop once people run out of their savings. A habitual drinker will continue drinking even at higher prices. Also, the present condition involves people losing jobs and taking salary cuts. The price increase would do greater harm than good.
— Set a limit on Quantity
Settling a limit to the quantity available person is a very important step. We have already seen the survey earlier which concluded that a reduction in the prices would lead to increased demand. Hence applying the previous point without ensuring this will only negate all benefits. When clubbed with the first point, tracking the quantity via App or an online portal makes it easy.
All decisions being taken with the expectation of the worst would help us better prepare and forsee such situations. With no vaccine in sight for a year, all decisions must enable us to live accordingly for at least a year. The pandemic already has and will keep changing the way we live forever. Online Delivery with limits is the new Black!
Introduction to Option Greeks Basics: What are the makings of a great cricket match? Is it just that brilliant hundred by a batsman, or one 5 wicket haul by a bowler or is it that sparkling catch or run-out by the fielder. Or is a combination of all of these along with some crucial moments in the game.
Let us take the example of the inaugural World T20 final 2007. The biggest match of the tournament. The Arch rivals, “India Vs Pakistan”. No bigger setup in the world of cricket. But what made this match memorable was the quality of cricket played. India did eventually win the world cup final by 5 runs.
But what made this match unforgettable? Was it the innings by Gautam Gambhir (75 off 54 deliveries), was it the dash by Rohit Sharma (30 off 16 deliveries) that propelled India to a competitive score, was it the genius of Robin Uthappa to get a direct hit run-out of rampaging Imran Nazir, was it the onslaught by Misbah-ul-Haq or was it the masterstroke by none other, but M S Dhoni, to give last over to Joginder Sharma and seal the deal. I guess it was a mix of everything that made it an event to remember.
Table of Contents
What are Greek Options?
Similarly, the Option Greeks are the ingredients of the recipe which eventually helps in pricing the options. Option Greeks are various factors which help option trader in trading options. With the help of these Greeks, one is able to price the options premium, understand volatility, manage risk, etc. These Greeks also have a major impact on each other.
There are majorly four different types of option Greeks – Delta, Gamma, Theta, Vega, and Rho. We will be discussing all of them in this post.
In simple terms, Delta measures the change in the value of premium with respect to change in the value of underlying. For a call option, the value of Delta varies between 0 and 1 and for a Put option, the value of Delta varies between -1 and 0.
The above Option chain is for Nifty at 09:57 am. Nifty spot is trading at 9320.
The above Option chain is for Nifty at 10:07 am. Nifty spot is trading at 9316.
Now, form the above two tables, it is clear that with a small change in the value of Nifty, the premium for the option changes. The premium for 9100 CE in the first option chain is 291.65 and in the second option chain is 289.40.
Now, say if I were bullish on the market, so how would I find the premium for all the strike price if I were to expect the Nifty spot to be trading at 9400 by End of Day. So, this is where Delta comes into the picture.
For a call option, assume the delta for a strike price is 0.40. So for every 1 point change in the value of underlying, the value of premium will change by .40 points. Say, if I had bought 9350 CE at a premium of 142.70. The Nifty spot price is 9316 and the Delta for this option is .40. And if by the End of the day, the spot price of Nifty jumps to 9350.
So the change in the Premium will be = (9350-9316)*0.40 = 14.4 points. So the new Premium will be = 157.1. Similarly, if the spot price were to come down to 9250, then the change in the Premium will be = (9250-9316)*0.40 = 26.4 points. So the new premium in this case will be = 142.7-26.4 = 116.3.
Delta value dependency on the Moneyness of an Option
The value of the Delta is derived using the Black & Scholes model. Delta is one of the output form this model. The Moneyness of the contract helps in deciding the value of Delta:
Delta Value (Call Option)
Delta Value (Put Option)
In the Money
0.6 to 1
-0.6 to -1
At the Money
0.45 to 0.55
-0.45 to -0.55
Out of Money
0 to 0.45
0 to -0.45
Delta of a Put Option: The delta of a Put option is always negative. The value ranges between -1 to 0. Let us understand it with the help of a situation. Say the spot price of Nifty 9450. And the strike price in consideration is 9500 PE (Put option). The Delta for this option is (-) 0.6 and the premium is 110.
Now, in Scenario 1, if the spot price of Nifty goes up by 80 points, then
New Spot price = 9530
Change in Premium = 80*(-.6) = -48 points
So the New Premium = 110-48 = 62. In case of Put options if the spot price of underlying asset goes up, then the premium is reduced (the premium and spot price of Put option are negatively co-related)
In Scenario 2, if the Spot price goes down by 90 points, then
New Spot price = 9360
Change in Premium = 90*(-.6) = 54 points
The New premium = 110+54 = 164 points
Risk profiling for choosing Delta
The risk taking ability of a trader has an impact in choosing the right strike price. It is always advisable to avoid trading in Deep out of Money Options as the chances of those options expiring In the money is like their Delta (5% to 10%). For a Risk Taker trader, a slight out of Money or At the Money contracts are the best strategy. A Risk Averse trader should always avoid trading Out of Money contracts. They should always trade At the Money or In the Money contracts as the chances of trade expiring in their favour is significantly higher than Out of Money contracts.
Gamma of an Option
As we have seen, the Delta of an option measures the change in the value of premium with respect to change in the value of underlying. The value of delta also changes with the change in the value of underlying. But how does one measure the change in the value of delta? We introduce you to ‘GAMMA’.
Gamma measures the change in the value of Delta with respect to change in the value of underlying. Gamma calculates the Delta gained or lost for a one-point change in the value of underlying. One important thing to remember here is that Gamma for both Call and Put option is positive. Let’s understand:
Spot price of Nifty: 10000
Strike price: 10100 CE
Call Premium: 25
Delta of option: .30
Gamma of option: .0025.
Now if Nifty goes up by 100 points, then
New Premium = 25 + 100(.3) = 55
Change in Delta will be = Change in Spot price * Gamma = 100*.0025 = .25
New Delta will be = .30+.25 = .55 (Option is now an At the Money contract)
Similarly if Nifty goes down by 70 points, then
New premium = 25 – 70(0.3) = 4
Change in Delta will be = Change in Spot Price * Gamma = 70*.0025 = 0.175
New Delta Will be = .30-.175 = 0.125 (Option is now a Deep Out of Money contract)
The movement of the gamma changes and varies with the change in the Moneyness of a contract. Just like Delta, the movement in Gamma is the highest for At the Money contracts and it is least for Out of Money contracts. So, one should ideally avoid selling/writing At the Money contracts. Out of money contracts are the best ones to write as they have a very good chance of expiring worthless for option buyer and the seller can pocket the premium.
Also read: Introduction to Candlesticks – Single Candlestick Patterns
Theta of an Option
Theta is an important factor in deciding option pricing. They uses time as an ingredient in deciding the premium for a particular strike price. Time decay eats into the option Premium as it nears expiry. Theta is the time decay factor i.e., the rate at which option premium loses value with the passage of time as we near expiry. If we could recall, Premium is simply the summation of Time Premium and Intrinsic value.
Premium = Time premium + Intrinsic value.
Say, The Nifty spot is trading at 9450 and the strike taken into consideration is 9500 CE (call option). So the option is currently out of Money. There are 15 days to expiry and the premium charged for this option is 110. Now, the Intrinsic Value (IV) of this option = 9450-9500 = -50 = 0 (Since IV cannot be negative)
Now, Premium = Time value + IV
=> 110 = Time value + 0, hence the time value for this Out of Money option is 110 i.e., the buyer is willing to pay a premium for an Out of Money option. So, the analogy “TIME IS MONEY” holds true in case of options pricing.
Let’s take another example:
Say, Time to expiry = 15 days, Spot price of share of XYZ company = Rs. 95, Strike price = 100 CE, Premium = 5.5
Now, if the spot price of XYZ = 96.5, time to expiry = 7 days, then for the same strike the Premium reduces to 3
Again if the share price increases to 98.5, for same strike price and with just 2 days to expiry, the premium reduces to 1.75
Therefore, from the above example it is clear that even though the spot price is moving towards the strike price, the premium is reduced as the time remaining to make a substantial move above strike price is reduced. The option has less chances of expiring In the Money. The Greek Theta is a friend to Option writers. It is advisable for option writers to write/sell the option at the starting of contract as they will be able rise the premium erosion with passage of time.
So from the above example, it is clear that the value of Premium is Depreciating with the passage of time.
Vega of an Option
Vega as a Greek is sensitive to the current volatility. It is one of the most important factors in determining the option pricing. Volatility is simple terms is the rate of change. Vega simply signifies the change in the value of an option for 1% change in the price of underlying asset. Higher the volatility of underlying asset, the more expensive it is to buy the option and vice versa for lower volatility.
Say the spot price of XYZ Company is Rs. 250 on 5th May and the 270 call option is trading at a premium of 8.
Let’s assume that the Vega of the option is 0.15. And the volatility of the XYZ Company is 20%.
If the volatility increases from 20 % to 21%, then the price of the option will be 8+0.15 = 8.15
And similarly, if the volatility goes down to 18%, then the price of the option will drop to 8 – 2(0.15) = 7.7
If options is a team, then it has various players are Option Greeks like Delta, Gamma, Theta, Vega, volatility, etc. Each and every Greek has its own pivotal role in finding the exact pricing of the option. They play a pivotal role in deciding the Moneyness of the option.
A simple and clear understanding of all the Greeks goes a long way in deciding the right strike price and right option strategy. Risk Management both for option writers can be handled with a better understanding of the Greeks. Option buyers should ideally avoid trading Out of Money options and Option sellers should ideally write/sell Out of Money Options.
Most Important questions to ask before purchasing a stock: Picking a winning stock that can give consistent returns for many years requires a lot of analysis and research. However, you can simplify the research process if you have an investment checklist.
Having a reliable checklist for picking stocks can reduce the chances of missing an important detail that you should have studied before investing in the stock. As Charlie Munger, Vice-Chairman of Berkshire Hathaway has famously quoted:
“No wise pilot, no matter how great his talent and experience, fails to use a checklist.” — Charlie Munger
In this post, we are going to discuss ten key questions to ask before purchasing a stock by every stock investor. Let’s get started.
Quick Note: Although there are hundreds of points to check while picking a stock to invest, however, most of them can be categorized among the ten questions listed below. Anyways, by no means, I claim that this is the best checklist for picking stocks. My suggestion would be to study the investment checklist given below, improvise and make your own list of questions. Further, for simplicity, I’ve not included financial ratios.
10 Questions to ask before purchasing a stock.
Here are the ten key questions that every investor should ask before investing in a stock.
Table of Contents
1. What does the company do?
What are the products/services that the company offers? Do you understand the company’s business model? How does the company actually make money? What are the top/best-selling products of the company?
2. Who runs the company?
Who are the promoters/owners of the company? It the company a family-owned or professionally managed one? Who is managing the company? What are the credentials/background of CEO, MD, Board of directors and the management team? What is the shareholding pattern of the company?
3. Is the company profitable?
How much profits did the company generated in the last few years? How are the company’s gross, operating and net profit and what is the profit margin at each level? Is the profit of the company growing over time or stagnant/declining?
4. Does the company have a sustainable competitive advantage?
Does the company have a moat like intangible assets, customer switching cost, network effect, cost advantages or any other sustainable competitive advantage that can keep the competitors away from eating their profits?
5. How was the past performance of the company?
How is the company’s financials in the past few years? What’s the trend in the company’s income statement and cash flow statement? How are the sales, EBITDA, Cash from operating activities, free cash flow and other financial metrics over the past few years?
6. How strong is the company’s balance sheet?
Are the assets of the company growing over time? How much is the liability of the company? Is the company’s shareholder equity increasing? How much cash does the company have on the asset side? How much is the company’s Intangible assets, Inventories, Receivables, Payables and more? Does the company invest in its Research & Development, especially in a few sectors like Technology, Pharmaceutical, etc?
7. Was the management involved in past fraud or scams?
Was the company’s promoters or management involved in any past scam? Does the company has any history of cheating the shareholders or any past penalty by SEBI?
8. Who are the key competitors?
Who are the direct and indirect competitors of the company? What is the market share of the company vs the competitors in the industry? What this company is doing differently compared to its competitors? Are there any global competitors or the possibility of global leaders entering the same market anytime soon?
9. How much debt the company has?
How much short-term and long-term debt the company has? Does the company generate enough profits or Free cash flow to cover the debt in the upcoming years? Have the promoters pledged any of their shares?
10. How is the stock valued?
What is the true intrinsic value of the company? Is the company currently over-valued, under-valued or decently valued? Is the company relatively undervalued compared to the competitors and industry? What is the calculated intrinsic value by different valuation method? How much is the margin of safety? Will you be overpaying if you buy the stock right now?
Although getting a recommendation or investing where friend/colleague suggested may land you into a few profitable deals. But if you want to make consistent returns from the market (and not just being lucky), you need to build your own trustable investing strategy.
It’s true that picking a winning stock required a tremendous amount of research. However, having an investment checklist of questions to ask before investing in stock significantly reduce the chances of investing in fundamentally weak stocks. Moreover, you can easily eliminate over 90% of the companies that don’t meet your checklist.
I hope the questions discussed in this post is helpful to you. If I missed any additional important to ask before purchasing stock in this investment checklist, feel free to mention below in the comment box.
Facebook- Jio Deal: The fourth of May bought us news different from those caused by the grim pandemic. In one of the first virtual deals, Mukesh Ambani and Mark Zuckerberg took to their Social Media to announce the agreement. According to the deal, Facebook would invest $5.7 billion in exchange for a 9.9% stake of Jio. This deal would be the largest investment for a minority stake by a tech company in India.
Soon after the deal was announced words bordering data privacy concerns and national security were thrown around. Today we go through what the characteristics of the deal are and its impact on the Indian markets.
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How big are these numbers?
Facebook investing 5.7 billion (Rs.43574 crore) for 9.9% would mean that they have valued Jio as a $57 billion company. If we take a look at FDI Equity inflow from 2019, the US totaled at only $2.7 billion. Facebook has been sitting on a huge cash pile of $52 billion and the investment hardly covers 11% of its reserves.
If we change perspective, Reliance Industries has invested 1.8 lakh crore into Jio. This would peg 10% at 18000 crores. Although Jio has been a force to reckon with, remapping the telecom industry. Questions do arise over what the additional amount means? and what Facebook saw in Jio considering it valuable to invest in?
Industries likely to face immediate impact
Facebook has struggled with its plans to turn Whatsapp into a payment app offering similar services like Paytm. Jio, on the other hand, is facing challenges entering the online consumer segment. This deal with the right exchange of data could help each with their respective goals.
Facebook-owned Whatsapp is being planned to be updated as an ordering and payment app. Facebook would also be able to use Jio’s reach to local Kiranas to promote the model. This would enable us to order products from local stores through WhatsApp and also make payments through it.
Although Jio is valued mainly as a telecom service provider, just by going through the immediate plans the effects of this deal will span across 3 Industries. The telecom, online retail, and online payments industry.
— Online Retail Industry
Of the Rs.43574 crores, 15000 crores will remain with Jio. This will be invested in its online grocery store, Jio Mart. Data collected by WhatsApp would enable Jio Mart to understand the demographics better for operations. This, however, would be a cause for concern to existing heavyweights like Amazon and Flipkart.
Online Grocery Shopping has been one of the few sectors in India that have gained demand during the pandemic. Before the outbreak, only 1% of the 80,000 crores grocery market in India was represented online. After the lockdown was imposed the online grocery shopping represents 50% of the grocery demand in the country.
— Online payments industry
Whatsapp entering the online payment service would pose a serious challenge to existing players. The need for additional apps would be challenged when a single app would allow you to text, order, and pay. Whatsapp already running deep through Indian veins, at times even being upgraded as the prime source of news would only be upgraded to the status of a super app if its goals are realized.
With companies struggling with liquidity during the pandemic, a better time would not come for Jio to receive investment. The 5G debate is soon to be settled. The government would waste no time for spectrum sales to raise the revenue it is in desperate need of. The spectrum sale is aimed at 50,000 crores. This would make Jio the front runner. Closely followed by airtel looking for investments and Vodaphone-Idea as the smallest player trying to weather the tough times.
Facebook- Jio Deal: What’s in it for Facebook?
Although there has been no clear indication over the aims of the two companies. Facebook in recent times has faced stiff competition from Apps from China like WeChat and TikTok. Due to China being a market closed to foreign investments, the world views India as the next close contender. The coming together of the two giants will have more than what meets the eye.
1. Data – The New Money
To understand the role data plays we would first have to understand Facebook better. Have you ever searched for fashionable cloth wear that you always wanted? All this only to find yourself followed by advertisements related to the product on social media? Or perhaps an advert caught your eye and you decided to know more by clicking on it.
Did you spend the following week being bombarded by advertisements for similar products? Have these come to be by chance or does the universe really want to see you in a suede jacket to align with its plans for you along with the stars? Unfortunately not!
— The Facebook Business Model
Facebook earned a revenue of $70.7 billion in 2018. This amount seems too huge for a social media platform that offers its services for free. However, social media has been only a front for the data mogul.
The very business model of Facebook lies in gathering information from its users and sharing it with advertising companies or other MNCs. The data-based on user preferences is shared with advertisement companies that are willing to pay for it. The user is then made the recommendation accordingly. Last year alone Facebook made 84$ per user in the North American region.
Unfortunately, it can also be said that the very business model by Facebook hurls away client privacy and data protection. The media giant has already been involved in public spats with the Indian government. This was over the Indian government’s data privacy concerns. It led the government to pressurize Facebook to localize Indian data storage.
The deal has already raised these privacy concerns as Jio has over 388 million clients. Jio, however, may view this as an advantage. This is because India has been Whatsapps biggest client. Whatsapp has 400 million users in India alone ( larger than Jio’s customer base). The exchange of data between the two may provide them with the opportunity to understand the preferences and needs better. There still may exist a quid pro quo as Facebook would benefit from Jio’s deep reach in the Indian markets.
— The disruption caused by Jio to Global Data plans
Data is primarily the reason why companies like Google offer free Wifi in railway stations. Facebook too had plans under the name Express Wifi. Here solar-powered drones would provide free internet beamed through the air. These models were quashed after the entry of Jio entered the market in 2016. Jio’s free internet made innovative investments from global giants a waste.
The Indian market is said to double its smartphone users to 859 million by 2022. If Facebook is even to gain 100 million clients, it would result in additional revenue every year. These numbers put Facebook’s data and investment in Jio in the right perspective.
Most of Facebook’s plans have been always roughed up by the Indian Laws. Even its Free Basics program aimed at providing affordable internet service to less developed countries was banned in India. TRAI rolled out the judgment as it was said to infringe on the principles of net neutrality.
Jio’s lobbying ability would be just as important to Facebook as Jio’s market penetration. Whatsapps online payment service is also still under review from the government. If Whatsapp plans to successfully roll out the payment service app, it’s deal with Jio will play an important role. Reliance Jio has already proved time and again its lobbying prowess in Delhi. Otherwise, how would the PM be used in a private company’s advertisements. And the companies still be get away with a hefty fine of Rs.500?
3. A platform for other products
Investing in Jio could also see an opportunity for similar products existing in both companies. They span from retail and gaming to education.
Facebook also has plans to launch its own digital currency again in 2020. This makes India a market to be explored as the Supreme Court verdict in March legalized Cryptocurrency. This, however, will be under scrutiny from the RBI. This is due to the concerns over the effects it may have on the Rupee.
Facebook- Jio Deal: What’s in it for Jio?
Jio has proven its ability to compete across sectors. A deal of this magnitude will extend Jio’s reach and further enhance its ability to compete. We have already discussed how Facebook will be benefitted from Jio’s market base. Jio in exchange will be provided with the opportunity to further expand. This is because the number of users with WhatsApp still exceeds Jio’s customer base.
Mukesh Ambani in his 2019 Annual General Meeting of Reliance Industries announced that Reliance would be debt-free by 2021. This seemed like a longshot as the outstanding debt as of September 2019 stood at 2.92 lakh crore. Instead of an IPO, Jio has decided to sell off ownership and enter into a strategic partnership with investors.
This would not only reduce debt but also provide invested partners with benefits in exchange. The first attempt at this stood with the $15 billion deal with Saudi Aramco. Unfortunately due to the Crude oil crisis, the deal fell apart. Apart from the 15000 crores aimed at Jio Mart, the remaining amount would be utilized for debt reduction. Reliance has also signed an agreement of 7000 crores with British Petroleum for 49% share in its fuel retail. Forming clever alliances would ensure Jio’s survival in the long term.
Mukesh Ambani has made it clear to not trod the same road his brother did. Too much debt was a major factor that eventually led to RCom filing for bankruptcy in 2019. The Facebook deal would result in Jio having a better Balance Sheet.
— With regards to the Investment deal
According to former Airtel CEO Sanjay Kumar, the deal between Jio and Facebook can only be seen positively as it comes in a time where companies are cash strapped. Any Foreign investment in this period can only be seen in a positive light.
It has to be noted how Facebook has cleverly avoided being prey to oil price impact. They did this by directly investing in Jio instead of Reliance Industries, Jio’s parent company.
The deal, however, leaves a number of players affected in different industries. They will have to draw up new roadmaps. As now they will battle the pandemic and at the same time deal with the added competitive prowess of Jio. It would be unfair for Jio to be criticized on the ground of it being bought by a US MNC. Companies like Flipkart and Paytm are currently just tools for Walmart and Alibaba to be used in the Indian markets. The other companies in the telecom industry too have been financed from foreign investment.
— With regards to Data
When it comes to data privacy Mukesh Ambani’s stand provides some assurance. He has stated that data is a national resource. The value created by data generated should and be deployed by Indians. He also added that data generated in India shall remain localized within India’s geographical boundaries.
— With regards to the Future
India should take note of the Jio deal and encourage other industries to do so too. This is because global industrialists and investors will be looking for new markets to invest in. This can be expected as they would preferably avoid China due to the uncertainty in the future. Attracting investments would create jobs that were lost due to the pandemic. They would also provide the necessary boost required by the economy.
India must ensure that they are ready to contend for investments once the lockdowns are lifted. This would definitely save the plummeting economy.
Barriers to Entry Definition, Types & More: Any entrepreneur or company that ventures out into a business faces challenges. The external challenges that have a considerable economic impact to stop new entrants are termed as Barriers to Entry. Generally speaking, there have been many definitions of barriers to entry. Franklin Fisher defined it as “Anything that prevents entry when the entry is socially beneficial”. The vagueness of many such definitions has led to them being disregarded. If considered then even psychological barriers to becoming an entrepreneur would be included.
As per Investopedia, Barrier to Entry is the economic term describing obstacles from easily entering an industry or area of business. It goes without saying that these barriers are beneficial to existing players. This is because they result in increased profit from the market due to the reduced competition, thanks to the barriers. Today, we take a look at what exactly are Barriers to Entry.
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Types of Barriers
The barriers to entry may involve innocent or deliberate factors. Innocent factors are those that may have come into existence without much direct influence from any of the stakeholders. Deliberate factors are those that have come into existence due to the actions of the stakeholders. The barriers are generally outlined under the following:
– Legal Barriers
Legal barriers are those that have been constructed by government or regulatory bodies. These may include licenses or permits required to conduct business, the red tape system or other standards and regulations to safeguard consumers. The legal factors vary from country to country further depending on the industry. According to the ease of doing business Index, India currently ranks 63rd.
Although it may seem that the legal factors may be independent of influence from existing players, this is not the case. Lobbying plays an important role too. Lobbying is the practice where an organization may undertake campaigns to pressure governments into specific public policy actions. In the US it is completely legal and protected by the law.
In India however, the legal status of lobbying is not clear. It is at times is mistaken for bribery. Bribery provides scope for favoritism but lobbying does not specifically ask for special treatment. Yet it is a means to influence legislative action. Lobbying by existing companies may result in barriers being put up by the government towards new entrants.
– Technical Barriers
The technical factors are industry-specific. They may pose themselves as barriers due to startup costs, patents, monopolies, etc. Patents are exclusive rights given to individuals or organizations for inventions in products or processes that are innovated and premiered in an industry. When the new entrants are not allowed to replicate similar products or processes it leaves very little scope for entry.
Startup costs act as barriers in industries that require huge capital to be invested in the initial stages. Some startup costs may also be classified as sunk costs. These are non-recoverable once invested eg. advertisement. The airline industry and petrochemical industry can be said to have a huge start-up cost barrier.
– Strategic Barrier
Strategic barriers are caused by existing players. One of the strategies is Predatory pricing. This may be done by pricing lower on purpose. This will make it difficult for new entrants to survive as it removes all possibility for them to break even. The cash-rich existing players may then look at the possibility of acquiring these new entrants.
Monopolies or Oligopolies may also use aggressive marketing to drive out new entrants. Zomato has continuously used competitive pricing to its advantage. Also, they then acquire new entrants(Ubereats) unable to survive.
Brand loyalty from consumers is another barrier in itself. In some industries, existing players have had such a stronghold for a period of time. This has resulted in the product name itself being replaced by the brand name. Eg. Colgate. The cost to new entrants to acquire and keep new consumers is too high.
Markets generally with high entry barriers have few players and thus high-profit margins. Markets with low entry barriers, on the other hand, will have lots of players resulting in lower profit margins.
Advantages of Barriers to Entry
– Ease of regulation
Sensitive industries will involve the government premeditatedly imposing restrictions. This is generally seen in industries that involve natural resources or pharmaceuticals. Industries based in natural gas will face this as the economy is affected gravely by their prices.
The pharmaceutical industry too due to its sensitivity cordoned off most of the probable players. In the US due to the FDA regulations, 93% of the applications are not approved in the first cycle. As per Forbes it may cost between $1.3billion to $12billion and may take up to 10 years before it is approved for a prescription.
– Benefits to Consumers
The greater the barriers the more benefit the consumer gets as only the best and standard products would reach the consumers. These barriers also protect the industry from subpar products.
Although barriers may seem impossible to pass and then also compete with, however, most successful companies exist today because they were able to. Innovation in these aspects has the strongest ability to clear barriers. A disruptive pricing model too has been known to be effective. In the case of the telecom sector, the entry of Jio providing not reduced prices but free services revolutionized the sector.
However, a pricing strategy can be pursued only by cash-rich startups. It is also necessary for new entrants to clear barriers. Doing this will ensure that they are taken seriously. This seriousness will be reflected in the investor community with a more positive response towards the new entrants.
A complete Zerodha Review 2020– Brokerage, Trading Platform & More: Zerodha is the biggest discount broker in India and perfect for traders & investors looking for low brokerage, easy interface, and reliable trading platform. It offers a zero brokerage for delivery equity & direct mutual fund investments.
For all intraday, Futures & Options, currency, and commodity trades across NSE, BSE, MCX, it offers a brokerage of Flat ₹20 irrespective of the trading volume. It doesn’t matter whether you trade for Rs 1 lakh or 1 crore, you have to pay a flat low brokerage of Rs 20 per trade. Therefore, you can save a lot of brokerage charges on your trades using Zerodha as your broker.
In this Zerodha review, we will discuss the brokerage charges, account opening charges, maintenance charges, trading platforms, products, my personal experience of using Zerodha & more. By the end of this post, you’ll have a complete understanding of Zerodha trading services and whether this broker is right for you or not. Let’s get started.
Zerodha Review –Brokerage, Charges, Trading Platforms & More
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There are two types of stockbrokers in India. Full-Service brokers and Discount brokers. The full-service brokers offer a trading platform along with advisory. However, their brokerage charges are high. A few major full-service brokers in India are HDFC Securities, ICICI Direct, Motilal Oswal, etc.
On the other hand, discount brokers offer trading platforms with minimum brokerage charges. Nonetheless, they do not provide advisory services. The biggest advantage of a discount broker is that it saves a lot of brokerages for the traders/investors. On all other prospects, like performance, computerized trading systems etc- both offer similar facilities.
An important point to know here is that all the brokers- Full service or discount brokers are licensed and regulated in India by regulating bodies like SEBI.
Zerodha is a leading discount broker in India in terms of daily trading volume, growth and customer base. It is one of the most technologically advanced and cheap stockbrokers. Zerodha has over +1 million clients and contributes to over 10% of daily retail trading volumes across NSE, BSE, MCX.
Ironically, the term ‘Zerodha’ is derived from the fusion of an English and Sanskrit word. ‘Zero’+’Rodha’ where ‘Rodha’ means barrier. Overall, Zerodha means ‘Zero Barrier’.
It was started by Nitin Kamath, an Engineer by qualification, in 2010. Nithin bootstrapped and founded Zerodha in 2010 to overcome the hurdles he faced during his decade long stint as a trader. He was named one of the “Top 10 Businessmen to Watch Out for in 2016 in India” by The Economic Times for pioneering and scaling discount broking in India. Here are a few of the famous awards won by Zerodha recently:
— National Stock Exchange (NSE) “Retail brokerage of the year 2019” (& 2018)
— Outlook Money “Retail broker of the year 2017”
— Ernst & Young “Entrepreneur of the year (Startup) 2017”
2. Zerodha Brokerage Charges
Zerodha offers trading services to buy and sell stocks, futures & options in equities, commodities, and currency segment. Here are the Zerodha brokerage charges:
– Free equity delivery
All your equity delivery investments (NSE, BSE), absolutely free — ₹0 brokerage.
– ₹20 intraday equity and F&O trades
₹20 or 0.03% (whichever is lower) per executed order on intraday trades across equity, currency, and commodity trades across NSE, BSE, and MCX.
Rs. 0 (FREE)
Lower of Rs. 20 per executed order or 0.03%
Lower of Rs. 20 per executed order or 0.03%
Flat Rs. 20 per executed order
Lower of Rs. 20 per executed order or 0.03%
Lower of Rs. 20 per executed order or 0.03%
1. You can use this Zerodha Brokerage Calculator to get more ideas.
2. Apart from brokerages, there are also a few other charges that you have to mandatorily pay on your transactions like Exchange transaction charge, STT, SEBI turnover charges, GST, etc.
You have to pay these charges no matter which stockbroker you prefer to trade in stocks and that too on both sides of transactions i.e. while buying and selling. However, the brokerage cost can be controlled by choosing a discount broker. For example, in the case of Zerodha, you can notice the total brokerage of Rs 40 for both sides of Intraday equity trading, even though the total turnover is Rs 8.4 Lakhs.
If you want to trade in both equity and commodity, then you need to pay an account opening charge of Rs 200+Rs 100 = Rs 300. Anyways, if you are just interested in trading in stocks i.e. equities, you can open demat and trading for equity account at Rs 200. The demat account annual maintenance (AMC) charge is Rs 300 per year.
4. Zerodha Products & Features
Zerodha has built its own trading applications for the customers. It offers different trading terminals, websites, and mobile apps (Android/iOS) which are free for the customers.
— Kite 3.0
Kite 3.0 is a modern technology-based trading platform with streaming market data, advanced charts, an elegant UI, and more. It is a minimalistic, intuitive, responsive, light, yet powerful web and mobile trading application offered by Zerodha. Kite provides Bandwidth consumption of fewer than 0.5 Kbps for a full market watch, extensive charting with over 100 indicators and 6 chart types, advanced order types like Brackets and cover, millisecond order placements, and more.
Overall, Kite provides an excellent experience to the users through its groundbreaking innovations presented with hassle-free usability.
— Kite mobile
This is a mobile version of KITE for a seamless experience for mobile-users and available in both Android and iOS devices.
Zerodha Coin is a platform that lets you buy mutual funds online directly from asset management companies. This platform is absolutely free since August 24, 2018. Here, you can make your investments without any commissions.
With the help of Zerodha Coin, you can have Direct mutual funds in DEMAT form, with the convenience of one portfolio across equity, MF, currency, etc. Moreover, it also provides a Single capital gain statement, P&L visualizations, and more. This Coin by Zerodha has made investments through SIPs really simple and flexible.
Other Partner Products
Apart from the above products, Zerodha also offers a few other partner programs:
Smallcase: This thematic investment platform is powered by Kite Connect APIs. Smallcase helps users to invest in different themes by intelligently providing weighted baskets of stocks in each theme.
Sensibull: This is an options trading platform which offers simplified options trading for new investors by providing powerful trading tools. Sensibull aims to make options trading safe, accessible, and most importantly, profitable for all.
Besides, Zerodha has also started a few educational initiatives to improve financial literacy and increase the participation of the common people in the financial world. Here are a few other products offered by Zerodha
Zerodha Varsity: An educational platform to educate people about investing and trading. Zerodha Varsity offers free modules on Technical analysis, fundamental analysis, futures, options, risk management, trading psychology & more. Recently, Zerodha Varsity also launched its Varsity mobile app.
Trading Q&A: An online forum powered by Zerodha to answer people’s most troublesome investing and trading questions.
5. Pros and cons of Zerodha Discount broker
Here are a few advantages and disadvantages of using Zerodha trading platforms:
Pros of Opening Account with Zerodha
Zero Brokerage Charges for Delivery
Flat Charge for Intraday (Rs 20 or 0.03% whichever is lower per executed order for everything else)
Same pricing for across all exchanges
No upfront fee or turnover commitment
Z-Connect, interactive blog, and portal for all your queries
Trading, charting, and analysis, all rolled into one next-generation desktop platform Pi.
Note: Zerodha has recently started offering Zerodha IDFC FIRST Bank 3-in-1 account. However, to open a 3in1 account at Zerodha, you need to have an existing account with IDFC FIRST Bank. Accounts can only be opened online. Read more here.
6. Is Zerodha a Reliable Stockbroker? And is Free investing legit?
Is Zerodha safe for long-term investments? This is one of the biggest questions that come in the mind of first-time investors. Obviously, HDFC Securities, ICICI Direct, SBI cap, Kotak securities, etc are big brands in the name of the broking industry and been in the market for decades. Hence, they have built greater trust compared to Zerodha, especially for the ones who have never heard its name before.
Anyways, Zerodha, the discount broker, originated only in 2010. Therefore, if you’re not involved in the share market investments/tradings in the last decade, it’s no surprise to say that you might have not known this broker. However, in the short span of around 10 years, this broker has been able to beat all the big traditional brokers. Currently, Zerodha is the biggest stockbroker in India, based on the number of clients (over 15 lakh users), followed by ICICI Direct and HDFC securities ranking second and third.
Now, answering your question, Yes, Zerodha is safe and reliable. In fact, since origin, Zerodha has never faced any case of major violations from SEBI or any of the other exchanges. It is a profitable private company with no debts or liabilities. Here are a few points why Zerodha is safe and reliable for investors and traders.
Zerodha is a zero-debt financial services company. There is no borrowing of any kind.
There is no credit risk, less than 5% of Zerodha’s own capital is lent to customers in any form.
Zerodha own funds in the business are greater than 25% of all client funds put together.
Their ratio of ‘complaints to active clients’ is among the least on the exchange.
Zerodha is profitable as a business and has enough reserves to sustain, even if there was an extended downturn in the economy.
Moreover, Zerodha is partnered with Central Depository Services Limited. CDSL’s main function is the holding securities either in certificated or uncertificated form, to enable the book-entry transfer of securities. Therefore, when it comes to the security of the shares in your demat account with Zerodha, you do not need to worry at all. The stockbrokers are just the agents of depositories.
Your stocks are actually held by central depositories and not by the depository participants (brokers). Therefore, even if something didn’t work out well with Zerodha, your stocks in the demat account are safely intact with CDSL. In short, Zerodha is completely legit and reliable for your trading or long-term investments in the Share market.
7. My experience of using Zerodha
It’s been over three years since I’m using Zerodha and I’m satisfied with the trading services provided by Zerodha.
Initially, I started with ICICI direct as my broker, but later I switched to Zerodha when I realized that I was paying way too much brokerages for my trading transactions.
Most beginners do not consider the brokerage charges while calculating the profits. I use to make the same mistake. And that’s why many times the final profits in my bank account (after deducting the brokerage and other charges) disappointed me as it was considerably lower than what I calculated in my head. I wish I had switched to a discount broker earlier as it could have saved me a lot of ‘unnecessary’ brokerages and moreover trading experience is even better on Zerodah. Nonetheless, I use Zerodha for making all my stock investments now.
Besides, there was one ‘cons’ of using Zerodha as a broker which bugged me in the past. And it was not having the facility for the customers to directly invest in Initial public offerings (IPOs) through the Zerodha dashboard. But this issue is also solved by Zerodha. Investors can now apply for IPOs directly within the Zerodha console. And the best part is that the process is really simple.
Finally, a lot of people complain that Zerodha doesn’t provide advisory services or buy/sell calls. I believe that one should never invest or trade based on the broker’s recommendation. There’s a conflict of interest here as the brokers will always make money when you trade and doesn’t matter whether you win or lose. Therefore, they might always motivate investors to trade frequently. Overall, Zerodha not giving advisory services doesn’t bother me. Moreover, they make us for these cons by providing educational initiates like Varsity.
8. How to open your trading & demat account with Zerodha?
Opening a demat and trading account with Zerodha is really fast and hassle-free. In fact, if you’ve all the documents, you can open your account and start trading within an hour.
Here are the documents required to open a demat and trading account at Zerodha: PAN CARD, Aadhar Card, 2 Passport size photos, Canceled cheque/ Saving bank account passbook. I will recommend keeping photocopies of all these documents ready before you apply for opening the accounts.
To open your trading & demat account at Zerodha, go to Zerodha website and click on ‘OPEN AN ACCOUNT’. Here is the direct link.
In the last decade, Zerodha has earned trust and respect among the trading population by providing reliable and technologically advanced trading services. It is definitely the largest discount broker in India. If you are looking to open your brokerage account with a reputable brand that offers low brokerages, and have a fast trading platform, Zerodha is definitely one of the best options.
That’s all for this post. I hope this Zerodha review is useful to you. If you have any additional queries regarding Zerodha or if you want to share your review of Zerodha, you can post it in our forum. I’ll be happy to answer your questions. Have a great day!
“Imagine, always wanting to own something but not being able to, because that something was too expensive, maybe not worth the price tag or maybe it was the right price but your pockets were not deep enough to buy it”
The above thoughts must be crossing every investor’s or trader’s mind right now. The stocks which were expensive in January 2020 are right now available at a discount rate of 30%-50% in May 2020. So what led to this sudden decline in prices or undervaluation or availability at a sale? Is it just an impact of Global pandemic (COVID-19), or Is it the global uncertainties. Are we heading towards a bigger recession? Or Were these share prices simply too overvalued and had just the right trigger to correct them, which in this case was COVID- 19.
To get a little deeper into the discussion, let’s take an example of a few sectors. The auto sector, the health of which usually defines the ‘luxury health’ of a nation. But over some time we have seen a continuous decline in the Nifty Auto Index, which tells us a lot about the depleting health of the sector.
The Auto index which was trading near all-time highs of 11900 in January 2018 is right now trading near lows of 5000. As we can see that this decline in the sector started long before COVID-19 was born. This also tells us a lot about the consumer’s reluctance to spend less on luxury items and save more for future uncertainties. In the current scenario, most of the Auto sectors company shares are trading at almost half the price compared to early 2019 levels. The image below is the Auto Index for the last three years.
So, it is still the right time to buy or are these companies still overvalued, especially knowing that consumer demand for luxury goods will still take quite some time to bounce back.
Similarly, if we were to take the example of the Nifty Pharma index, this index was at peak during March 2015 (13,300 levels) and at its low during March 2020 (6700 levels). The figure below shows the Nifty Pharma Index Now, in this case, one can say that this might be the right time to start investing in this sector as the pharma products will have higher demand during this global pandemic and we can already start seeing pharma companies doing well over last two months.
The index has almost recovered to 9000 levels. So one can start building their portfolio have some portion dedicated to the pharma sector. Again SIP is the best strategy.
From the above discussion it very difficult to say that the recovery mode for the market has started or we have seen the bottom. One can never be sure. But one thing is for sure, that the market will recover sooner rather than later. One has to be very prudent and use his/her bias-free judgment to pick his or her investment strategy and timing.
One best way to do it by having a systematic Investment plan (SIP) and diversify his/her risk across sectors. This way the investor will be able to average his price and a major movement in one sector or indices would not dent his portfolio significantly.
A case study on Mukesh Ambani vs Anil Ambani: Ever since the Cain and Abel fallout at the beginning of time, sibling rivalries haven’t been uncommon. Cleopatra securing the throne by killing her siblings, Adolf and Rudolf Dassler’s tussle which led to the formation of Adidas and Puma.
Similarly, the unfortunate split of Liam and Noel Gallagher eventually led to the breaking up of the Oasis band. And also the recently famed but unworthy (probably staged) Rob and Kim Kardashian squabble. Today we take a look at the most famous sibling feud in the Indian Subcontinent. The Mukesh vs Anil Ambani row. Here, we’ll discuss what went right or wrong in the case of the brothers.
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Mukesh Ambani vs Anil Ambani: The BAD
Indian business tycoon Dhirubhai Ambani bought into existence the Reliance organization. At the time of his death in 2002, he had founded Reliance Capital, Reliance Infrastructure, Reliance Power, and Reliance Industries. But the lack of a will led to a scrimmage for assets between his two sons, Mukesh and Anil Ambani.
Until 2002, Anil was the face of the company attracting foreign investment. Mukesh after dropping out of Stanford worked behind the scenes. He focussed on running the organization and also building Reliance Communications (RCom).
(Right to Left: Mukesh Ambani with Mother Kokilaben Ambani and Brother Anil Ambani)
Tensions began when Anil demanded RCom to even out the assets. Eventually, their mother had to step in to resolve the feud that had now spilled into the public eye. The assets were finally split, with Mukesh getting Oil and Gas, Refining, and petrochemical companies. Anil got what was called the rising sun companies- Electricity, Telecom, and Financial services segment.
The companies under Mukesh were known as Reliance Industries. The companies under Anil were known as Reliance Anil Dhirubhai Ambani Group or Popularly the Reliance Group. The split of assets also came with a non-competition clause. According to this, the brothers were not allowed to venture into each other’s businesses for a decade.
The Reliance Industries Journey with Mukesh at its Helm
Under the leadership of Mukesh Ambani, Reliance Industry slowly but steadily scaled new heights. By 2007, it was the first Indian company to exceed $100 billion in market capitalization. Although luck also played a role as Mukesh has been handed the petrochemical segment. The segment was based in the Krishna Godavari Basin. The basin has an excess of 1.2 billion barrels of crude oil. As time went by Reliance Industries ventured out into other segments that included the retail business, logistics, solar energy, entertainment (Reliance Eros), cloth, and SEZ development.
The most notable industry entered would be when Mukesh Ambani led Reliance Industries ventured back into the telecom industry. It used its earlier acquisition of a telecom company called Infotel and came out with Jio Infotel popularly known as Jio. His new venture, Jio, caused severe disruption in the Industry. Its entry led existing players in losses, merging with one another to weather the storm. Its entry also meant the end of the road for his brother’s Rcom.
— Where has Mukesh Ambani reached
It can be said that Mukesh Ambani has had a lot of Sunshine. Reliance Industries was ranked 106th on the Fortune Global 500 list of biggest corporations as of 2019. The company has been responsible for almost 5% of the revenue the government of India earns from Customs and Excise duty. Mukesh Ambani is said to have a net worth of $53 billion as of 2020.
According to Bloomberg, his wealth could help the Federal government for 20 days in 2018. This makes him Asia’s richest, a billion short of getting his entry into the top 10 richest list. He currently resides in Antilla which is claimed to be the world’s most expensive home at $1 billion. So much for a student at Stanford who wanted to work at World Bank or become a professor!
The Reliance Groups’ journey with Anil at its Helm
Anil Ambani also saw immense growth in wealth in the initial stages. Anil Ambani began his solo ride by investing in industries that provided quick returns. It goes without saying that the risk was high too. In 2005, he bought Adlabs which got him into the entertainment business. A few years later in 2008, he signed a deal with Steven Spielberg’s DreamWorks. The Film Lincoln produced by DreamWorks also won an Oscar.
In 2008, Anil was the world’s 6th richest person with $42 billion in wealth. One of the most notable investments was the Mumbai Metro project.
2014, however, started brewing trouble for Anil Ambani as his companies had taken huge debts. This year his media venture with Adlabs also collapsed and he had to resort to selling the screens. He also began selling a stake in the remaining TV businesses to Zee Entertainment. Other bad decisions quickened his wealth loss. This included venturing into the defense segment in 2016 with Reliance Naval and Engineering.
By 2019 the valuation of the defense company fell 90%. 2016 was also the year in which Mukesh Ambani’s Jio entered the Telecomm industry. This catapulted RCom further into losses. By end of 2019, Rcom had lost 98% of its valuation. This hit Anil hard as he held 66% of its stake.
— Where has Anil Ambani Reached
As of March 2018, the Reliance group had a total debt of 1.7 lakh crore. This led to affected his wealth and also his Rs 13,500 crore investment in Nippon the financial segment. By 2019 things got so bad for Anil, that he was threatened with jail if he did not pay dues to Ericson.
Anil Ambani was also summoned by the UK court where he was directed to repay 100 million loans from Chinese banks. He claimed in courts that he would not be able to pay as his net worth was zero.
Mukesh Ambani vs Anil Ambani: The UGLY
— 2008 Anil’s Intelligence Agency
The court approved spit of assets in 2005 did not end the rivalry between the two brothers. In 2008, Anil filed a defamation case against Mukesh suing him Rs 10,000 crores. This was due to an interview given by Mukesh to the NYtimes. Mukesh claimed that the distinguishing factor of Reliance from its competitors was the intelligence agency run by his brother which included a network of lobbyists and spies. They had infiltrated New Delhi to find facts that may seem trivial and other vulnerabilities of the bureaucrats to gain greater control.
— 2009 Pricing feud
The 2005 split of assets also included an agreement where Mukesh Ambani’s Reliance Industries would supply his brother’s electricity generation segment fuel at $2.34 per million British thermal units. This was agreed for a period of 17 years.
However, Reliance Industries began setting a different price. They sold fuel to the Reliance group at $4.20 in 2009. The disagreement was dragged into the courts until the government intervened. The government allegedly did so as the government also has a share in the profits made by Mukesh. The cost of production to Reliance Industries was only 1$.
Anil took the spat into the front pages of the Times of India. Here Anil Ambani placed an advertisement accusing the Petroleum Ministry of favoring Reliance Industries. The Ad campaign further intensified the feud between the two brothers. In the end, the ruling was in favor of Mukesh.
— Outside Corporate
The competition between the two brothers was not limited to business. When Mukesh had bought a $52 million jet for his wife it was alleged that Anil bought his wife an $80 million yacht. The feud at this scale sounds bizarre as the brothers shared the same house till 2012. When Mukesh moved out to his $ 1 billion Antilla, Anil was building one for himself of the same value.
— Other controversies that involved the brothers
The Comptroller and Audit General of India alleged rigging in the auction mechanism for the 4G license. Infotel had acquired the license by bidding 5000 times its net worth. Infotel was then mysteriously sold to Reliance Industries.
Reliance vs. Kejriwal
Delhi CM Kejriwal in 2014 had filed an FIR alleging irregularities in the pricing of natural gases from Krishna Godavari Basin. He alleged that the gas was priced at 8$ even though it cost Reliance only 1$ in its production.
Proximity to politicians
Both the brothers have been accused of their proximity to politicians to gain an influential role. PM Modi’s close proximity with Anil Ambani also is alleged to have a role in the Rafale controversy which was later quashed by the courts.
Mukesh Ambani vs Anil Ambani: The GOOD
Even though the brothers have torn into each other in the last two decades, it is noteworthy that they also once ran Reliance together. It is also said that during the period they knew each other so well that they would finish each other’s sentences.
The biggest test of brotherhood in the Ambani family came when the younger was threatened to be jailed over non-payment of Rs 550 crore in dues. Mukesh swooped in for the rescue by clearing the dues on Anil’s behalf. Also, considering that Anil has no been convicted by the UK courts over a loan from Chinese banks, it looks like he received a lot more help.
A beginner’s guide on how to invest your first Rs 1,000 in Stock Market (Updated): Learning how to invest your first Rs 1,000 in the stock market is a significant step towards starting your financial journey and future investments. You might be surprised to know that even less than 2.5% population of India participates in the Indian stock market, even when the Indian economy is one of the fastest growing economies in the world. Nevertheless, investing your first Rs 1,000 will help you to get prepared for your journey ahead.
In this post, I’m going to tell you the simplest answer to how to invest your first Rs 1,000 in the stock market. It’s a no-brainer way. Further, for the method described here, you don’t need to be an expert or any help from the financial advisors to invest your first Rs 1,000 in the stock market.
Quick Note: Here, I’m not going to discuss how to open brokerage accounts. I’m assuming that you have already had set up your demat and trading accounts. If you haven’t, then read this post to learn where to open your demat and trading account.
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A little advice before we start
While interacting with my blog readers and subscribers who are new to the stock market, I learned that most of the first-time investors like to wait until they have amassed thousands of rupees to invest. However, that’s a mistake. You can start investing with as little amount as Rs 1,000. Further, you can increase the investment amount in the future when you have increased your savings. By following this strategy, you can utilize the time efficiently to learn the stock market so that you will be prepared when you invest a big amount in future.
Second, you do not need to be an expert to invest your first Rs 1,000 in the market. You can invest this money while you are learning or even if you started just a few weeks ago.
Third, the point here is to learn, not to earn. Rs 1,000 is not a very large money that will get you bankrupt if you lose this amount. However, Rs 1,000 is more than enough to make you enter the exciting world of stock market and enhance your financial knowledge.
In addition, do not worry about the technicalities like how to buy/sell using your trading account initially. Once you are ready to invest, you can learn all these within 15-20 minutes using different sources on the internet. These days, purchasing stock is even a lot easier compared to booking an online train ticket on IRCTC. All you need is a phone/laptop, internet connection, brokerage accounts, and some cash in your savings account.
Now that I’ve cleared the basics, let’s learn how to invest your first Rs 1,000 in the stock market. Further, please read this post till the end as there is a bonus in the last section of this article.
How to invest your first Rs 1,000 in the stock market?
1. Invest in Just One Stock
Rs 1,000 is not a big amount. If you are buying a stock worth Rs 300, then you will be able to buy just three units (quantity) of that stock. Moreover, those stocks which are trading at a market price above Rs 1,000 are already ruled out here. Therefore, if you are planning to invest your first Rs 1000 in the stock market, then you need to widen your selection criteria to the stock pricing between Rs 1 to Rs 1,000. Otherwise, you might have to reject many good stocks whose market price is high (Say 800-900), in case you are planning to purchase multiple stocks.
Further, for such an investment amount, you do not need to waste time diversifying your portfolio. Selecting multiple stocks takes time and it’s not worth the value.
The easiest approach of stock selection for the beginners is to invest in what you know. There are a number of companies that you might have heard from childhood and might already know a lot about it. For example- Maruti Suzuki, HDFC Bank, ITC, Yes Bank, HPCL, Bata, Coal India, Colgate India, Hindustan Unilever, etc.
There are tons of companies whose products/services you already have been using and might be more than happy with them. Find out those companies and investigate them. Visit the company website, check its portfolio (product/services), know who is the boss of the company, it’s future products/plans, etc.
You’ll be surprised to know how many common companies have given uncommon profits.
For example Eicher Motors- Royal Enfield bikes parent company (over 80 times returns in last 10 years), MRF Tyres (over 17 times return in last 10 years), Symphony- coolers (over 12 times return in last 5 Years), etc. The bottom line is to look around yourself and find some popular companies worth investing in.
Search for the companies that you already know that they are doing great (like expanding at a fast rate) for the last couple of years or provide excellent product/services or has an amazing business model (easy to scale).
If you are a working guy/girl, it will be quite easy for you to find such companies. Just look in your industry and find which one is leading. For example, if you are in the banking sector, you might already know which bank is expanding fast in urban and rural areas, opening new branches every week, and has low non-performing assets (NPA), etc.
If you are a doctor, you might already know a few good pharmaceutical companies which are producing the best medicines at a cheap price or are working on the medicines for a rare disease. Even if you are a housewife, you can find a number of good companies that manufacture day-to-day life products like soap, shampoo, towels, edible oils, etc.
In short, the idea here is to invest in what you already know rather than wasting too much time reading financial magazines to search for hidden companies.
3. Don’t spend weeks researching your first stock
Although I’m confident that you find a good company using step 2, however, if you are unable to find any company that you have good knowledge, then invest in blue-chipstocks.
Blue chips are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.
For example- HDFC bank (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company), etc. A few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India, etc. Here is the list of few top blue chips stocks in the Indian stock market:
The idea here is to ‘not’ waste too much time researching for stocks. This is your first investment and the investment amount is also small. It’s not worth your time spending weeks researching a stock just to invest Rs 1,000.
To be frank, do not make this investment a very big deal of your life. The investment amount is too small to hurt you financially. Even if you lose 50% of your investment amount, you won’t go broke. Don’t worry too much thinking about what if the stock price goes down. IT’S NOT A BIG DEAL!
Here your motive should be to learn, not to earn. If you are able to learn today, you can make tons of money in the future. However, if you want to ‘save’ Rs 1,000 today and are not willing to take any risk, you might save this 1,000 rupee, but miss opportunities to earn lakhs in the future. Stay calm and enjoy the ride.
Penny stocks are those stocks which trade at a very low market price (less than Rs 10) and have a very low market capitalization (typically under 100 crores) are called penny stocks in Indian stock market. These are the darlings of the new investors. The low market price of these stocks makes them quite attractive to the beginners.
However, these stocks are very risky. You might have never heard the names of most of these companies and very limited information about the company is available to the public. The stock prices of these companies are easy to manipulate. Overall, penny stocks are difficult to investigate for a newbie investor. My advice, stay away from penny stocks until you have got good knowledge and experience in the stock market.
This is my final advice. Do not expect high returns while investing your first Rs 1,000 in stocks. Stocks are not ‘lottery’ tickets. Even if you get a return of 100% in 6 months, still you will make a profit of only Rs 1000 (Rs 166 per month on an average).
This isn’t going to affect your life financially. Until the investment amount is large or the principal is invested for a long duration (power of compounding), the returns won’t be too big to affect you financially.
That’s why mark my words and set a realistic expectation for your first Rs 1,000 investment.
One thing I can take guarantee is that your experience after buying your first stock will be amazing! Trust me, you’ll get more involved in the market if you have some money is invested in it, no matter how small it is. By investing your first Rs 1,000 in the market, you will learn ‘fast’ and learn ‘efficiently’.
Moreover, as discussed in the post, investing is not rocket science, rather it’s quite simple to invest your first Rs 1,000 in the stock market if you follow the steps described above.
I hope this post on how to invest your first Rs 1,000 in the stock market? is useful to you. If you have any questions or doubts, feel free to comment below. I’ll be happy to help you out. Happy learning and investing.
A complete guide on where to open your Demat & Trading account (Updated): Two years back, I wrote an article on the difference between a demat and trading account. That article got a lot of attention from the readers, asking me to further elaborate on where to open these accounts.
As I didn’t cover which stockbrokers are suitable for which users in that article, I received a lot of queries from the readers regarding where to open demat and trading account. Most of them were beginners and therefore, I decided to write an article on the same which can be helpful for the newbie investors.
In this post, I’ll discuss the stockbrokers which I’ve personally used and researched. In my investing journey of the last five years, I’ve come across many trading platforms. From full-service brokers like ICICI direct, HDFC securities, SBI Smart, etc, to the newer discount brokers like Zerodha, Upstox, 5Paisa, Trade Smart Online, etc, I’ve reviewed them all. Moreover, being in the trading field, I need to remain updated with the latest brokers and their charges.
By the end of this article, you’ll have a good knowledge of where should you open your trading and demat account. I’ll try to keep things as simple as possible while answering. In addition, I’ll also disclose which stockbroker I use for trading in stocks. Therefore, make sure that you read this article till the end. I’m confident that it will be helpful to you.
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Where to open your Demat & Trading account?
1) Difference between demat and trading account?
Before we dive into the topic, let me give you the smallest explanation of what’s the difference between demat and trading accounts so that we are all on the same page.
Just as money is kept in your savings account, similarly your bought stocks are kept in your demat account. When you buy a stock, it gets credited in your demat account. And when you sell it, it gets debited from the same. At any time, your demat account reflects all your holding stocks. By the way, a demat account is a short form for ‘Dematerialised account’.
On the other hand, a trading account is a medium to buy and sell shares in a stock market. It is used to place purchase or selling order for a stock in the market.
For example, let’s say you want to buy some shares. Then, you need to enter details like ‘Which share you want to buy?’, ‘How many quantities of shares you want to buy?’, ‘At what price you want to buy that shares’, etc. And all these placings of buy/sell order is done using a trading account.
While trading in Indian stocks, you’ll need to have both demat and trading account. Anyways, both these accounts are linked and can be opened with any stockbroker. Further, in the era of the internet, opening these accounts is really simple and fast.
2) Do you need a stockbroker to trade in stocks?
This is one of the frequently asked questions that I receive over email. Therefore, I needed to answer this one here.
Yes, you need a stockbroker to trade in Indian stocks.
You just cannot walk in the stock exchange to buy/sell your stocks. There are a lot of processes involved in the transfer and settlement of stocks for a satisfactory buying and selling experience of the participants. And here, stockbrokers plays an important role, along with the stock exchanges and regulators. Overall, you’ll need a stockbroker to trade in stocks.
3) What is a stockbroker?
Basically, a stockbroker is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients.
From big banking corporations like HDFC Securities, ICICI Direct, Kotak securities, etc to newer fastly growing startups like Zerodha, Fyers, etc all are examples of stockbrokers in India.
Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a small commission for this service. However, the commission is minimal compared to the fast trading platform that they offer. Using these platforms, you can buy/sell stocks within minutes using your web/phone while sitting on your home sofa.
4) What are the types of stockbrokers in India?
There are two basic types of stockbrokers in India: Full-service brokers (Traditional Broker) & Discount brokers (Budget brokers).
— Full-service brokers
These are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions as a percentage of each trade executed by their clients. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.
A few examples of top full-service brokers in India are:
These brokers just provide the trading facility to their clients for stocks, commodities and currency derivatives. They do not offer advisory services. However, these stockbrokers can save you a lot of brokerages while trading in stocks. Here, you need to pay a flat brokerage charge on the executed trades.
Here is a list of a few top discount stockbrokers in India:
5) Brokerage comparison while using full-service vs discount brokers
Let’s compare the brokerage charges of a full-service broker compared to a discount broker.
A full-service broker charges commission as a fixed percentage on every trade their clients execute. This commission can be somewhere between 0.25–0.55% of the overall trade. Here, the bigger is the transaction, higher is the brokerage.
On the other hand, the discount broker offers a flat brokerage charge. This charge can be somewhere between Rs 10–20 per trade.
Moreover, these charges are applicable to both sides of trading. Therefore, when you buy a share, you’ve to pay brokerage and when you sell these shares, you again have to pay these charges.
For example, full-service broker ICICI Securities that charge 0.275% as brokerage on Intraday trading. Therefore, the total brokerage in a trade will be 0.275%* 2 = 0.55%, if we include both buying and selling.
If you make an overall transaction of Rs 5 lakhs per month with ICICI direct, the total brokerage in a year will be equal to 0.55% * 5,00,000 * 12 months = Rs. 33,000
Now, let us look at the brokerage charges offered by discount brokers. The popular discount brokers in India like Zerodha or Upstox charges Rs 20 per trade.
Let us assume that you make 20 trades per month using such a discount broker. Here, your total brokerage in a year will be Rs 20 (brokerage) * 20 trades per month * 12 months = Rs 4,800.
Clearly, you can notice here that you can save a lot of brokerage charges while opting for discount brokers. Moreover, both these brokers provide a similar trading platform and hence overall experience is not much different. Overall, you are paying some un-necessary brokerage while trading with full-service brokers.
6) What factors to check while selecting your stockbroker?
Brokerage charge is one of the biggest factors to look at while picking your stockbroker as an expensive broker can hurt you financially.
Apart, the second biggest factor to check is the reputation of the stockbroker. A stockbroker with a long history of a reliable trading platform and good customer service should be preferred.
When you are opening your trading account with a stockbroker, it’s a long term relationship. You might trade in stocks for years after opening your account. And here, you do not want your brokerage firm to be shut down in between and all your bought equities getting trapped with them. Therefore, while picking your stock broker, first always check the reputation and reliability of the stockbroker. A simple google search or reading the reviews by the existing users can help to find red flags.
Besides, you need to look into their web and mobile trading platforms, advisory services (if you are looking for trading advice), customer service and other perks offered by that stockbroker like research reports, trading/investing education, etc.
7) Where should you open your demat and trading account?
By now, you would have got a decent idea regarding stockbrokers in India. Next, let’s discuss the central topic of this article- where should you open your demat and trading account.
If you are looking for multiple services like shares, mutual funds, bonds, currencies, fixed deposits, commodities etc along with research reports and do not mind paying a few extra bucks for additional services, then you should open your account with full-service brokers like ICICI direct, HDFC securities, etc.
However, personally, I believe that if you planning to trade just in stocks (or commodities), opening accounts with discount brokers is more advantageous. They offer a fast trading platform with a low brokerage charge which helps traders to save a lot of money.
Moreover, with the rise of the internet, most of the information that you need to make trading/investment decisions are freely available online. If you want to read the research reports on companies, they too are freely available on websites like Trendlyne, markets mojo, etc.
Note: If you really need advisory to buy and sell stocks, it’s better to go with expert advisory services in this field, who can offer you personalized services rather than relying upon these big corporates for whom you might be a very small client.
8) Which stockbroker do I use?
I use Zerodha discount broker for making all my traders. It is the biggest stockbroker in India with over 2 million happy clients. Zerodha offers free equity delivery long term investments (zero brokerage) and a discount brokerage of maximum Rs 20 for all other trades.
Initially, I started my investment journey with ICICI direct. The reason I opened my account with ICICI was because of their good reputation and 3–in-1 account service facility. Basically, 3-in-1 means that you can open your saving, demat and trading account all at once. So, while opening your savings account with ICICI bank you can apply for the other two accounts as well.
I was happy with the services offered until I realized that I was paying too much brokerage charges and a chunk of my profit was paid unnecessarily to ICICI direct. Then, I started researching other stockbrokers where I can save these charges. Finally, I switched to Zerodha, the discount broker and I’m happy with the trading platform and services that it offers. Moreover, I am able to save huge brokerages after switching to Zerodha, which is always beneficial for small retail investors like you and me.
Other Frequently Asked Questions (FAQs) regarding trading and demat accounts.
1) How to open your demat and trading account?
Opening your trading and demat account is completely online, paperless and hassle-free. If you already have the soft copies of your documents (PAN card, aadhar card and saving account passbook/check) on your mobile/laptop, you can open these accounts within an hour. Simply visit the stockbroker website and apply for an account.
In fact, you can open as many trading accounts as you want with multiple stock brokers. If you wish, you can have one account with a discount broker and another with a full-service broker.
However, keep in mind that you have to pay annual maintenance charges (AMC) for all your active accounts. Generally, this AMC can be between Rs 300–700 per year (lower for discount brokers). Therefore, if you three accounts, you might have to pay a maintenance charge between Rs 900–2100 per year, even if you are not actively using all your accounts.
3) Can I switch my previously purchased stocks from one demat account to another?
Yes, you can switch your stocks if you are planning to migrate from one demat account to another.
Here, you have two options. Either, you can fill the DIS (Delivery instruction sheet) with information about the new demat account number and submit it to your previous stockbroker. Once filed correctly, they’ll transfer the shares.
Else, you can do it online using the EASIEST facility available on the CDSL website. CDSL is the central securities depository based in Mumbai. EASIEST allows you to transfer shares from one demat to another demat account with simple clicks once you have created your account and linked your stock brokers. Here’s the link to the portal and instructions regarding the same.
4) How to close your demat account?
Probably the least asked questions. However, I thought to mention this here to complete the article.
To close your demat account, you can fill the Account Closure Form available on your stockbroker’s website and submit it. Generally, it takes between 7–10 days to close your account.
Note: Before closing your account make sure that you don’t have any shares or a negative balance in your account. You can have a negative balance if your account was inactive for the last few years and you didn’t pay the AMC. Further, if you have any stocks in the account, either sell them or transfer it to your other active account before closing this one.
In this online era, buying and selling stocks is as fast as the click of your fingers. All thanks to the online stockbrokers.
There are many stockbrokers available in India and through this post, I tried to help you how to choose a broker for trading in stocks. If you still have any queries regarding where to open your demat and trading account, feel free to comment below. I’ll be happy to help you out.
List of Best Stock Market Discussion Forums in India in 2020: One of the easiest ways to learn anything new is by participating in the discussions. And the same rule applies when you are trying to learn trading or investing. If you are new to stocks and looking for the best stock market discussion forums in India to start participating, then you’ve entered the right page.
In this article, we are going to share the list of seven best stock market discussion forums in India where you can ask your most troublesome questions or share your ideas/knowledge with fellow investors and traders. On all these forums, you can find active discussions on stock market investing, trading, investing strategies, stock picks, IPOs, mutual funds, taxation, personal finance and more.
Besides, all these forums are FREE to join and hence, it doesn’t cost you anything to signup and start participating in interesting topics on these Indian stock market discussion forums.
7 Best Stock Market Discussion Forums in India
Here are seven of the best forums in India for healthy discussions on stock market investing and trading:
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Started in 2004, Traderji is one of the oldest and most popular stock market discussion forum for investors and traders in India.
This platform has over 1.8 lakhs members participating in different threads on the stock market, derivates, Commodity and Forex trading of India. As per the statistics on this website, there are over 59,300 threads and 1,202,464 messages on this forum.
A few popular categories on the Traderji forum are Beginner’s guide, General trading and investing chat, technical analysis, mutual fund discussion forum, tools, and resources.
Trading Q&A is a famous online discussion platform for traders and investors which is managed by Zerodha, the biggest discount broker in India. With thousands of active participants on this forum, you can get all your trading queries answered here, along with sharing your own knowledge with fellow traders.
On Trading Q&A, you can ask questions about Intraday Trading, Derivatives, Commodity, Investing Strategies, Broker Review, Algo-Trading, Zerodha & its products, Taxation, IPOs and much more.
One of the most active forum for stock market discussion in India. ValuePickr’s tagline is “Separating the Wheat from the Chaff” and focuses on discussions regarding the company’s Business Quality, Management Quality, Business Execution & Performance.
Here, you can find topics on stock opportunities (hidden gems, Untested but worth a good look category, top 5 picks), Investing strategies, Questions & Answers, Investor Toolkit, Investment Learning, Books and more. You can get a lot of knowledge about the Indian stock market by simply hovering over the topics and queries.
Stock Adda is an Indian stock investor community where along with the stock market discussions, you can also get information like stock ideas, investing strategies, news, market movements, books, etc.
Besides, on StockAdda, you can also create a stock portfolio or view the ranking of member portfolios based on Daily and overall gains(%). Overall, it is an amazing platform for social traders/investors.
Stocks Talk Forum by Rakesh Jhunjhunwala is yet another popular stock market discussion forums in India.
First of all, I should mention that this site is Inspired, Not Endorsed, By Rakesh Jhunjhunwala, one of the most successful Indian stock market investors.
On this discussion forum, you can find topics on categories like stock investment queries, stock picks of wizards, portfolio of famous investors, stock advisory services, must-read interviews, articles and more. You can find over 3,250 discussions on this forum.
Bse2Nse is another popular Indian Stock forum discussion for Equity, FnO, and commodity trading. Here you can find discussions on stock trading, investing strategies, broker reviews, IPOs, mutual funds and more. They also have a separate section on Chart Analysis which can be very helpful for technical traders.
In this article, we discussed the seven best stock market discussion forums in India. However, before ending this article, let me give you a piece of final advice.
All these forums are built by active members who are willing to share useful ideas and answers. Please keep your posts relevant to the forum category and do not ‘SPAM’! Else, you will be thrown out of the forum by the admins and moderators. Be respectful to others and don’t sweat the small stuff.
That’s all for this post. Comment below if you are part of any of the above-mentioned discussion forum or are willing to join soon. Else, if I missed any awesome Indian stock market discussion forum worth adding to this list, mention below in the comment box. Cheers and have a great day!
An overview of the Rupee Cost Average Approach: One of the basic strategies to succeed in the stock markets is to buy more when the prices are low. However, this involves in-depth knowledge to judge shares that are underpriced and perfect purchase timing. Today we try and look for answers in Rupee Cost Average (RCA) to reduce our losses from overpriced securities and make success in the long run.
Table of Contents
What is Rupee Cost Average (RCA)?
Basically, Rupee Cost Average is an investment technique of buying a fixed amount of a particular investment consistently on a regular schedule over a long period of time, regardless of price. The Rupee Cost Averaging approach results in the average cost of the investment being lower in comparison to a single lump sum transaction.
RCA Relation with SIP
SIP (Systematic Investment Plan) allows an individual to invest in a fund, a predetermined amount at regular intervals. If we look at the above explanation of RCA we realize that a SIP allows us to buy fixed amounts in a fund on a regular schedule regardless of the price of the unit in the fund. Hence SIP helps an investor apply the RCA method and reap its benefits provided he/she indulges in the SIP for a long period of time.
Example to Understand Rupee Cost Average in SIP
Say for example we have Rs 4000 and decide to invest in an Index fund that tracks with the Sensex. As of January 1st, you have 2 options i.e to either invest in a lump sum or to invest by means of a SIP.
— Scenario 1: You Invest in a lump sum on January 1, 2020
— Scenario 2: You decide to follow a SIP (with a decision to do so even after the amount is exhausted)
The difference we should note in the two scenarios above are :
In scenario one to make a profit the NAV per unit would have to rise above Rs 413.0602. In Scenario 2 if we are to observe the average cost on Investment would be lower.
Average cost = Amount Invested/ Units Received i.e. = 4000/11.0971 => Rs 360.45229.
Hence the breakeven is lower in the second case while investing through the SIP route.
— Units Received
If the units received are compared it becomes apparent the more units are received in Scenario 2. In RCA more securities are purchased when prices are low and fewer securities are bought when prices are high. This allows any losses that were made during a purchase made when the prices are high to be balanced off when the prices are reduced.
Generally, when we find products available at reduced costs we make sure we take advantage of the situation even if it resorts to hoarding. When it comes to stocks of a company, however, it is noticed that investors react differently.
Unfortunately, healthy companies with strong financials are also exposed to market falls. In such situations, investors panic and sell their shares invested in the company. Nonetheless, an investor with good financials observes the financials of the company, and if it looks good, he views the situation as an opportunity. He takes advantage of the situation and gains more shares.
However, it is observed that many market participants follow basic human instincts. They do this to protect their capital from further reduction. What RCA does is protect us from our own psychology. When we indulge in RCA through a SIP we keep investing regardless of the price. When the market falls and even when the market rises. Hence if followed we reap the benefits of RCA in the long term.
The Dow Jones market as on 03/09/1929 closed at $383. The Great Depression followed and devastated the US economy. The US stock market then took over 25 years to reach levels it stood at before The Great Depression. On 23/11/1954 the Dow Jones closed at $385. This would mean an investor would gain only $2 ( per $385) over a period of 26 years if he invested in 1929.
However, if an investor invested using DCA( Dollar Cost Average in the US) $10000 every year, the $260,000 investments over 25 years would be worth $1.5 million as of 11/23/1954.
This is because by spreading the investments even to periods when the markets were low the investor would benefit by not only making up for the loss incurred when the markets were high but also make larger profits when the markets normalize.
The Rupee Cost Average investment strategy definitely safeguards an investor from market bubbles. Unlike other investment strategies, applying RCA doesn’t involve complex strategy and does not even require daily market tracking. This makes it easier for any individual to engage and take advantage of the market. RCA, however, does not shed light on the right time to sell.
In the current situation of ‘The Great Lockdown, we can notice that the Sensex has fallen from the all-time high of January. But if an investor understands RCA applies accordingly, he would be able to profit greater once the market normalizes.
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