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Are Peak Margin Norms Serving their Purpose?

Are Peak Margin Norms Serving their Purpose?
by Sheetal Agarwal 16/11/2021

Peak margin norms were implemented in totality with effect from September 1, 2021. Two and a half months down the line, we deep dive into the causes and effects of this move, and provide some suggestions for the future.
 

What are peak margin norms?


Aimed at curbing speculative trading and restricting leverages offered by stockbrokers to their clients, peak margin norms were first implemented in December 2020. As per these norms, traders need to give 100% margin upfront for their trades. This is in stark contrast with the earlier practice of collecting margin at the end of the day.

Peak margin is calculated on the basis of the highest margin utilized by the client during the day. The stock exchange takes four snapshots of margin utilization of client during the day and the broker has to collect the highest margin utilized from the client.

These norms have been implemented in a gradual manner starting December 2020 when 25% upfront margin was introduced. In the second and third phases, this metric was increased to 50% and 75%, respectively.

The final leg came into effect from September 1, 2021 wherein stockbrokers face a penalty (of 0.5% to 5%), if margins collected from traders is less than 100% of trade value in the case of cash market stocks and an additional SPAN + Exposure for derivatives trade.
 

Why were peak margin norms introduced?


Primary objective of peak margin norms is to curb speculative trading and restrict leverages offered by stockbrokers to their clients. Earlier, margins could reach upto 30-40 times. Simply put, a client having ₹10,000 as margin was able to place a trade worth ₹4 lakh.

This in turn had a multiplier effect, exposing clients to higher risks of losses during volatile markets and the brokers to higher future bad debts. With peak margin norms in place, clients have to pay margin money upfront for intraday trades, limiting the potential losses.
 

Check - Peak Margins Norms from 1st September
 

What has been the impact so far?


After announcement of new norms, there were widespread concerns that intra-day trade will be impacted adversely. This is because, traders are required to set aside more cash towards fulfilling margin requirements for trade. Also, trading in futures and options (F&O) could become more expensive. Has this theory played out?

Let us understand in detail. Since April 2020 till date, Nifty50, Nifty Midcap 50 and Nifty Smallcap 50 indices have given handsome returns. This upward wave also applies to the last 12 months, wherein Nifty50, Nifty Midcap 50 and Nifty Smallcap 50 rallied by about 50%, 60% and 90%, respectively.
 

image


Historically, during bull markets, most retail customers trade in cash markets staying clear of high speculations in the derivatives segment. Ideally, implementation of the peak margin norms should have curbed derivatives turnover to an extent, and should not have had impacted the cash market turnover.

However, the chart tells a different tale. Average Daily Turnover (ADTO) in the derivatives segment has headed north consistently. And despite the market being euphoric, the cash market turnover has remained volatile.

Statistically speaking, ADTO in the derivatives segment have surged 5.37 times between April 2020 and October 2021; while those in the cash segment have risen just by 1.43 times in the same time frame. 
 

What do we suggest?


Healthy volumes in cash market are a pre-requisite for markets owing to several reasons. First, cash market is less risky when it comes to intraday trade, owing to its smaller size relative to the derivatives segment. The minimum lot size in derivatives is approximately between ₹5 lakh to ₹10 lakh.

Second, intraday volumes in the cash market provide much-needed liquidity for larger delivery trades. It provides depth in the market for any institutional buying, or any other high volume buying in delivery. A low exchange volume pulls out that liquidity from the system. Lack of liquidity has a direct impact on the buying and selling of large volumes which is detrimental to growth.

If the cash market turnover remains stagnated even in a bull market, the impact could aggravate during the downturn.

While peak margin norms are a step in the right direction, they have not achieved the intended outcome. In this scenario, SEBI along with the stock exchanges should relook at the exposure being provided in the cash segment vis-à-vis that in the derivatives segment.

Regulators have several options including:

A) Reducing the margins for intraday in the cash segment and keeping a differential margin for cash and derivatives.

B) Increasing the allowed limit for trading from 1 to 1.5 or 2 times of margin in cash and keeping the derivatives at 1 time only.

Staying true to the idea of curbing speculation, above measures could still maintain liquidity in the system and keep a tab on the risks. Overall, regulators have to walk a tight rope to balance the risks without hurting growth and liquidity of the markets.

Also Read:

5paisa: Because Every Paisa Counts

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5paisa: Because Every Paisa Counts

5paisa: Because Every Paisa Counts
by Sheetal Agarwal 01/11/2021

Staying true to our promise of making investing simple and rewarding, we at 5paisa Capital Limited (5paisa) continue to find ways to delight you. Through our online platforms and mobile applications, we empower retail investors and high volume Do-It-Yourself (DIY) traders.

We are one of India’s fastest growing online broker and have added 3.4 Lakh customers during the September 2021 quarter. We now serve more than 2 Million happy customers and would like to extend our heartfelt gratitude to each one of them for putting their faith in us. 
 

FUN FACTS ABOUT US
 

2 Million+

200% growth

82% customers

90,000 Crore

Investors and Traders

New customers in FY21

Under 35 years of age

Average daily TO


These numbers are a combined outcome of our razor-sharp focus on remaining relevant to our customers and serving them in the best manner possible. Our efforts enable us to create sustainable value for our customers, eventually culminating into mutually beneficial, trustworthy and time-tested bonds with them.
 

Who says discount brokers cannot offer full service?


At 5paisa, we stand true to our motto of ‘Making investing simple and rewarding’. Our flat fee of Rs.20 per order across segments (We charge Rs.10 per order for our add-on pack subscribers) is simple and transparent for anyone and everyone to understand.

Our full suite of offerings comprises our state-of-the-art trading platforms, research and advisory services of more than 4,000 companies, depository-related services at lowest cost, single platform for all investment products like mutual funds, gold, US stocks, ETFs, loans among others.

Through our simple, multi lingual web and mobile applications, we empower retail investors and avid traders to fulfill their investment and trading journey. Our personalized advisory and robo advisory services go the extra mile in providing customers with an engaging, immersive and efficient experience.

Customer-centricity forms the core of our activities and our recent initiatives such as improving our call center practices and margin changes are only few ways to enhance their experience. We continue to add new features in our trading portfolios, based on the invaluable feedback received from our customers.
 

Making investment not just simple but also rewarding


At 5paisa, we believe in helping our customers at every stage of their investing journey. For every investor the most important question is “Where to invest”. We understand and that’s why we provide detailed information and research of more than 4,000 companies, our ideas section in trading platforms provide advisory for short term trading, long term investing, intra-day ideas and derivatives strategy is the most comprehensive one in discount broking space. 

Not just this. We cover markets like provide pre market updates for traders. Our analyst Dhawal Shah provides much needed guidance through daily webinar. Our industry expert Vishal Mehta conducts weekly training program on varied subjects. 
 

Empowering new-age investors


We take pride in serving the millennials and have been reaching out to them through our phygital network as well as our strategic partnerships. Over 3/4th of our total customers are aged below 35 years, and an equal number are from the underpenetrated, lucrative tier-3 cities. We have been welcoming more and more DIY (Do-It-Yourself) customers to our universe, empowering them to trade themselves.

Given that a large part of our customers are first-time investors, educating them about the capital markets is one of our key responsibilities. Our YouTube channel provides over 242,000 subscribers a bouquet of insightful videos on varied topics of investing. Since its launch in August 2020, the 5paisa school has been receiving overwhelming response to its courses. 
 

Unleashing full potential of technology


We are committed to further fortify our technological capabilities to stay ahead of the rest. We have a multi-pronged approach on this front. First, to upgrade our existing offerings (research-based products, peer-to-peer lending, international investing, Portfolio Analyser, among others). Second, to build new tools using AI and data analytics. Lastly, to launch innovative products providing unique value propositions to our customers.

We are also forging strategic partnerships, wherever required, to continue enhancing overall user experience. Upgrading our existing mobile applications is an integral part of our strategy and the key driver behind increasing number of app downloads. Our apps enjoy strong rating of 4.2 stars owing to the enriching user experience they provide.
 

Delivering on our promise of ‘low cost’


We understand the value of your hard-earned money and are committed to use every penny wisely and prudently. Our promise to provide you with low cost investment solutions is fulfilled by consistent reduction in our overall costs (include cost of acquiring new customers).

On one hand, our customer base has been growing rapidly, while on the other hand, we have kept a tight leash on our marketing and other expenditures. Our technology platforms also act as key enablers to this end. Robust operating leverage allows us to provide several attractive subscription plans to investors.
 

May Goddess Lakshmi bless you with wealth and wellbeing in new Samvat 2078

Let this muhurat trading day be the day you begin your investment journey with our investment ideas.

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Why Stock SIP is a must-have for DIY Investors?

Why Stock SIP is a must-have for DIY Investors?
by Sheetal Agarwal 08/11/2021

Systematic Investment Plans (SIPs) have been a tried and trusted investment method adopted by retail investors for many years. This mode, especially mutual fund SIPs has enabled many retail investors kick start their journey of investing in equities. While so far, SIP investments are largely done through the mutual fund route, investors, especially Do-It-Yourself (DIY) investors should extend this mode to equity SIPs (ESIPs) as well.

A quick glance at important numbers will shed light on the massive growth of SIPs in recent times.
Data from the Association of Mutual Funds in India (AMFI) suggests that new SIP account registrations increased to a record 2.68 million in September 2021.

On an annualized basis, the SIP book has grown 22.8% over the last five years, taking total assets under management of the funds linked to the SIP accounts to ₹5.44 lakh crore in September 2021.This is equivalent to 14.83% of the total industry AUM.

While ESIPs are relatively smaller, their growth has been rather impressive. Over the last couple of years, there has been a multifold jump in ESIP investments. This is partly an outcome of growing investor awareness about the benefits of regular investing.

News reports suggest that there has been a 35% annual increase in number of investors opting for stock SIPs over the past couple of years. Interestingly, amounts invested per month through ESIPs have grown at a faster pace of 75% over the same time frame.
 

How does an ESIP work?


Under this method, an investor can choose to invest a fixed amount in shares of one or more companies or buy a fixed number of shares at regular intervals. Much of the benefits provided by a mutual fund are available in an ESIP as well (see table). Investors can select the frequency (daily, weekly or monthly) and amount/number of shares.

For example, Mr. A can buy 10 shares each of Tata Power and SBI on the 5th of every month or every Monday of the week or even daily. He can do so by signing up for a stock SIP with his stock broker.

Brokerages enable such investments by:

a) Sharing ideas/research on good quality stocks.
b) Sending reminder text messages/emails a day before ESIP due date.
c) Not charging any additional costs for the above services.

But, brokerage charges apply when an investor purchases shares.

Mutual Fund SIP versus ESIP

There is not much difference between the two, and both save investors the hassle of timing the market – which more often than not is the domain of investment experts. Such SIPs facilitate disciplined investments and more importantly, help investors build large corpus from relatively smaller sized investments. The table below summarizes key features of mutual fund SIP and ESIPs.
 

Particulars

Mutual Fund SIP

Stock SIP

Protection against market volatility/unpredictable stock price movement

Yes

Yes

Benefit from rupee cost averaging

Yes

Yes

Need to time the market

No

No

Investor can select the stocks to invest in

No

Yes

Invest small amounts

Yes

Yes

Low cost of transaction

Yes

Yes

Invest in large-cap, mid-cap and micro-cap stocks

Not always

Yes

Lower concentration risk

Yes

Not always

 

One key difference between mutual fund SIPs and ESIPs is that in ESIPs investors themselves identify the stocks they want to purchase. This usually entails undertaking research, adequate due diligence and deep dive into the company’s business – something that DIY investors do anyways.

They can also rely on research-backed investment advice provided by their brokerage. If the stock picks are right, compounding can work wonders in long term wealth creation. For example, a weekly ESIP of ₹9,000 in Bajaj Finance for the last 5 years would have created wealth of over ₹1 crore today (~50% return p.a.)
 

Advantages of investing via ESIP


ESIP is gaining popularity among investors due to the following benefits:

a) Low cost compared to mutual funds since there are no management fees
b) You get to choose the stocks you want to invest in
c) Invest in the sector or stock as per your risk appetite and confidence
d) Benefit from the power of compounding of sector leaders
e) Choice of diversified low cost investing like Exchange Traded Funds (ETFs) also available.
 

Strategies to follow while investing via ESIP


ESIP essentially is a ‘buy and hold’ strategy, and not a ‘buy and forget’ one. Investors have to carefully identify good quality stocks across different sectors and market capitalization. Follow basic rules of equity investing such as:

a) Avoid capital-intensive/high-debt companies
b) Select companies having strong, sustainable economic moat
c) Stay away from complex and/or cyclical businesses
d) Manage your entry and exit by taking advice of experts
e) Monitor and review the stocks regularly

ESIP + ETF

ETFs have now become the largest category in terms of assets under management and rightly so, due to the low-cost, diversified and non-biased nature of investments. Hence ESIP in ETFs is a very potent tool for investors today. With new indices being created and new ETFs being launched, investors can do ESIP in the index of their choice based on their risk appetite and investment horizon. For beginners, they can try with broad based indices like Nifty.
 

Investors can set up ESIP on 5paisa in 3 quick steps


1) Choose stock
2) Enter quantity and frequency
3) Set up

5paisa is the first discount broker in the country to offer ESIP product. Since launch in September 2021, ESIP has garnered overwhelming response so far with more than 500 fresh SIPs being registered every day on the 5Paisa platform. Till date about 30,000 SIPs have already been registered by about 5,000 investors and the numbers are growing every day.

It is true that ESIPs is a great way to safeguard investors from extreme volatility in markets as well as to create long term wealth. However, investors must still exercise caution to manage the risks effectively.

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5paisa is now trusted by over 2 million customers, and counting

2 million customers
by Sheetal Agarwal 22/11/2021

In a short span of just 5 years, we, 5paisa Capital Limited (5paisa) have built a trusted, durable and sustainable bond with our customers. This fact is reflected in our pace of customer acquisition – average monthly rate of customer acquisition now stands at 1,25,000 versus 1,000 in 2016.

In fact, the quarter ending September 2021 marked our highest-ever quarterly customer acquisition at 3.4 lakh.

Today, we serve more than 2 million customers and want to extend our heartfelt gratitude to each one of them. Let us put this into perspective. Historically, traditional brokerages took at least a decade to achieve this milestone, while we have done it in a fraction of that time.

This feat provides testimony to two important facts. First, our motto of ‘making investing easy and rewarding’ resonates well with our customers. Second, we have successfully ‘walked the talk’ to imbibe this motto in everything that we do.

Needless to say, our management team has the foresight, vision and ability to not just develop but also implement winning strategies. In this write-up, we highlight some of the crucial decisions actioned by team 5paisa to achieve this important milestone. 
 

Pioneering ahead


Our ability to keep our ears close to the ground and gauge market trends swiftly; coupled with our strong execution capabilities have enabled us pioneer several concepts in the discount broking space in India.

With an aim to make the procedure for opening demat account simpler, easier and more transparent; we have been implementing several measures. That we were the first in the industry to launch these initiatives was an added bonus.

Back in 2016, the concept of Do-It-Yourself (DIY) virtually did not exist. Processes were largely in physical form and required manual interventions. At that time, we were the first brokerage to introduce complete digital opening of accounts.

Our processes were paperless, human less and did not require any physical signing or uploading of forms.

Back then, 5paisa became the first brokerage firm in India to start Aadhar-based demat account opening (one of the first broking companies to get UIDAI AUA license). We were also the first broker to introduce Electronic Delivery Instruction Slip or eDIS concept and scrap usage of Power of Attorney (PoA) for the purpose of opening a demat account.

This has now become an industry standard. From the 1st day of our operations, we opened 100% of demat accounts digitally. We were also among the first brokerages to provide robo-advisory services on mobile back then, when it was still a very nascent concept.
 

Extending investing beyond metros; guiding millennials


Our strategy of expanding the universe of investors helped us stand apart in a market where most of the incumbent large full service brokers were looking to churn existing investors. This strategy was the outcome of our in-depth market analysis which suggested that there is a vast universe of potential investors outside the big metros.

So, we enhanced our focus on acquiring customers in tier 2 and tier 3 towns of the country. Similarly, we identified millennials and DIY investors as other key target segments. Our ability to cater to them in the language of their choice acted as an important ice breaker, providing us an avenue to put a foot in the door.

We draw inspiration from the words of the father of marketing, Philip Kotler – “The best advertising is done by satisfied customers”. Our efforts are focused on hyper-personalization and localization to create superior customer experiences.

As a result, favorable word-of-mouth and organic initiatives bring 65-70% of new customers to our universe every year. This metric has grown from 35-40% levels in 2018. We have achieved 100% growth in customer acquisitions, every year, for the past 4 years.
 

Delivering superior customer experience, consistently


Customer-centricity is at the heart of all our activities. It is our constant endeavor to provide easy-to-use, simple and beneficial investing platforms and solutions to our customers. Our app is rated highly on all these parameters and was downloaded by 10 million+ users. The overall rating of our app stands at 4.3 stars.

In 2016, 14-15% of industry’s Average Daily Turnover (ADTO) was routed through mobile apps. Right from the start of our journey, we derived 75-80% ADTO from our mobile app. Currently, brokerage industry generates 35-40% of ADTO via mobile apps and we have maintained this metric between 75-80%.

Our app as well as our social media platforms (including our YouTube vides) are available in several Indian languages (8, including English), reaching a larger set of users. Every day users use 1 of the 7 regional languages.

Our app acts as a single-point investment destination for users. In addition to stocks, users can invest in mutual funds, buy insurance/gold, invest in US stocks and also avail loans through a single app.


Fast-tracking growth through technology


Cutting-edge technology forms the backbone of our business. Technology has the potential to drive growth at relatively lower costs, enhance efficiencies and create sustainable value for all our stakeholders. Over the past three years, technology has enabled us to do more with the same number of people.

We continue to build our technology capabilities with the primary objectives of serving existing customers better and acquiring more customers. All-round improvement in business processes is the secondary objective behind raising our tech-quotient.

While our journey so far has been exemplary, there are miles to go before we sleep. Keep watching this space to know more about our future journey.

Also Read:-

5paisa: Because Every Paisa Counts

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