5 Mantras for Trading in Futures

5 Mantras for Trading in Futures
by 5paisa Research Team 29/09/2021

 Tool for Hedging or Speculation:  Futures contracts can be a tool for an investor for purposes of hedging or speculation. An investor expecting a temporary downturn in the market could short a futures contract instead of liquidating his portfolio. The gains from the futures contract could offset the loss his portfolio would incur. For speculation, an investor could buy a naked contract without any correlation to his other exposure.

 Difference from Equity: Unlike stockholders, future traders are only participating in the price movements. They do not receive any dividends. They are not part-owners of the company, nor do they have voting rights. Futures trading is completely a zero-sum game, it does not create any value. One trader’s loss is completely another trader’s gain.

 Cash Settled: Future’s contract expire every last Thursday of the month. This means that on expiry, every futures contract is automatically squared off on closing. The difference is cash-settled, meaning the profit or loss is credited or debited to each investor’s account and there is no requirement to actually exchange the asset. If an investor wishes to prolong his exposure, he would have to close out this month’s contract and take a new position in next month’s contract, this is called Roll Over.

 Losses are not limited to your margin: When trading futures, an investor has to deposit a margin with the broker. The position size you can take with this margin is many multiples of your margin. The potential loss could be far larger than anticipated, especially in a volatile market. When the price of the future falls below the margin requirement, you are required to deposit more margin else the contract is squared off to safeguard credit risk. This could lead the investor to book a loss at an unfavourable price.

 Short Exposure: Future contracts allow you to sell before you buy. This means that you could have a negative exposure in a futures contract. If an investor has an unfavourable opinion about a stock, he could benefit from the same by shorting it and buying it back at a lower price.

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Stock Market Basics - All You Need to Know to Start Investing In India

by 5paisa Research Team 30/09/2021

With the end of the fiscal year 2021, about a whopping INR 99 trillion had been parked in the public sector banks in the form of fixed deposits earning an average of 5% interest. On the other hand, retail inflation averaged at approximately 6%. This means that if you're putting money in the bank, it is not only not growing, it is, in fact, getting eroded. To make things worse, if you fall in the tax-paying brackets, you have to pay taxes on that interest income that further deflates the value of your deposit. 

While there are other avenues for investing your money, the stock market is perhaps the most enigmatic and paradoxical financial realm - a place that you dread, yet covet to get the best of, simultaneously.
We won't deny that for beginners, it is easy to get overwhelmed and hence abstain entirely from dipping your toes into stock market waters. Don't worry, we're here to guide you every step of the way.

What Is the Stock Market?

Like any market, this is a collection of platforms or exchanges where the buyers of shares meet the sellers/issuers of shares. Only here, the buyer or the seller could be me, you, or anyone for that matter. As public money is mainly at stake, this market is extensively regulated and monitored by SEBI, an independent body, to boost investors' confidence.

When you buy a share of a company listed in the markets, you essentially become the co-owner of that company (even if the stake is less than 1%) and thus bear the risk and rewards that the company is exposed to. But it's not that you have to keep holding the shares forever. You can sell it off to interested buyers, take your exit, and encash the amount. This is how the market provides liquidity to you as an investor.

 

The Common Myths That Have Been Hardwired into Us

I) The market is risky - it is as good as gambling:

Yes, it is risky, and the trends show that there have been booms and crashes; sure, it's not a smooth hike. But if we look at the leading index, we can see how it has grown exponentially in the long term.
 


Source

 

II) The small investors are never rewarded:

You must have heard the name of Mr. Porinju Veliyath, hailing from a very low-income family of farmers in Kerala, who became one of India's most renowned stock-pickers. Now that might sound like a one-off case, but there have been many more of such 'rags to riches' life stories that are less popular and rarely spoken of. You could start with a minimal amount, as low as Rs. 500, and grow your portfolio systematically with time and patience.

 

III) You need to be from the finance background:

Undoubtedly, it sometimes acts as initial leverage when you are comfortable with the world of finance. Still, many investors who have consistently beaten the markets are not necessarily from the finance stream. What you need for the stock market is common sense, and the rest will follow suit.

 

Who Are the Facilitators in This Ecosystem?

So, How Do You Get Started?

Even a decade ago, you would have had to break a sweat to open your Trading or Demat account with a registered stockbroker. A trading account is through which you buy or sell securities and is needed irrespective of whether you wish to do day trading or investing (more on it later).

But if you want to buy and hold shares for a certain period of time you have to have a Demat account too. Gone are the days of intensive paperwork. With the advent of digital trading and investment platforms, your first stock market investment is only a few clicks away.

You'll Need:

a) Your PAN card

b) Aadhar card [preferably with your mobile number linked to it for complete electronic authentication through OTP]

c) Address proof 

d) A recent photograph

e) Passbook copy or cancelled cheque to verify your bank account details.

Digital copies work just fine, and in no time, you can have your Trading cum Demat Account opened with an online broker. However, you should only choose and stick to a decent and reputed broker after thorough research.

Deciding on Your Investment Approach

Now that you know the stock market basics and your account is all set, verified, and linked with your bank accounts, you have to take a call on which investment strategy you would follow to make gains from the stock market. There are two broad approaches:

1. Share Trading:

You're probably aware that stock prices continuously fluctuate throughout a trading day (9:15 AM to 3:30 PM). When the demand for a particular stock goes higher, the prices increase, and share prices also drop when it falls. As a trader, you make profits out of this price movement: buy when you anticipate it will go higher and sell when you consider it will fall.

However, this isn't done randomly and ideally has to be backed by some technical analysis done on your part (we promise it's not rocket science). It is the trend analysis of past movements of prices and their patterns based on which possible prices and ranges are predicted. 

2. Investing:

This is a relatively passive approach to buying and selling stocks, and adopts a long-term horizon. You buy stocks of companies that you feel have the potential to grow in the future and expect the prices to go up at that time. Again, this expectation ideally should be backed by some fundamental analysis - studying the company's past financial data, future plans, and to some extent, the country's economy as a whole.

Assess Your Profile as an Investor

Before you plunge in, you need to have clarity about your level of risk tolerance and aversion. There is no one-size-fits-all approach. 
 


 

Only when you consider these factors can you decide where you are in the spectrum of 'very conservative' to 'very aggressive' as an investor. The higher the aggression, the more you should be predisposed towards riskier stocks. 

Picking Your First Stocks - Things to Keep in Mind

The biggest mistake you can make is starting to put your money in stocks based on what everyone else is doing or talking about, without knowing why you're doing it. Before you invest, make sure:

a) You pick an industry that intrigues you or that you're somewhat aware of.

b) Start really small and spend some time watching the share prices.

c) Research the company well. In the age of the internet, everything you need to know and every resource is at your fingertips.

d) Look at how the share prices have shifted in the past 5-10 years as compared to the movement of the market indices like Nifty or Sensex

Tax Implications
 
The way to garner profits from the markets is either by a rise in share prices (known as Capital Gains in trade terminology), or you could receive dividends from stock. In either case, the taxation is different.

On Capital Gains: If you sell shares after holding for at least one year (Long Term Capital Gains), you would have to pay taxes at the rate of 10% over and above your first INR 1 lakh profits. Selling before one year (Short Term Capital Gains) will attract a higher rate of flat 15% taxes.

On Dividends: Dividends are now taxed at the rate applicable to you as per the slab structure based on your total income. So if your total income, including dividend gains after claiming all the deductions, are exempt from taxes, you can very well do away with taxes on dividends received. However, a TDS of 10% will be deducted if the amount credited to your account is more than Rs 5000 in a financial year.

Go Start Investing!

Now that you know the stock market basics, you can very well start your investment journey. Like the greatest investors of all time, Warren Buffet says: 

“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.”

Also Read:

How to invest in stock market for beginners

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Everything You Must Know About Taxation on Mutual Funds in 2021

by 5paisa Research Team 30/09/2021

The COVID-19 pandemic was a spirit dampener across the globe, but the timely actions and policies of the government have brought India's development trajectory back on track. And since the capital markets react to positive news faster than anything else, the stock market's meteoric rise is a testament to India's fascinating story.

AMFI's data shows that the Indian mutual fund industry's Assets Under Management (AUM) soared to a record INR 36.59 trillion in August 2021 compared to a measly INR 6.97 trillion a decade ago.

Since mutual funds are typically more tax efficient than fixed deposits and safer than stocks, it's no surprise that Indian investors are making a beeline for these high-return investment instruments. 

If you plan to invest in mutual funds or already hold units, you need to know the tax implications. Scroll down to learn about the tax on mutual funds an investor might have to pay on their investments.

How Do You Earn from a Mutual Fund?

Before understanding the tax implications, you should know how investors earn money from mutual funds. 

Generally, you can earn from a mutual fund in two ways:

i) Capital Gains (or loss)
ii) Dividends

1. Capital Gains (or Loss)

Capital gain or loss refers to your investment's profit or loss should you sell your mutual fund units. Let's understand this with an example. 

Suppose you invest INR 10,000 in the XYZ fund and receive 100 units in your account. After one year from the investment date, you find that your account value has grown to INR 15,000. If you want to sell your 100 units then, it will be termed as Capital Gains. Conversely, if the fund value reduces to INR 9,000, it will be called Capital Loss.

The Short-Term Capital Gains Tax (STCG) applies on withdrawals before twelve (12) months from the investment date for equity and balanced schemes and thirty-six (36) months for debt schemes. For withdrawals made after 12 or 36 months from the investment date, the Long-Term Capital Gains Tax (LTCG) applies. The STCG is usually 5% higher than the LTCG.

This table will tell you all about long-term and short-term capital gains:
 

Fund Type

Short-Term

Long-Term

Equity (where the exposure to equity is more than 65%)

Less than 12 months

More than 12 months

Balanced Funds (where the exposure to equity is more than debt)

Less than 12 months

More than 12 months

Debt Funds (where the exposure to debt is more than 65%)

Less than 36 months

More than 36 months

 

2. Dividend

Companies often issue interim and final dividends when their profit margin increases. Some companies even distribute dividends when their profit hasn't beat the company estimates. They do so to retain loyal investors. Dividend-focused investors invest in such companies to get handsome dividends periodically. 

Until March 2020, the dividend issuer had to pay taxes, known as the DDT or Dividend Distribution Tax, every time they released dividends. However, in Budget 2020, the central government declared that the dividend issuer would not have to pay taxes on the dividend. Instead, the dividend income will be added to the investor or unit holder's taxable income and taxed accordingly. 

So, as an investor in the financial year 2021-22, you have to include the dividend income in your net income and calculate the taxes correctly. So, if you fall in the highest income bracket, your tax liabilities will increase further. The possibility of a higher tax has also prompted many investors to switch to 'Growth' schemes offered by mutual funds. 

Now that you know how mutual funds generate income and how the dividend is taxed let's shift our focus to understanding the tax implications on Capital Gains.  

Taxation on Mutual Fund Capital Gains

As already discussed, mutual fund capital gains are taxed in two ways:

i) LTCG
ii) STCG

The following sections describe each of these taxes in detail.

1. Long-Term Capital Gains Tax (LTCG)

For standard equity mutual funds, the LTCG is exempt on an income of up to INR 1 lakh every financial year. But, if the LTCG exceeds INR 1 lakh in a financial year, you will have to pay a tax of 10% without indexation.

In contrast, if you invest in a debt scheme, the LTCG applies on withdrawals after 36 months. The rate will be 20% after indexation. You might also have to pay the cess and surcharge.

Now, you can invest in a special type of mutual fund to save taxes - The Equity-Linked Savings Scheme or ELSS. By investing in ELSS, you become eligible to claim tax deductions of up to INR 1.5 lakhs under Section 80C. But, ELSS schemes come with a lock-in of three years. If you withdraw before three years, the tax benefits might be reversed. The tax rate is 10% for any income above INR 1 lakh a financial year.

What is Indexation?

Indexation refers to the process of recomputing the purchase price of a mutual fund after factoring in the inflation index and making adjustments. Generally, the Income Tax Department publishes the inflation index after evaluating various macroeconomic parameters. Depending on the inflation index, your effective capital gains might be lower after indexation.

2. Short-Term Capital Gains Tax (STCG)

Short-term capital gains are usually taxed at 15%. STCG applies when you sell units before one year from the investment date (for equity funds) and three years from the investment date (for debt funds). 
Hence, if you fall in the 30% tax bracket and sell the units before 12 or 36 months, you will be taxed at the rate of 30%.

Do You Have to Pay Any Other Tax When Selling Mutual Fund Units?

Besides LTCG, STCG, and tax on dividends, you may also have to pay a Securities Transaction Tax (STT), currently 0.001% of the value of the sold units. But, the STT applies only to equity or balanced funds and not to debt funds.

The Endnote

5paisa can be your go-to destination for everything related to mutual funds and stocks. Follow this link to improve your knowledge of the capital markets and make consistent profits.
 

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Invesco Approaches NCLT to Call EGM for Change of Zee Board

Invesco Approaches NCLT to Call EGM for Change of Zee Board
by 5paisa Research Team 30/09/2021

In an interesting development, the largest shareholder of Zee Entertainment, Invesco Fund, has moved the National Company Law Tribunal (NCLT). It has asked the NCLT to intervene and instruct the Zee board to call an Extraordinary General Meeting (EGM) to decide on the future composition of the board post the merger with Sony Pictures.

Invesco holds 18% in Zee Entertainment, while the Subhash Chandra family holds just about 3.44% pre-merger. Invesco had earlier sought the removal of Punit Goenka from the post of MD & CEO of Zee Entertainment. Just a week later, Zee Entertainment announced a merger with Sony Pictures with an agreement that Punit Goenka would continue for 5 years.

Invesco has made Punit Goenka, Zee chairman R Gopalan and independent director Vivek Mehra respondents to the petition. The matter will be heard by the NCLT today i.e. 30-Sep. Invesco had two demands. Firstly, it wanted Punit Goenka and 2 other directors to be moved out. Secondly, it wanted to nominate its own set of 6 directors on the board of Zee.

Check :- Invesco wants EGM to Replace Punit Goenka from the Post of MD & CEO

In response, the two directors; Manish Chokhani and Ashok Kurien, resigned from the board but Punit Goenka was reappointed for a period of 5 years as part of the merger deal with Sony Pictures. Invesco wants the new board, consisting of 6 of its nominees, to take a final call on the Sony Pictures merger, purely on the merits of the case.

One of the concerns for Invesco is that the merger will dilute the stake of Zee shareholders in favour of Sony Pictures shareholders, since the merger is in the ratio of 47: 53. This would also result in Invesco Fund having a much lower stake in the merged entity. A couple of years back, the Subhash Chandra family had lost control of Zee and was reduced to just 3.44%, after these shares had been pledge for loans to group companies.

The Subhash Chandra family is likely to end up with enhanced stake in the merged entity due to the 2% stake that Sony will forfeit to the ex-promoters as part of non-compete clause.

Also Read:-

What does the Zee merger with Sony mean

 

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List of Upcoming IPOs in October 2021

List of Upcoming IPOs in October 2021
IPO
by 5paisa Research Team 30/09/2021

Year 2021 has been the year of the IPOs. In the first 9 months of the year, a total of 44 IPOs hit the market (including the IPO of Aditya Birla Sun Life currently open). These 44 IPOs raised Rs.78,520 crore. This includes two non-equity IPOs of Brookefield REIT and the PowerGrid INVIT. Even if these two are excluded, the total IPO collections in 2021 so far would still stand at over Rs.67,000 crore. However, this could just be the start.

How IPOs are likely to pan out in October 2021?

October 2021 is likely to be a busy month for IPOs. While actual IPO announcements will be coming, early indications from investment bankers, indicate the following IPOs likely to hit the market in October 2021.The IPO list is broken up sector-wise.

Upcoming IPOs in October 2021

Company Name

IPO Size (Estimated)

IPO Month

PHARMACEUTICALS

Emcure Pharmaceuticals

Rs.4,500 Crores

Oct-21

DIGITAL PLAYS

Nykaa

Rs.4,000 Crores

Oct-21

MobiKwik

Rs.1,900 Crores

Oct-21

Ixigo

Rs.1,600 Crores

Oct-21

RateGain Travel Technologies

Rs.1,200 Crores

Oct-21

FINANCIAL SERVICES

Star Health And Allied Insurance Co. Ltd.

Rs.3000 Crores

Oct-21

Arohan Financials

Rs.1,800 Crores

Oct-21

Northern Arc Capital

Rs.1,800 Crores

Oct-21

Utkarsh Small Finance Bank

Rs.1,350 Crores

Oct-21

Fincare Small Finance Bank

Rs.1,330 Crores

Oct-21

ESAF Small Finance Bank Ltd

Rs.998 Crores

Oct-21

INFRASTRUCTURE PLAYS

Penna Cement

Rs.1,550 Crores

Oct-21

Sterlite Power Transmission

Rs.1,250 Crores

Oct-21

Shri Bajrang Power And Ispat

Rs.700 Crores

Oct-21

OTHERS

CMS Info Systems

Rs.2,000 Crores

Oct-21

Shriram Properties

Rs.800 Crores

Oct-21

Studds Accessories Limited

Rs.450 Crores

Oct-21


The month of October is expected to collect over Rs.30,000 crore and there is another Rs.20,000 crore of IPOs expected in November. These exclude the mega Rs.16,600 crore IPO of Paytm or the Rs.75,000 crore LIC IPO. Year 2021 would then end up being the best year for IPOs, bettering the previous record of the year 2017. Here is a quick update on the IPOs above Rs.1000 crore to hit market in October 2021.

Emcure Pharmaceuticals

The Rs.4,500 crore IPO will comprise of a fresh issue of Rs.1,100 crore and an offer for sale of Rs.3,400 crore. The company focuses on generics and active pharma ingredients and will use the fresh issue component to repay debt.

Nykaa

The Rs.4,000 crore IPO will comprise of a fresh issue of Rs.525 crore and an offer for sale of Rs.3,475 crore. Floated by former Kotak investment banking honcho Falguni Nayar, Nykaa is an online platform for fashion products. It is a unicorn and also profitable.

MobiKwik

The Rs.1,900 crore IPO will comprise of a fresh issue of Rs.1,500 crore and an offer for sale of Rs.400 crore. The company will use the fresh funds to spruce up its digital wallet and expand its franchise of merchants and customers.

Ixigo

The Rs.1,600 crore IPO will comprise of a fresh issue of Rs.850 crore and an offer for sale of Rs.750 crore. It is one of the few artificial intelligence based platforms for booking flights, trains and hotels and has been around for over 14 years now.

Rategain Travel Technologies

The Rs.1,200 crore IPO will comprise of a fresh issue of Rs.400 crore and an offer for sale of Rs.800 crore. It services marquee clients with data centres based on AI. Rategain is a subsidiary of Rategain UK and will use the funds to repay debt and deleverage.

Star Health Insurance

The Rs.3,000 crore IPO will comprise of a fresh issue of Rs.2,000 crore and an offer for sale of Rs.1,000 crore. Star Health is a leading health insurance provider and is backed by marquee investors like Rakesh Jhunjhunwala and Westbridge Capital.

Arohan Financials

The Rs.1,800 crore IPO will comprise of a fresh issue of Rs.950 crore and an offer for sale of Rs.850 crore. Arohan is an NBFC and is also into microfinance serving the unpenetrated segments of the market. The IPO will help boost its capital adequacy.

Northern Arc Capital

The Rs.1,800 crore IPO will comprise of a fresh issue of Rs.300 crore and an offer for sale of Rs.1,500 crore. Northern Arc is also an NBFC and will look at the fund raising to boost its capital adequacy and expand lendable resources.

Utkarsh Small Finance Bank

The Rs.1,350 crore IPO will comprise of a fresh issue of Rs.700 crore and an offer for sale of Rs.650 crore. The company is an SFB based out of Varanasi and is very strong in Uttar Pradesh, Uttarakhand and Bihar belt. IPO will be used to boost capital adequacy.

Fincare Small Finance Bank

The Rs.1,330 crore IPO will comprise of a fresh issue of Rs.1,330 crore and an offer for sale of Rs.1,000 crore. The small finance bank will use the proceeds of the fresh issue component to augment its tier-1 capital and improve its lendable resources.

Penna Cement

The Rs.1,550 crore IPO will comprise of a fresh issue of Rs.1,300 crore and an offer for sale of Rs.250 crore. This is the second attempt of this Hyderabad based cement company and will be used to reduce debt and for expansion.

Sterlite Power Transmission

The Rs.1,250 crore IPO will comprise of a fresh issue and is part of the Vedanta group. Sterlite Power owns and manages power transmission assets and these are spread across India and Brazil.

CMS Info Systems

The Rs.2,000 crore IPO will comprise predominantly of an OFS as its 100% owner Sion Investments will look to monetize part of the holdings. CMS is into cash management services and predominantly into ATM management services.

Also Read:-

List of Upcoming IPOs in 2021

Next Article

Birla Corp to Double Cement Capacity to 30 MT by 2027

Birla Corp to Double Cement capacity to 30 MT by 2027
by 5paisa Research Team 30/09/2021

Birla Corp, the cement business of the MP Birla group, plans to undertake a massive expansion plan to double its cement manufacturing capacity to 30 million tonnes per annum (MTPA) by the year 2027. Its current cement capacity is 15.6 MTPA. Birla Corp is headed by Harsh Lodha and that had been a major bone of contention between the Birla family and Harsh Lodha after he claimed that MP Birla had bequeathed the business to him.

The expansion will happen in phases. In the first phase, the cement capacity will be enhanced from 15.6 MTPA to 20 MTPA by the end of the year 2021. This will be boosted by the 3.90 MTPA greenfield cement plant at Mukutban near Nagpur going on stream. Originally, the eventual target was only to reach 25 MTPA by 2025. However, that target has been expanded to 30 MTPA by the year 2027 due to higher demand visibility.

Birla Corp currently operates 10 cement plants across India  and some of its recent plant additions have much better efficiency and profitability compared to the legacy plants. For example, the Reliance Cement plant that Birla Corp acquired in the year 2016 is among the most efficient and profitable in India on operating parameters. The idea of this aggressive expansion is to become a more meaningful player in the Indian cement space.

Indian cement companies have seen solid demand and price traction in the last few quarters, which his also evident in the quarterly numbers. However, consolidation and national presence are the key. At 30 MTPA, Birla Corp would still be just one-fourth the size of Ultratech which has a cement capacity of 116 MTPA. Some of the top cement companies in India in terms of manufacturing capacity include Ultratech, Shree Cements, Ambuja/ACC and Dalmia Cements.

Read:- Shree Cements Plans Mega Capacity Expansion

Cement may have perpetual demand but cement companies do well when there is pricing power. Due to a spike in infrastructure spending and a likely turnaround in housing demand, cement demand is likely to take off and prices are expected to be robust. The time is clearly ripe for a massive capacity expansion spree.

Also See:- Sector Update - Cements