Nifty 18210.95 (-0.31%)
Sensex 61143.33 (-0.34%)
Nifty Bank 40874.35 (-0.88%)
Nifty IT 35503.9 (0.97%)
Nifty Financial Services 19504.75 (-0.74%)
Adani Ports 745.85 (-0.54%)
Asian Paints 3094.65 (4.20%)
Axis Bank 787.50 (-6.46%)
B P C L 427.70 (-0.78%)
Bajaj Auto 3776.50 (-0.40%)
Bajaj Finance 7482.15 (-4.75%)
Bajaj Finserv 18012.00 (-1.86%)
Bharti Airtel 702.35 (0.88%)
Britannia Inds. 3697.85 (0.14%)
Cipla 922.50 (1.65%)
Coal India 173.60 (-0.83%)
Divis Lab. 5149.35 (2.60%)
Dr Reddys Labs 4662.70 (-0.08%)
Eicher Motors 2583.90 (-0.25%)
Grasim Inds 1728.40 (-0.63%)
H D F C 2915.00 (0.12%)
HCL Technologies 1177.15 (0.89%)
HDFC Bank 1642.80 (-0.60%)
HDFC Life Insur. 693.85 (0.55%)
Hero Motocorp 2690.15 (-0.38%)
Hind. Unilever 2396.60 (-1.65%)
Hindalco Inds. 479.85 (-1.28%)
I O C L 130.80 (-0.53%)
ICICI Bank 835.00 (0.68%)
IndusInd Bank 1142.55 (-1.07%)
Infosys 1728.95 (1.48%)
ITC 238.45 (0.74%)
JSW Steel 684.90 (-1.36%)
Kotak Mah. Bank 2188.25 (-1.03%)
Larsen & Toubro 1784.55 (-0.65%)
M & M 886.80 (-0.87%)
Maruti Suzuki 7356.25 (0.81%)
Nestle India 19004.60 (-1.11%)
NTPC 141.30 (-1.33%)
O N G C 157.90 (-3.19%)
Power Grid Corpn 190.25 (-0.08%)
Reliance Industr 2627.40 (-1.26%)
SBI Life Insuran 1186.00 (1.19%)
Shree Cement 28107.75 (1.19%)
St Bk of India 519.15 (1.29%)
Sun Pharma.Inds. 825.10 (1.43%)
Tata Consumer 818.75 (1.22%)
Tata Motors 497.90 (-2.11%)
Tata Steel 1326.15 (-1.30%)
TCS 3489.75 (0.21%)
Tech Mahindra 1567.85 (0.29%)
Titan Company 2460.10 (0.22%)
UltraTech Cem. 7354.20 (1.17%)
UPL 741.50 (3.96%)
Wipro 671.10 (0.44%)

Thematic and sector funds explained

Thematic and sector funds explained
by Nutan Gupta 30/05/2017

There is a fine difference between the words 'same' and 'similar'. Many novice investors are falsely governed by the idea that thematic funds and sector funds, by and large, are the same thing. This isn't really the case. The above are two of many branches of the mutual fund's tree. One of their similarities, though, is their narrowed approach towards business sector investment.

Sector Funds

Sector funds narrow down your invested money only to the specific sector/industry. For instance, you choose to invest in a company that manufactures beverages. Sector funds will make sure that your funds are invested solely in that particular sector and/or another industry closely related to it. Basically, you are free from any kind of diversification.

Investment in sector funds is all about the right timing. The main idea is to tap-in on the growth of a particular sector/industry. Holding a falling sector would only lead to greater loss impacts. An investor who held IT sector funds during the year 2000 smiled widely (the time when the IT sector was booming), while the one who held it during the year 2008 lamented deeply (the time when the IT sector was falling). The other advantage is its ability to shield you from individual firm-specific risk. Instead of buying individual stocks of the same company that fall in the same sector, investing in sector funds would ensure that one company's poor performance wouldn't affect your portfolio.

The disadvantage around it is the higher rate of volatility. As higher could be the growth curve, there is a serious chance of it falling terribly low. This, hence, requires greater risk-taking capability. The above is also fueled by a wrong investment sector chosen by the investor.

Thematic Funds

As previously suggested, thematic funds are almost similar to sector funds. But here, instead of strictly focusing on specific sectors, thematic funds concentrate on various sectors around a specific 'theme'. If and when you choose to invest, say in a manufacturing thematic fund, the capital would be invested into companies that may be from different sectors but revolve around the common theme: 'manufacturing'.

Your primary advantage for choosing thematic funds is the higher dividend as compared to mutual funds. It offers a smart portfolio structure by neither diversifying nor narrowing your investment too much. Thematic funds help you bypass the drawbacks faced by individual stock investors.

As far as sector funds are concerned, one word sums up its disadvantage: Volatile. Yet, when compared to sector based funds, this volatility in the market tend to affect less adversely.

To conclude

Lucrative and interesting is what sums up when you think about thematic and sector funding. Both come with an understood risk factor. Yet, a broader outlook suggests that these kinds of investment pave way for a stronger portfolio. With the right experience and guidance, an investor can certainly reap rich rewards off his seemingly broad market mentality.

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What is Stock Repair strategy?

What is Stock Repair strategy?
by Nilesh Jain 30/05/2017
New Page 1

As the name suggests, the Stock Repair strategy is an alternative strategy to recover from loss that a stock has suffered due to fall in price. The Stock Repair strategy helps in recovering losses with just a moderate rise in the price of the underlying stock.

Why to Initiate Stock Repair strategy?

Stock Repair strategy is initiated to recover from the losses and exit from loss making position at breakeven of the underlying stock.

Who can initiate Stock Repair strategy?

A Stock Repair strategy should be implemented by investors who are looking forward to average their position by buying additional stocks in cash when the underlying stock price is falling. Instead of buying additional stock in cash one can apply stock repair strategy.

Stock Repair strategy?

A Stock Repair strategy should be initiated only when the stock that you are holding in your portfolio has corrected by 10-20% and only if you think that the underlying stock will rise moderately in near term.

How to Construct the Stock Repair strategy?

  • Buy 1 ATM call
  • Sell 2 OTM calls

Stock Repair strategy is implemented by buying one At-the-Money (ATM) call option and simultaneously selling two Out-the-Money (OTM) call options strikes, which should be closest to the initial buying price of the same underlying stock with the same expiry.

Strategy Long Stock, Buy 1 ATM Call and Sell 2 OTM Call
Market Outlook Mildly Bullish
Motive Recover loss with limited risk
Break even (Strike price of buy call + strike of sell call + net premium paid)/2
Risk Net premium paid, Drop in price of holding stock
Reward Average of difference between strike price-net premium paid
Margin required Yes

Let’s try to understand with an example:

DISHTV earlier Bought at Rs 100
Quantity bought 7000
DISHTV Current spot price (Rs) 90
Buy 1 ATM Call of strike price (Rs) 90
Premium paid (Rs) 5
Sell 2 OTM Call of strike price (Rs) 100
OTM call price per lot (Rs) 2
Premium received (Rs) (2*2) 4
Break even 95.5
Lot Size 7000
Net Premium paid (Rs) 1

For example, an investor Mr. A had bought 7000 shares of DISHTV at Rs 100 in April but the price of DISHTV has declined to Rs 90, resulting in to notional loss of Rs 70,000. Mr. A thinks that price will rise from this level so rather than doubling the quantity at current price, here he can initiate the Stock Repair strategy. This can be initiated by buying one May 90 call for Rs 5 and selling two May 100 call for Rs 2 each. The net debit paid to enter this spread is Rs 1 amounting to Rs 7000, which will be the maximum loss from repair strategy that Mr. A will face if DISHTV falls below Rs 90.

If DISHTV expires at 80 level then both the calls would expire worthless, resulting in loss of the debit paid of Rs 7000 as the net cost to initiate Stock Repair strategy is Rs 1 per lot. Had Mr A doubled his position at 90 level then he would have lost Rs 70,000 (10*7000). This shows he is much better off by applying this strategy.

If DISHTV expires at 100 level then this would be the best case scenario where maximum profit will be achieved. May 90 call bought would result in to profit of Rs 5 where as May 100 call sold will expire worthless resulting in to gain of Rs 4. Net gain would be Rs 63,000 (9*7000).

Followings are the two scenarios assuming Mr A has implemented the Stock Repair strategy whereas Mr B has doubled his position at lower level. For the ease of understanding, we did not take in to account commission charges.

Stock Repair

Normal Averaging

DISHTV expires at Payoff from stock holding at Rs 100 Payoff from Repair Strategy Net payoff of Mr. A Payoff from stock holding at Rs 100 Doubling down position payoff Net Payoff of Mr. B

70

(2,10,000) 7,000 (2,17,000) (2,10,000) (1,40,000) (3,50,000)

80

(1,40,000) 7,000 (1,47,000) (1,40,000) (70,000) (2,10,000)

90

(70,000) 7,000 (77,000) (70,000) 0 (70,000)

100

0 63,000 63,000 0 70,000 70,000

110

70,000 (7,000) 63,000 70,000 1,40,000 2,10,000

Comparison:

Mr. A initiated stock repair strategy Mr. B Doubled his position at lower level
Margin Only margin money is required to initiate stock repair strategy Full amount has to be paid in cash for taking delivery of stock
Interest Loss (1 month) 1,50,000*0.08/12=1000 630000*0.08/12= 4200
Risk Risk associated is limited It involves high risk when the stock price falls
Brokerage Brokerage in Options is comparatively less. Brokerage paid to initiate position is higher as compared to Options.

The Payoff chart:

Analysis of Stock Repair strategy:

The Stock Repair strategy is suitable for an investor who is holding a losing stock and wants to reduce breakeven at very little or no cost. This strategy helps in minimizing the loss at very low cost as compared to "Doubling Down" of position.

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Put Ratio Spread Explained

Put Ratio Spread Explained
by Nilesh Jain 30/05/2017

What is Put Ratio Spread?

The Put Ratio Spread is a premium neutral strategy that involves buying options at higher strike and selling more options at lower strike of the same underlying stock.

When to initiate the Put Ratio Spread

The Put Ratio Spread is used when an option trader thinks that the underlying asset will fall moderately in the near term only up to the sold strike. This strategy is basically used to reduce the upfront costs of premium and in some cases upfront credit can also be received.

How to construct the Put Ratio Spread?

  • Buy 1 ITM/ATM Put
  • Sell 2 OTM Put

The Put Ratio Spread is implemented by buying one In-the-Money (ITM) or At-the-Money (ATM) put option and simultaneously selling two Out-the-Money (OTM) put options of the same underlying asset with the same expiry. Strike price can be customized as per the convenience of the trader.

Strategy Put Ratio Spread
Market Outlook Moderately bearish with less volatility
Upper Breakeven Long put strike (-/+) Net premium paid or received
Lower Breakeven Short put strike - Difference between Long and Short strikes (-/+) premium received or paid
Risk Unlimited
Reward Limited (when underlying price = strike price of short put)
Margin required Yes

Let’s try to understand with an Example:

NIFTY Current market Price Rs 9300
Buy ATM Put (Strike Price) Rs 9300
Premium Paid (per share) Rs 140
Sell OTM Put (Strike Price) Rs 9200
Premium Received Rs 70
Net Premium Paid/Received Rs 0
Upper BEP 9300
Lower BEP 9100
Lot Size 75

Suppose Nifty is trading at Rs 9300. If Mr. A believes that price will fall to 9200 on expiry, then he can initiate Put Ratio Spread by buying one lot of 9300 put strike price at Rs 140 and simultaneously selling two lot of 9200 put strike price at Rs 70. The net premium paid/received to initiate this trade is zero. Maximum profit from the above example would be Rs 7500 (100*75). It would only occur when the underlying asset expires at 9200. In this case, short put options strike will expire worthless and 9300 strike will have some intrinsic value in it. However, maximum loss would be unlimited if it breaches breakeven point on downside.

For the ease of understanding, we did not take in to account commission charges. Following is the payoff schedule assuming different scenarios of expiry.

The Payoff Schedule:

On Expiry NIFTY closes at

Net Payoff from 9300 Put Bought (Rs)

Net Payoff from 9200 Put Sold (Rs) (2Lots)

Net Payoff (Rs)

8700

460

860

-400

8800

360

660

-300

8900

260

460

-200

9000

160

-260

-100

9100

60

-60

0

9150

10

40

50

9200

-40

140

100

9250

-90

140

50

9300

-140

140

0

9350

-140

140

0

9400

-140

140

0

9450

-140

140

0

9500

-140

140

0

The Payoff Graph:

Impact of Options Greeks:

Delta: If the net premium is received from the Put Ratio Spread, then the Delta would be positive, which means any upside movement will result into marginal profit and any major downside movement will result into huge loss.

If the net premium is paid, then the Delta would be negative, which means any upside movement will result into premium loss, whereas a big downside movement is required to incur huge loss.

Vega: The Put Ratio Spread has a negative Vega. An increase in implied volatility will have a negative impact.

Theta: With the passage of time, Theta will have a positive impact on the strategy because option premium will erode as the expiration dates draws nearer.

Gamma: The Put Ratio Spread has short Gamma position, which means any major downside movement will affect the profitability of the strategy.

How to manage Risk?

The Put Ratio Spread is exposed to unlimited risk if underlying asset breaks lower breakeven hence one should follow strict stop loss to limit losses.

Analysis of Put Ratio Spread:

The Put Ratio Spread is best to use when investor is moderately bearish because investor will make maximum profit only when stock price expires at lower (sold) strike. Although your profits will be none to limited if price rises higher.

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7 Hacks To Lower Your Car Insurance Costs

7 Hacks To Lower Your Car Insurance Costs
by Divya Nair 01/06/2017

Buying a new car today might be cheaper than actually using one in our daily lives. The running cost of a car today is definitely higher than the day it was bought. While nothing can be done about the rising premiums on car insurance, we can certainly try cutting down the overall costs on our insurance covers.

Try These 7 Smart Ways To Save On Your Car Insurance Cost:

1. Accumulating NCB - Car owners can accumulate No Claim Bonus (NCB) by not claiming for minor repairs. Many insurance companies usually reduce premiums for the preceding year if you don’t make any claims in a year. Moreover, it is better to spend on your own on minor repairs than file a claim and lose the no-claim bonus.

2. Transferring NCB -

You can transfer your NCB when you sell your old vehicle and buy a new one. When getting your new car, all you have to do is inform your insurance provider that you wish to transfer your NCB. That done, the insurer will provide you with a certificate stating the details of the new car.

3. Apply For Discounts -

There are few insurance companies that offer discounts based on your age and profession. Make sure you apply for it.

4. Install Anti-Theft Devices -

People can also reduce the premium costs by installing smart anti-theft devices like alarms and tracking devices. By installing such safety devices, vehicle owners can get substantial discount.

5. Drop Unnecessary Add-On Covers -

We are often advised to buy the necessary add-on covers while buying a new car. But an add-on should not be bought only for the sake of buying it. One should drop any unnecessary add-on covers which will otherwise increase the premium costs.

6. Opt For Voluntary Deductible -

Vehicle owners can opt for a voluntary deductible and get further discount. But this also means that they will have to bear the claim cost upto the value of the deductible chosen.

7. Compare Quotes Online Before Purchasing -

It is wise to do an online comparison of policies from a number of companies before buying a policy. Most insurance companies offer lower premiums online. You may miss out on huge discount if you do not compare various plans.

Conclusion - With the rising cost of vehicles and changing lifestyles, car insurance cost is unlikely to go down in times to come. With these 7 ways mentioned above, we hope you will be able to lessen that extra cost on car insurance.

Buy a Car Insurance Cover Now!

Next Article

All About House Rent Allowance (HRA)

All About House Rent Allowance (HRA)
by Divya Nair 01/06/2017

House Rent Allowance (HRA) is the amount which your employer pays you towards the rent of your accommodation. Every salaried individual living in a rented flat is entitled to claim HRA to save on taxes. HRA is regulated by the provisions of Section 10(13A) of the Income Tax Act.

How Is HRA Decided?

It is decided based on the criteria like salary of the employee and the city of residence of the employee. If the employee resides in a metro city, then he/she is entitled to HRA almost equal to 50% of the salary. For others, HRA entitlement is 40% of the salary.

How To Use HRA To Save Income Tax?

A salaried individual can claim HRA exemptions only if these conditions are met: HRA is received as part of the salary package If an employee stays in a rented house rent paid is more than 10% of the salary.

How Much Of HRA Is Exempt From Income Tax?

The entitled HRA to an employee is not always fully exempt from tax. Employers take into consider the least of the below three heads to exempt tax - HRA received from the employer Actual rent paid less 10% of salary 50% of basic salary for those living in metro cities 40% of basic salary for those living in non-metro cities

Taxable HRA For Mr. X Who Lives In Mumbai
Basic Salary Rs 30,000
HRA Received Rs 13,000
Rent On Accommodation 1,44,000

Hence, Mr.X would get an HRA exemption of Rs 13,000 (the least among the three conditions). You can also save tax by paying rent to your parents, grandparents even if they do not have taxable income. In this case, they will act as your landlord, but the owner of the house should be the one whose name is furnished in the rent receipt.

Documents Required To Claim HRA Benefit -

If the HRA claim is just upto Rs 3,000/month, employees need not furnish any documents. But for amount exceeding this limit, the following documents need to be submitted to the employer -

Rent Receipts:

For HRA tax exemption, employees need to affix a one rupee revenue stamp on rent receipt with details of rented house and landlord like address of rented house, landlord name, amount of rent etc. The rent receipt has to have the signature of the landlord.

Rental Agreement In Some Cases:

If the rent exceeds Rs 15000/month, then PAN details of the landlord is mandatory for claiming HRA exemption.

Next Article

5 Stocks Recommendation For Feb 25th, 2019 – Mar 1st , 2019

Stock recommendations
by Gautam Upadhaya 21/07/2017

1) Balkrishna Industries Ltd - Buy

 

Stock Balkrishna Industries Ltd
Recommendation The stock has witnessed a breakout from its sideways consolidation
backed by an uptick in volumes on the daily chart. It has also shown
positive momentum on the daily MACD-Histogram, an indication that
the uptrend will continue in the short term.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs850-855 Rs892 Rs827
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
BALKRISIND 16543 Rs1467/741 Rs987

 

2) REC Ltd - Buy

 

Stock REC Ltd
Recommendation The stock has witnessed a consolidation breakout backed by an uptick
in volumes on the weekly chart. Derivative data indicates fresh long
positions in the stock.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs131-133 Rs139 Rs127.8
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RECLTD 26068 Rs148/89 Rs119

 

3) Mahindra & Mahindra Ltd - Buy

 

Stock Mahindra & Mahindra Ltd
Recommendation The stock has witnessed a rounding bottom formation and has managed
to close above its 10-DEMA, short-term resistance level on the daily charts.
It has also formed a bullish hammer candlestick on the weekly charts.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs641-647 Rs672 Rs625
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
M&M 80272 Rs992/615 Rs771

 

4) Raymond Ltd - Buy
 

Stock Raymond Ltd
Recommendation The stock has witnessed a breakout above its resistance levels backed by an uptick in volumes on the daily charts. It has also shown strong momentum on the daily MACD-Histogram.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs721-728 Rs755 Rs705
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RAYMOND 4478 Rs1151/593 Rs806

 

5) HDFC Bank Ltd - Sell

 

Stock HDFC Bank Ltd
Recommendation The stock has formed a bearish engulfing candlestick pattern backed by an uptick in volumes on the daily chart. Derivative data indicates fresh short positions in the stock.
Buy/Sell Range Target Stop Loss
Sell (March Futures) Rs2105-2120 Rs2030 Rs2164
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
HDFCBANK 569029 Rs2219/1830 Rs2041

 

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