Trading environment in the Indian stock market

Trading environment in the Indian stock market
06/05/2018

A decade ago, stocks, bonds, futures, and options used to be traded on web-based platforms on stock trading websites.

With the advent of mobile trading applications, trading can now be done from the palms of one’s hands. Most of these platforms are free or have predefined amounts, while others, like 5Paisa, charge a flat fee (brokerage) on any and every trade. The market for mobile-based stock trading on the NSE was recorded to have increased 150% in the year 2014–2015, from transactions worth Rs50,800cr to Rs1,16,186cr. Moreover, most of these transactions were done by traders with a low-ticket size.

Following were the benefits of ‘digitizing’ share market trading:

1)    The exchange of information has become instantaneous

2)    Anyone and everyone can become a broker and explore trading in equity, derivatives, futures, and options. Intra-day trading tips, available directly through emails, text messages, etc., also aid decision-making

3)    One does not have to log in to their desktop every time he/she wants to view his/her portfolio or make a trade

4)    Transactions have become seamless, as apps allow easier fund transfer from your bank account to your trading account

5)    Applications are user-friendly, fast, and provide an excellent stock trading experience

6)    One can now trade in stocks across multiple segments and invest in financial instruments such as mutual funds

7)    Tools like heat maps, technical indicators, and charts, directly available on the apps, provide insights for personal analysis

8)    Provision to keep a market watch and live market information

9)   ‘Search’ functions allow access to thousands of instruments and contracts across exchanges, thus helping users to learn to trade

10)    Some apps even allow one to apply to IPOs and OFS through smartphones

11)    Assured secure transactions on par with online trading platforms

A few drawbacks, like the dependence on internet or mobile networks, varying speeds of performance, and incessant updates/notifications do exist, but the benefits are far greater.

The 5paisa app is considered to be one of the best stock trading apps in the market. It allows users to trade, invest, and even get insurance from the convenience of their smartphones.  

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Five ways you can save tax

Five ways you can save tax
15/05/2018

Be it a first-time taxpayer or a seasoned one, tax planning is essential for all. Efficiently planning taxes helps one save a lot of money. Despite this, the Indian tax laws seem so complicated that people are scared of dealing with it. However, tax saving is not as difficult as it looks. The Indian income tax regulations allow for certain deductions or exemptions for all classes of taxpayers (i.e. salaried individuals, professionals, and businessman, etc.). We just need to put in some efforts to understand the various ways through which we can claim such deductions or exemptions.

Here are five simple ways using which you can reduce your taxes:

  • Profits earned from the selling of shares or mutual funds can be totally tax-free. The trick is to hold the equity, whether it is shares or mutual funds, for more than one year. For e.g., if someone has invested Rs1 lakh in some stock, and its value rises to Rs1.2 lakh in 11 months, he/she will have to pay a tax on realizing the profit of Rs20,000. However, holding it for another month means there would not be any need to pay tax on the profits. However, the Finance Bill 2018 now restricts this exemption to taxpayers whose total profits from such sales do not exceed Rs1 lakh in a given year.
  • Some personal expenses are additionally eligible to reduce your taxable income. These expenses are deducted from your gross salary. Your employer can provide you with leaves, or travel remittance, or meal coupons as part of your salary. There is also a component called HRA (House Rent Allowance). You can claim a deduction for the same if you live in a rented house. Whenever you negotiate your CTC with your employer, make sure that you structure your salary in order to include all or most of these components.
  • There are various other tax-saving investments as well. Schemes like Employees’ Provident Fund (EPF), Public Provident Fund (PPF), National Pension Scheme (NPS), Sukanya Samriddhi Scheme, and so on, are a few of the investments through which one can save tax.
  • You can always invest in the equity-linked saving schemes (ELSS). It is a systematic investment in mutual funds with a lock-in period of three years. ELSS invests in the share market and has a potential of providing the highest return. Using this, one can claim deductions up to Rs1.5 lakh under section 80C. It gives the dual advantage of tax exemption as well as capital appreciation.
  • Employers deduct TDS from your salary. Tax Deducted at Source (TDS) varies according to the projected tax liability for the particular financial year. If the planned tax savings, investments, and expenses for the year are not declared properly, the expected tax will naturally be higher. Moreover, to compensate this, the employer deducts a TDS accordingly every month. However, it might happen that it would already be too late by the time you declare your investments and your employer already deducts more TDS than required. Although, one can always claim a tax refund by filing income tax returns, why pay extra and lose out on the returns those extra funds could have provided in the meantime?

There are many ways to save taxes. You just need to put in some efforts to understand how to do it. Ensure that you never break any laws in the process. While being tax-efficient is smart, tax evasion is entirely illegal and punishable.

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Interested In Short-Term Trading? Know These Five Things

Interested In Short-Term Trading? Know These Five Things
16/05/2018

When the waiting period between buying & selling stocks ranges from a few days to a few weeks, it is known as short-term trading. Here are five things to remember while trading short-term.

1. Time

Short-term trading gives you a very short window to make trade decisions and might lead to making rash investment decisions and end in a huge loss. It is indeed difficult to keep emotions out of the equation when decisions need to be made quickly. Hence, it requires dedicating ample time in the pursuit of studying and understanding the market if you are considering short-term trading. You have to be ready to take snap decisions regarding any news on the market at any given point in time.

2.Predicting

“No profession requires more hard work, intelligence, patience, and mental discipline than successful prediction.” – Robert Rhea

It is impossible to predict the future, and even psychics don’t get it right. However, it is quite easy to predict the direction a stock will take or an uptrend in the market. These predictions, however, should be a result of hard facts and figures, and not impulse. Analysis should take precedence over emotions when it comes to trying to predict something as unpredictable as the stock markets.

3. Stop-loss

A stop-loss is an essential to short-term trading. No matter how strong your conviction/confidence about the market, it is always advisable to set a stop loss trigger. It is wise to book losses when possible rather than riding on them. You should keep emotions in check and set your target price and stop loss based on available research.

4. Timing the market

Anytime is a good time to invest. However, you need to prevent yourself from timing the stock markets as it is a waste of effort, resources, and money. More important than timing the market is the trend in the market. Of course, there will be few who will make money by timing the market, just as there will be people who will go on to win the lottery. However, why take such a big risk when the odds are stacked against you and your hard-earned money?

5. Perception

The man who begins to speculate in the market with the intention of making money usually goes broke, whereas the man who trades with a view of getting good interest on his money gets rich”- Charles Henry Dow

Stock markets are not devices to earn a quick buck. In short-term trading, it is not what is right or what is wrong, but what the people think at that moment as right or wrong that governs the direction. However, in the long run, the market always comes back to its rational position. Due to one bad trade, the trader should not refrain from trading again as there are chances that he/she might miss out on potential gains. Instead, the trader should analyze what went wrong in the trade and take corrective measures to prevent them. As the stock market is a capricious place, one must always strive to better oneself and make the most of the experience.

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The Rise In Online Trading

The Rise In Online Trading
22/05/2018

Dynamic changes have been altering the traditional systems over the last decade and stock market trading is no exception to this. A few years ago, you could find a handful of online traders, but the number has dramatically risen today. However, the true numbers are quite challenging to find because of the phenomenal shift of consumers and marketing activities in stock trading. Let’s take a look at some of the reasons that contributed to the rise and popularity of online trading.

Factors that supported this change

A new trend: Anything new that is followed by many becomes a trend and trends need to be followed. Online trading was the new way to the share markets for investors, and hence, gained immense popularity. Its efficiency and accessibility are what keep online trading attractive.

Less dependence on brokers: The emergence of online trading liberated traders and investors of their dependence on intermediaries (brokers). Earlier, trading was primarily mediated through agents who also gave tips. However, online trading has made market research outputs readily available to consumers, which has, in turn, helped the latter take their own decisions.

Transparent and updated information: Information is updated in real time and is readily available to traders through online trading apps and/or websites. This information reduces the time difference between a market activity and the time it takes traders to know about it. This has significantly added to the popularity of online trading.

Trading for all: Before the emergence and popularity of online trading, stock trading was a secluded market. Most people were not even aware of the stock markets, while others shied away from it. Online trading has opened the gates to all and tickled the interests of the general population.

Change in investment norm: Long-term investments have always been considered to be profitable, but due to gradual changes in market elements and the nature of the market and trading processes, short-term investments have reaped more profit. Online trading is best suited for short-term and quick investments because of the ease of operation, least time lapse, and real-time motoring.

The capital markets are an ever-evolving space that have elements being added over time. Online trading and its growth have made the markets more dynamic than ever before, which reflects even in the economies of different nations.

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Five Ways The Fuel Price Hike Will Impact You

Five Ways The Fuel Price Hike Will Impact You
23/05/2018

The prices of petrol and diesel have surged sharply in India over the last few months on the back of rising global crude prices. Remember, India shifted to free pricing of fuels in 2014 and since then, the prices of petrol and diesel have been determined by the oil-marketing companies.

The tables below display how the prices of petrol and diesel have risen by 12% and 20%, respectively, in Maharashtra in the last six months alone:

Petrol (23rd May)

Petrol (1 month ago)

Petrol (3 months ago)

Petrol (6 months ago)

Rs85.03/litre

Rs82.52/litre

Rs79.39/litre

Rs76.52/litre

 

Diesel (23rd May)

Diesel (1 month ago)

Diesel (3 months ago)

Diesel (6 months ago)

Rs72.80/litre

Rs70.24/litre

Rs66.19/litre

Rs60.96/litre

 

Here are the five key takeaways from the fuel price hike and how they will impact you.

  1. You will have to economize the use of your personal vehicles

    Looking at the number of cars and two-wheelers jostling for space on Mumbai’s streets, it is hard to believe that the price of fuel has risen this sharply in the last six months. Now, it has started to pinch household budgets. A 20% increase in the price of diesel in six months is nearly eight times the inflation rate. Effectively, the higher price of fuel is also making your household budget tighter. You now have to either shell out more for your fuel bills or start using public transport. To begin with, you will have to stop using a vehicle to go shop from down the road.

  2. Higher fuel prices will make a lot of other products dearer

    This might surprise you, but higher fuel prices make a lot of other products costlier too. Think of all the costs entailed in getting the produce off a farm to your plate. A 20% rise in the price of diesel will put pressure on the prices of food that you consume. It will also impact a lot of other products, including footwear, textiles, FMCG products, cement, etc., and all these will translate into higher costs. Effectively, higher fuel prices will hit you in more ways than one.

  3. Fuel price and interest rates – But how are they related?

    You may wonder how fuel prices and interest rates are related and what it means for you. There is an interesting relationship here. When fuel prices goes up, CPI inflation (retail inflation) goes up. That is because of two reasons. Firstly, fuel is a part of the inflation basket and that results in higher inflation. Secondly, fuel has strong downstream effects and makes a lot of other products costlier. When CPI inflation goes up, the RBI is constrained to hike interest rates. If you are holding on to debt funds in your portfolio, you will find the debt fund NAVs falling due to rising interest rates. At the same time, your equity portfolio will also face the brunt as higher interest rates will put pressure on equity valuations. Thus, higher fuel prices will impact your equity and debt portfolios too.

  4. Keep an eye on your mid-cap and small-cap portfolios

    You must be wondering why mid-caps and small-caps are correcting so much while the large-caps seem to have lost only a limited value since the Union Budget. The reasons are not far to seek. When oil prices fell from $110/bbl in November 2014 to $29/bbl in January 2016, the biggest beneficiaries were those from the mid-cap and the small-cap space as the benefits of lower costs are immediately felt here. This is working in reverse now. With crude oil prices shooting up to $80/bbl, costs are going up even as margins compress for the small-caps and the mid-caps. So, if you are holding a portfolio of mid-cap and small-cap stocks or funds, be cautious.

  5. You will have to pay more for your child’s education abroad

Your daughter who studies in the US is suddenly telling you that your monthly remittance is not sufficient. It is not that she has started spending more but it is just that your fixed rupee remittances are getting lesser dollars in return. But why? Higher fuel prices mean a higher trade deficit, which leads to a weaker rupee. Today, you need Rs68.33 to buy $1 as compared to just Rs63.50 five months ago.

In a nutshell, the impacts of dearer oil prices are more far-reaching than you have imagined!
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Smart things to know about index trading

Smart things to know about index trading
28/05/2018

If you are familiar with investing in the share markets, you must often hear things like “the market has risen” or “it has fallen”. However, when you compare this rise or fall with your portfolio, you do not see any considerable change. Then how did the market rise or fall; what does "market" mean in this scenario? Here, the word ‘market’ means the value of the ‘index.’

What is index trading?

An index is a collection of stocks of various companies which are grouped to get a general idea of how the sector or industry is doing. The stocks of businesses which are the main contributors to that particular sector in an economy are combined to form an index. If the index is doing well, it means that the sector is bullish or the prices of stocks have risen. If the value of an index has fallen, you can believe that the market is bearish or that the prices of stocks have fallen.

There are two main indices in the Indian market:

  • S&P BSE Sensex: It is an index of the Bombay Stock Exchange (BSE). It is a collection of 30 well-established and financially sound companies.
  • CNX NIFTY: It is an index of the National Stock Exchange (NSE). It includes the top-50 companies influencing the market trend in the economy.

Before you start index trading, here are some smart things you should know:

  1. Method of index construction

    To be able to trade in an index smartly, you should be able to understand how an index is constructed. For a company to be included in an index, it should meet certain criteria and should consistently maintain the said criteria, or it would be replaced by another stock with a better potential.

    Once included in a particular index, the company is given a certain weightage. This weightage defines a company’s ability to regulate the index by that percentage. For example, if a company has a weightage of 8% in NIFTY50, it means that it can influence the index's price by 8%.

    Weightage is assigned by a method called free-float market capitalization. It is the product of the stock’s price and the total number of its outstanding shares the market; larger the market capitalization of a company, higher the weightage.

  2. Index trading vs share trading

    Trading in indices gives you exposure to the companies that are included in the index. For example, if you are trading in the S&P BSE index, you may invest in any of the 30 companies entered in the index.

    On the other hand, share trading allows you to only invest in the shares of a single company without being exposed to the stocks of other companies trading in the market.

    This added benefit of investing in stocks of different companies by purchasing only one investment is the main reason why index trading is considered a perfect tool for diversifying the investment portfolio of an investor.

  3. Risk factor

    Index trading can be highly risky when compared to other modes of investing. As it contains the stocks of the biggest companies in the whole market, it makes it highly speculative and volatile. A slight price fluctuation in the stock price of any of the company can negatively affect the overall market trend, tanking the share prices of other companies also.

    Apart from the risk factor about the price fluctuation, index trading requires an enormous amount of money to invest as you are investing in the some of the biggest companies. It makes index trading even riskier as there is a possibility of huge loss because of the significant amount invested.

    If you are not sure about the market trends and its contributing factors and want to avoid this huge quantum of risk, consulting a broker from a good brokerage firm and asking for his/her valuable advice would go a long way in protecting yourself from losing your money during index trading.

  4. Factors affecting valuation of indices

Trading in indices still requires an investor to understand how they are valued in the market. A basic understanding of the valuation and about the factors that influence the valuation of an index is a prerequisite of being a smart investor. Some of the factors affecting the values of the stocks of an index are:

  • Fundamentals such as GDP and inflation rate
  • Changes in key interest rates and monetary policies by the banks and other parent regulators of the market
  • Geopolitical factors like the demonetization policy
  • Internal factors regulating the internal business conditions of the companies, like the appointment of a new CEO or launching of a new product.

Through 5Paisa.com, you can open an online trading account in less than five minutes and can become a day trader in less than a day. As our experienced brokers will provide you with valuable advice and profitable strategies to start trading in indexes and cut your losses.