Pocketful

Blog

  • Top Green Building Material Stocks in India

    Top Green Building Material Stocks in India

    Construction​‍​‌‍​‍‌​‍​‌‍​‍‌ industry is evolving. It is not only about the luxuriously tall buildings but also about the intelligent construction. Presently, enterprises are focusing on the development of materials that are capable of fabricating robust and long-lasting structures without causing harm to the earth. That’s the reason why green construction companies and green building materials companies have become a fresh topic of investor conversation in 2025. These businesses are contributing to the planet through the lowered carbon emissions, proper energy usage, and eco-friendly technologies. This will, indeed, be the real essence of “smart and sustainable development” in the following ​‍​‌‍​‍‌​‍​‌‍​‍‌years.

    What Are Green Building Materials Stocks?

    Green​‍​‌‍​‍‌​‍​‌‍​‍‌ building materials stocks refer to the shares of those companies that manufacture construction materials that are less polluting and environmentally friendly measures, conserving the nature. Such companies come up with products that are more durable, energy-efficient, and have less carbon emissions as compared to traditional construction materials. As a matter of fact, when all the sectors are going toward sustainability, green construction companies and green building materials are becoming a hot spot for investors to put their money in.

    Whether it is low-carbon cement, recycled steel, or AAC blocks, all these are getting popular and being preferred by governments and consumers who prioritize projects that are able to deliver growth without harming the ​‍​‌‍​‍‌​‍​‌‍​‍‌earth.

    Green Building Materials Stocks in 2025

    S.NoCompanyCurrent Market Price (INR)Market Capitalisation (in INR crore)52-Week High52-Week Low
    1UltraTech Cement Ltd₹ 12,158₹ 3,58,271₹ 13,097₹ 10,048
    2Ambuja Cements Ltd₹ 563₹ 1,39,176₹ 625₹ 453
    3Berger Paints India Ltd₹ 540₹ 62,970₹ 605₹ 438
    4Greenply Industries Ltd₹ 302₹ 3,766₹ 392₹ 245
    5Ramco Industries Ltd₹ 338₹ 2,938₹ 398₹ 215
    6Dalmia Bharat Ltd₹ 2,135₹ 40,045₹ 2,496₹ 1,601
    7Greenlam Industries Ltd₹ 260₹ 6,647₹ 325₹ 197
    8BirlaNu Ltd₹ 1,924₹ 1,451₹ 2,815₹ 1,605
    9Astral Ltd₹ 1,455₹ 39,086₹ 1,870₹ 1,232
    10Asian Granito India Ltd₹ 64.2₹ 1,490₹ 79.0₹ 39.2
    (Data as of 24 Oct 2025)

    Read Also: Best Material Stocks in India

    A brief overview of the best Green Building Material Stocks in India is given below :

    1. UltraTech Cement Ltd

    One of the biggest and most reputable cement manufacturers in India is UltraTech Cement Ltd. UltraTech was founded in 1983 and is a member of the Aditya Birla Group. UltraTech is renowned for its innovative technology, sustainable production methods, and premium cement. Over time, the business has grown to be well-known in practically every region of the nation. In addition to building, UltraTech wants to promote sustainable construction methods and green building materials. The company is a leading green construction company because it is always coming up with new ideas in the field of environmentally friendly construction.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    8.89%86.70%166.95%
    (Data as of 24 Oct 2025)

    2. Ambuja Cements Ltd

    Founded in 1983, Ambuja Cements Ltd. is currently one of the top cement producers in India. The business is well known for its inventiveness, quality, and ecologically friendly building methods. Ambuja Cements is known for its low-carbon manufacturing technology and energy-efficient production process. The business has now made a name for itself as a provider of green building materials and an advocate for environmentally friendly infrastructure. Ambuja’s emphasis on the “resource less, build more” strategy has improved its standing in both Indian and foreign markets.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    0.33%8.25%126.66%
    (Data as of 24 Oct 2025)

    3. Berger Paints India Ltd

    Established in 1923, Berger Paints India Ltd has grown into a well-known brand in every corner of the country. Initially, a small company, Berger gradually grew across India. It doesn’t simply sell paint; it re-vitalizes homes and buildings. Berger has become more environmentally responsible, with a focus on eco-friendly paints and low VOC products that reduce harmful airborne contaminates. Berger continues to perform research and develop products to advance-green technology in the paint industry, making it a household name among green construction companies.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -0.73%12.74%6.33%
    (Data as of 24 Oct 2025)

    4. Greenply Industries Ltd

    Since its founding in 1984, Greenply Industries Ltd. has established itself as a mainstay in the interior and furnishings industry in India. In addition to bringing wood’s beauty into people’s homes, this company has made environmental preservation a top priority. Greenply has consistently prioritized the production of low-pollution, long-lasting plywood. Utilizing technologies such as “E-Zero emission plywood,” the company produces environmentally friendly and health-promoting materials. Greenply is a philosophy as well as a brand that holds that environmentally friendly building practices are essential to good construction. For this reason, it is currently among the top manufacturers of green building materials in India.

    Know the Returns: 

    5Y Return (%)3Y Return (%)5Y Return (%)
    -18.72%70.90%246.95%
    (Data as of 24 Oct 2025)

    5. Ramco Industries Ltd

    The Ramco Industries Ltd story started in 1965. The company then started producing construction material on a small scale, but now it is a robust force in India’s building solutions industry. Being part of the Ramco Group, the company has always laid emphasis on reliability, quality, and durability. It produces materials like fiber cement sheets and environment-friendly boards that serve the needs of new-age construction. Ramco’s slogan is to construct robust and benevolent construction that is kind to the earth. It is for this reason it has become one of India’s top-rated green building material players.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    53.22%96.73%92.47%
    (Data as of 24 Oct 2025)

    6. Dalmia Bharat Ltd

    Since its founding in 1939, Dalmia Bharat Ltd. has maintained its reputation as a reliable brand in the Indian cement sector. Quality and environmental responsibility have always been top priorities for the company. Dalmia reduces pollution during production by using modern technology, alternative fuels, and clean energy in its plants. Its objective is to support sustainable development in addition to producing high-quality cement. One of India’s most innovative green construction firms, Dalmia Bharat, has committed to becoming carbon-negative in the upcoming years.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    15.91%37.58%147.84%
    (Data as of 24 Oct 2025)

    7. Greenlam Industries Ltd

    Greenlam Industries started in 1993, with the commissioning of a laminate plant in Behror, Rajasthan under Greenply Industries. Over the next two decades, the brand grew in stature to be a leader in decorative laminates, veneers, and engineered wood products used in residential and commercial applications. In 2013, the decorative business was demerged, and Greenlam Industries Limited was independently formed to carry on the legacy of innovation, quality, and environmental consciousness in a portfolio accumulated over 30 years. Today, Greenlam is one of the top 3 laminate manufacturers in the world, with a broad range of sustainably manufactured products and design.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    2.87%63.52%253.20%
    (Data as of 24 Oct 2025)

    8. BirlaNu Ltd

    The story of BirlaNu Ltd started many years ago when it was called HIL Limited. Since then, the company has changed both its products and its vision. Today, BirlaNu makes building materials that strengthen homes and are good for the environment. The company’s AAC blocks, roofing sheets, and pipes are now used in projects all over the country. BirlaNu has always focused on safe and durable construction that will last for years. This company proves that even with a long history, a new approach can shape the future.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    2.67%––
    (Data as of 24 Oct 2025)

    9. Astral Ltd

    Astral​‍​‌‍​‍‌​‍​‌‍​‍‌ Ltd came into existence in 1996 in Ahmedabad. The company was not backed by a vast array of resources at that time, but still, the foresight was very evident: to revolutionize the water piping industry in India in a safe and eco-friendly manner. Astral changed the entire quality standard of the pipe that is used in the houses. Later it also launched new products like adhesives and construction materials. Now the name “Astral” is not only linked to pipes but also to the concepts of trust and quality. This is a brand that demonstrated the power of a real vision, thus leading small beginnings to a great ​‍​‌‍​‍‌​‍​‌‍​‍‌saga.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -18.79%1.09%125.79%
    (Data as of 24 Oct 2025)

    10. Asian Granito India Ltd

    In 2000, Asian Granito India Ltd. was established. The company started off making tiles on a small scale, but eventually gained market share because to its design and commitment. The business gradually branched out into goods including marble, wall tiles, and flooring. These days, you may find its tiles in hotels, workplaces, and residences all around the nation. Asian Granito’s work has given “Indian design” a new identity in addition to decorating people’s houses. This business is a perfect example of how trust, hard effort, and creativity go hand in hand.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -6.26%15.38%-64.06%
    (Data as of 24 Oct 2025)

    Read Also: Best ESG Stocks in India

    Key Performance Indicators (KPIs)

    The key performance metrics of semiconductor Stocks in India are mentioned below:

    CompanyOperating Margin (%)Net Profit Margin (%)ROE (%)ROCE (%)Debt to Equity
    UltraTech Cement Ltd12.227.968.549.160.33
    Ambuja Cements Ltd17.5314.687.799.160.00
    Berger Paints India Ltd13.839.9419.1823.640.02
    Greenply Industries Ltd7.795.0511.3316.050.60
    Ramco Industries Ltd9.525.614.273.630.06
    Dalmia Bharat Ltd9.505.003.935.310.30
    Greenlam Industries Ltd6.682.666.188.690.95
    BirlaNu Ltd-1.54-0.88-2.71-3.130.59
    Astral Ltd12.758.8914.4819.000.04
    Asian Granito India Ltd2.191.322.012.330.19
    (Data as of 24 Oct 2025)

    Why 2025 Is a Breakthrough Year for Green Construction?

    The year 2025 is considered a turning point for the construction industry. Companies are no longer just constructing buildings but are also creating sustainable and energy-efficient infrastructure.

    1. Government policies are driving momentum : The Indian government’s National Green Hydrogen Mission and Renewable Energy Policy have encouraged the adoption of sustainable materials in the construction sector. This is reducing energy dependence and encouraging companies to work in a “green” direction.
    2. Global regulations have increased their impact : The European Union’s Carbon Border Adjustment Mechanism (CBAM) will come into effect in 2026. This has increased pressure on companies that export; they will now be required to reduce the carbon intensity of their products.
    3. ESG reporting has become mandatory : Under SEBI’s BRSR Core Framework, companies are now required to publicly disclose information about their environmental impact. This has increased transparency and investor confidence.
    4. Cost reductions and increased efficiency : Materials like low-carbon cement, recycled metal, and thermal insulation have made construction cheaper, faster, and more sustainable. This is why investors are increasingly prioritizing these companies.
    5. Investors Focus on Green Stocks : ESG and infrastructure funds are now investing in projects that promote sustainable development. This is providing green building material companies with better funding and growth opportunities.

    Factors to Consider Before Investing in Green Building Material Stocks

    1. Company’s Environmental Policy : First, determine whether the company truly operates in sustainable ways. Companies that focus on renewable energy, waste recycling, and low-carbon production perform better in the long run.
    2. Product Quality and Innovation : How unique and useful a company’s products are matters. Companies that adopt new and sustainable technologies will thrive in the future.
    3. Compliance with Regulations : See whether the company is complying with government and ESG standards. Companies that report transparently are easier to trust.
    4. Future Planning : Be sure to consider the company’s goals for the coming years. A clear vision demonstrates that the company is preparing not just for today, but for tomorrow as well.
    5. Trustworthy Leadership : Good management is the backbone of any company. Companies with honest and experienced leadership stand strong even in difficult times.

    Read Also: Best Chemical Stocks in India

    Risks and Challenges in Green Construction Investing

    1. Policy Delays : Government schemes and environmental policies sometimes take time to be implemented. Delays in implementing a tax or subsidy scheme can impact company growth.
    2. Raw Material Shortage : Green materials require fly ash, scrap metal, or recycled materials to produce them. Sometimes, the lack of these resources can make production more expensive or slower.
    3. High Technology Costs : Adopting green technology requires significant initial investment. These costs can sometimes become a burden for small and medium-sized companies.
    4. Greenwashing Risk : Many companies promote their projects as “green,” but in reality, their impact is limited. Therefore, be sure to check the company’s actual sustainability report before investing.
    5. Lack of Reporting and Transparency : Not every company shares its ESG data accurately. Therefore, it is important to verify a company’s credibility through SEBI BRSR Core or independent reports.

    Read Also: Best Infrastructure Stocks in India

    Conclusion

    Things aren’t the same anymore. Folks want smart homes these days, not just strong ones. This shift is why green building stuff is getting popular. Companies that are serious about doing things the right way and being sustainable will really matter in the future. If you’re thinking about putting money into this area, keep in mind that making money is great, but the best returns are the ones that help future generations. That’s what true green investing is all about – money and doing what’s right.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    110 Most Undervalued Stocks in India
    2List of Best Monopoly Stocks in India
    3Top 10 Best Summer Stocks in India
    4List of Top 10 Blue Chip Stocks in India with Price
    5List Of Best Logistics Stocks in India
    6Best Copper Stocks in India
    7Best Jewelry Stocks in India
    8Best Metal Stocks in India
    9Best Semiconductor Stocks in India
    10Best Silver Stocks in India
    11Best Plastic Stocks in India
    12Best Waste Management Stocks in India
    13Best Fertilizer Stocks in India
    14Best Pharma Stocks in India 

    Frequently Asked Questions (FAQs)

    1. What are Green Building Material Stocks?

      These are stocks of companies that produce environmentally friendly and sustainable construction materials.

    2. Why are green construction companies popular in 2025?

      Because governments and investors are now paying more attention to sustainable construction.

    3. Are green stocks good for long-term investment?

      Yes, strong and responsible companies can deliver good returns in the long run.

    4. Which sectors lead in green construction?

      Cement, steel, insulation, and tiles are the major sectors.

    5. What should investors check before investing?

      Be sure to look at the company’s sustainability, innovation, and long-term vision.

  • Top Global Capability Centre Stocks in India

    Top Global Capability Centre Stocks in India

    As an investor, everyone is looking to invest in sectors which have strong growth potential in the long run. Over the past few years, Global Capability Centre has emerged as one of the key sectors to watch for. This sector has strong growth potential, characterised by higher profit margins. 

    In today’s blog post, we will give you an overview of the best Global Capability Centres Stocks in India, along with the benefits of investing in them.

    Meaning of Global Capability Centres Stocks 

    A Global Capability Centre is a branch that is established by the multinational companies specifically to take care of the business functions, technology, research, and analytical processes in an offshore location that has low costs. 

    Such centres, or in other words, captive centres, allow the global companies to take advantage of the huge number of skilled people in a country and the low-cost operation. At the beginning, their focus was solely on back-office assistance, but now GCCs have transformed into strategic centres where different sectors exchange innovation, R&D, and high-value functions.

    Top Global Capability Centres Stocks

    1. Tata Consultancy Services Limited
    2. Quess Corp Limited
    3. L&T Technology Services Limited
    4. eClerx Limited
    5. HCL Technology Limited
    CompanyCurrent Market Price (INR)Market Capitalisation (in INR crore)52-Week High52-Week Low
    Tata Consultancy Services Limited3075111223244952867
    Quess Corp Limited2353500379232
    L&T Technology Services Limited41944451556473855
    eClerx Limited43452132846402116
    HCL Technology Limited152441306220121303
    (Data as of 23rd October 2025)

    Read Also: Best Data Center Stocks in India

    Overview of Top Global Capability Centres Stocks in India

    1. Tata Consultancy Services Limited

    Tata Consultancy Services Limited company was incorporated in 1968 under the brand Tata Sons. Initially, the company was engaged in providing punched card services to Tata Steel Limited. Later, the company started developing software for IT consultancy firms. And since 1980, the company has been exporting their software. In 2004, the company went public and launched its IPO. Currently, the company is providing their services in more than 150 countries. The company operates a vast network of Global Delivery Centres worldwide to serve its clients. The company has its headquarters in Mumbai.

    2. Quess Corp Limited

    The company was founded in 2007 by Ajit Isaac. The company is engaged in providing services to multiple verticals of the service sector. Quess Corp Limited became a publicly listed company in 2016. Over time, it has become the largest private sector employer in India and has its operations spread across North America, the Middle East, and Southeast Asia. It helps other companies set up and operate GCCs, and it has entered into strategic partnerships with various international firms. The company’s head office is situated in Bengaluru. 

    3. L&T Technology Services Limited

    The company was incorporated in 2006 as a separate entity of the L&T Group to focus on engineering and research-related activities. The company got itself listed on the Indian Stock Exchange in 2016. The company has made a remarkable presence in the IT service industry by offering digital engineering, Internet of Things, Artificial Intelligence, etc. The company has expanded its global footprint across North America and Europe. Its headquarters are situated in Maharashtra.

    4. eClerx Limited

    eClerx was founded in 2000 by P.D. Mundhra and Anjan Malik. The company provides data management solutions to various financial institutions. In 2007, the company entered the public market by launching its IPO and became a publicly listed entity. The company currently serves clients of major countries such as the USA, UK, Italy, Germany, etc. Its headquarters are situated in Maharashtra.

    5. HCL Technology Limited

    The company is a part of HCL Group, which was founded in 1976 by Shiv Nadar. Initially, the company was engaged in developing microprocessors and later entered into providing software services. In 1999, HCL Technologies Limited was incorporated as a separate entity for IT-related services, and in the same year, it became a publicly listed company. Its headquarters are situated in New Delhi.

    Key Performance Indicators (KPIs)

    CompanyDebt to EquityROE (%)ROCE (%)Operating Profit Margin (%)Net Profit Margin (%)
    Tata Consultancy Services Limited051.2462.0125.8919.11
    Quess Corp Limited0.014.2217.461.630.30
    L&T Technology Services Limited020.8327.0116.8411.84
    eClerx Limited023.4627.8522.3816.08
    HCL Technology Limited0.0324.9630.8420.4214.86
    (as on 31st March, 2025)

    Read Also: Best Semiconductor Stocks in India

    Benefits of Investing in Global Capability Centres Stocks

    The key benefits of investing in Global Capability Centres Stocks are as follows:

    1. Consistent Demand: Due to a rise in demand for cost-efficient capabilities centers the revenue stream of these companies will remain stable.
    2. Higher Margins: Companies operating as Global Capabilities Centres generally have higher profit margins, because of low operating profit.
    3. Government Support: As the Indian Government pushes for digital transformation, the growth of companies engaged in Global Capability Centres will be boosted.

    Factors to Consider Before Investing in Global Capability Centres Stocks

    There are various factors which one should consider before investing in Global Centres Stocks, a few of which are as follows:

    1. Client Concentration: Numerous companies engaged in Global Capability Centres depend on a very few global clients; if any of their clients end their contract with the companies, it might lead to a reduction in revenue.
    2. Financial Performance: The company’s key financial metrics, such as operating profit, profit margins, etc., must be checked before making any investment decision. 
    3. Compliances: Global Capabilities Centres store huge amounts of sensitive data. Hence, one must check whether they follow all the regulating guidelines defined by data protection agencies, cybersecurity laws, etc.

    Future of Global Capability Centres Stocks

    The Global Capability Centres sector has grown at a rate of 10-12% CAGR. Along with this, the industry is expected to reach 100 billion dollars by 2030. Because of a talented workforce and improving technology infrastructure, this sector tends to do exceptionally well in the near future. The Global Capabilities Centres are also shifting from tier 1 to tier 2 and 3 cities to increase the chance of companies in this sector.  

    Read Also: Top 10 Most Expensive Stocks in India

    Conclusion

    On a concluding note, in the Global business landscape, India is establishing itself as a prominent player, and Global Capabilities Centres with a skilled workforce help in making its position strong. Companies engaged in GCC offer an opportunity to participate in this growth; however, there are certain risks related to investing in the stocks of these companies. Therefore, one should consult their investment advisor before making any investment decision.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1List Of Best Healthcare Stocks in India
    2List of Best Telecom Stocks in India
    3List Of Best Footwear Stocks in India
    4List Of Best Logistics Stocks in India
    5List of Best Liquor Stocks in India
    6Best Copper Stocks in India
    7List Of Best Textile Stocks in India
    8List of Top 10 Blue Chip Stocks in India with Price
    9Top Hospital Stocks to Buy in India
    10List of Best Education Stocks in India
    1110 Fastest Growing Penny Stocks in India
    12Top 10 Sectors in the Indian Stock Market
    13Best 5G Stocks in India to Invest
    14Best Midcap IT Stocks
    15List of 10 Top Smallcap Stocks in India on NSE

    Frequently Asked Questions (FAQs)

    1. What is the Global Capability Centre?

      GCCs are units set up by multinational companies to manage business operations, technological support from distant locations such as India.

    2. Which companies are engaged in providing services related to the Global Capability Centre?

      There are various IT companies like L&T Technology Services Limited, eClerx Limited, HCL Technology Limited, Quess Corp Limited, TCS, etc.

    3. What are the major risks related to investment in stocks of the Global Capability Centre?

      The risk related to investment in stocks of Global Capability Centre includes increasing cost of employees, dependency on clients, global economic slowdown, etc.

    4. What is the future of companies engaged in the Global Capability Centre?

      The future of Global Capability Centre companies is very promising as the industry is expected to increase at an annualised rate of 10-11%, which helps them in creating wealth for investors over the long run.

    5. How to invest in companies engaged in providing a Global Capability Centre?

      One can easily invest in companies of the Global Capability Centre by opening a lifetime free demat account with Pocketful. And once the account is opened, you can use their mobile application and purchase the Global Capability Centre stocks during market hours.

  • FIFO in Demat: Meaning, Rules & Tax Impact

    FIFO in Demat: Meaning, Rules & Tax Impact

    In the stock market, when we buy the same shares at different times and prices, the question often arises when selling them: which purchase the system recognizes first. The answer is FIFO in Demat. According to this rule, the shares purchased first are considered the first to be sold. This directly impacts your taxes, profit-loss, and investment planning. In this blog, we’ll explain this rule in simple terms and explain why it’s important for investors.

    Basics of Demat and Share Transactions

    What is a Demat Account?

    A Demat Account allows you to hold your shares and securities in digital form. Previously, shares were available in physical certificates, but today, all shares are held electronically through depositories like NSDL and CDSL. This advantage eliminates the hassle of paperwork, transfers, and losses.

    How does a share transaction work?

    Whenever you buy shares, they are credited to your Demat account. Similarly, when you sell shares, they are debited from the account, and the payment is credited to your trading account/bank account.

    Example : Suppose you bought 100 shares in January at ₹3,000 and another 100 shares in June at ₹3,200. Now, if you sell 100 shares, the question arises: which lot will be considered sold? This is where FIFO in Demat comes into play.

    What is FIFO in Demat?

    FIFO (First In, First Out) is a rule that states that when you buy shares of a company at different times and at different prices, the first shares you buy are considered when selling them. This isn’t an optional method, but rather a standard practice applicable to every investor in India.

    Depositories that manage demat accounts NSDL and CDSL automatically apply this rule. This doesn’t affect the execution of your order; meaning, when you sell shares in the market, they are sold as normal. The difference is reflected only in your accounting and capital gains tax calculations.

    Example

    • Bought 50 shares at ₹100
    • Bought 50 shares at ₹120
    • Sold 50 shares

    Under the FIFO rule, the system will assume you sold the first 50 shares at ₹100. This will directly impact your profit-loss and tax calculations.

    Why is FIFO Important in Demat Accounts?

    The FIFO rule isn’t just a technical process for investors, but a crucial part of everyday investing. It determines how share purchases and sales are recorded in your demat account and how taxes are calculated.

    1. Simplifies Tax Calculations : FIFO clarifies which shares are considered short-term gains and which long-term gains. This reduces the chance of error when filing income tax returns.
    2. Eliminates Record Confidence : When the same shares are purchased at different dates and prices, it can be difficult to keep track of them. FIFO makes it clear which shares are considered sold first.
    3. Same Rules Apply to Every Investor : Depositories like NSDL and CDSL apply FIFO to all demat accounts. This means that regardless of which broker you trade with, the rules remain the same.
    4. Transparency and Trust : If FIFO were not in place, investors could choose which lots to sell first, which could lead to tax calculation errors. FIFO prevents this arbitrariness and makes the system reliable.
    5. Helping Investors Prepare in Advance : People often sell shares without understanding FIFO and are later surprised by the tax implications. Knowing this rule can help you plan in advance when it’s best to sell.

    Read Also: Tax Implications of Holding Securities in a Demat Account

    Real-Life Example of FIFO in Action

    The example below will help you understand how the FIFO rule applies:

    DateTransactionQuantity (Share A)Price per ShareTotal ValueStatus as per FIFO
    January 2023Bought100₹200₹20,000First purchased shares
    June 2023Bought100₹250₹25,000Later purchased shares
    February 2024Sold100₹300 (assumed)₹30,000January lot of 100 shares considered sold

    Therefore, the profit will be ₹30,000 – ₹20,000 = ₹10,000.

    Since the period from January 2023 to February 2024 is less than 12 months, this will be treated as short-term capital gain (STCG) and will be taxed at 20%.

    FIFO vs Other Methods

    Different methods are used around the world to record the purchase and sale of shares. In India, only FIFO (First In, First Out) is valid, but it’s important to understand the other methods as well.

    1. LIFO (Last In, First Out) : In this method, the most recently purchased shares are considered the first to be sold. If it were implemented in India, short-term gains would often be higher because recent purchases would be deducted first.
    2. Weighted Average : Here, the purchase price of all shares is added to arrive at an average, and profit or loss is determined based on that. It doesn’t matter which lot was purchased first or last. This method is common in many countries.
    3. Specific Identification : In this, the investor can choose which lot to sell. This provides flexibility, but also increases the possibility of tax evasion or fraud.

    Why FIFO in India?

    The Income Tax Department has mandated FIFO to ensure uniform rules apply to everyone and transparent tax calculations. This prevents investors from arbitrarily trying to evade taxes.

    Impact on Investors : FIFO simplifies the process and ensures uniform rules for everyone. However, this can sometimes prove costly for traders who frequently buy and sell in short periods of time, as they have to pay higher short-term gains tax.

    Read Also: Mutual Fund Taxation – How Mutual Funds Are Taxed?

    How FIFO Affects Your Taxes

    The FIFO rule directly impacts the tax treatment of shares and equity mutual funds.

    1. Short-Term Capital Gain (STCG)

    If you sell equity shares or equity mutual funds within less than 12 months, the profit is considered STCG. This has changed since July 2024 and is now taxed at 20% (previously 15%).

    2. Long-Term Capital Gain (LTCG)

    If shares or funds are held for more than 12 months, the gain is classified as LTCG. Since Budget 2024, LTCG is taxed at 12.5%, and does not receive indexation benefit. ₹1,25,000 exemption Long-term gains up to the first ₹1,25,000 per financial year are exempt from tax. Any gains above this limit will be taxed at 12.5%.

    3. Difference due to FIFO

    FIFO assumes that the oldest shares purchased are sold first. This means that even if you want to deduct new shares, tax will be calculated on the oldest shares. This can sometimes be beneficial (less tax due to LTCG being applied), and sometimes it can be detrimental (more tax due to STCG being applied).

    4. ITR and Other Charges

    The LTCG exemption of ₹1,25,000 under Section 112A is now clearly shown when filing ITR. A surcharge and a 4% health and education cess are also added to the tax. Capital gains are calculated after deducting brokerage, STT, and transaction charges.

    Tips to Manage FIFO Impact in Your Portfolio

    1. Keep track of purchases and sales : Make it a habit to note the date and price every time you buy or sell shares. This will clearly show you which shares are likely to be long-term and when selling them will result in lower tax.
    2. Use the right tools : These days, on platforms like Zerodha Console, Pocketful, you can easily see which lot will be deducted first according to FIFO and how it will be taxed.
    3. Remember the 12-month limit : If a lot is about to complete 12 months, it would be wise to wait a bit. This will allow you to avoid short-term tax and take advantage of the long-term tax rate.
    4. Use loss harvesting : Losing shares can sometimes prove beneficial. By selling them, you can balance the FIFO gain and reduce your tax burden.
    5. Keep your records updated : Fast-and-fast mistakes often occur during tax filing. Having your data and transaction records clear will help prevent last-minute stress.

    Conclusion 

    Understanding FIFO in Demat is important not only for tax purposes but also for making better investment decisions. This rule ensures that every investor’s accounting is consistent and there’s no confusion. If you understand how FIFO affects your portfolio, you’ll be able to time your investments and improve your tax planning. Ultimately, it’s wise to adopt the rule to strengthen your investment strategy.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Types of Demat Accounts in India
    2Features and Benefits of Demat Account
    3Can I Have Multiple Demat Accounts in India?
    4How to Open a Demat Account Online?
    5What is Securities Transaction Tax (STT)?
    6What is Capital Gains Tax in India?
    7Tax on Commodity Trading in India
    8How to Download Your Demat Holding Statement?
    9Top 10 Tax Saving Instruments in India
    10How to Close Your Demat Account Online?
    11Mastering Your Finances: Beginner’s Guide To Tax Savings

    Frequently Asked Questions (FAQs)

    1. Can I choose which shares to sell in Demat?

      No, you don’t have a choice. The system automatically applies the FIFO rule.

    2. How does FIFO affect taxes?

      It determines whether your gain is short-term or long-term, and tax will be levied accordingly.

    3. Does FIFO apply to intraday trading?

      No, it only applies to delivery shares and mutual funds.

    4. Why is FIFO important for investors?

      Because it keeps records clear and makes tax calculations easier.

  • What Is Portfolio Rebalancing?

    What Is Portfolio Rebalancing?

    In the world of investment, it is natural for a portfolio’s balance to change over time. Equities may grow rapidly at times, while debt or gold can perform strongly at other times. These fluctuations can cause your investments to drift from their original allocations. This is where the concept of portfolio rebalancing comes in. 

    In this blog, we will explain what portfolio rebalancing is, why it is important, how it works, step-by-step methods to rebalance your investments, and the common mistakes to avoid. By the end, you’ll have a clear understanding of how to maintain a balanced portfolio aligned with your financial goals.

    What Is Portfolio Rebalancing?

    Portfolio rebalancing is the process of systematically realigning the weights of assets in a portfolio back to the target allocation defined by the investor’s risk profile, investment horizon, and financial objectives. It typically involves selling overweight assets and reallocating capital to underweight ones to maintain the intended risk-return characteristics.

    When equities, debt, gold, or other investments drift from their target weights due to market movements, rebalancing brings them back in line with the original allocation. Its purpose is not just to increase returns, but to control risk and keep the portfolio aligned with your long-term financial goals.

    Example : Suppose you invested 60% in equity and 40% in debt. If the equity market performs well and its proportion rises to 70%, the portfolio becomes riskier than originally intended. In rebalancing, you sell some equity and invest in debt securities, so that the ratio comes back to 60:40. In this way the portfolio remains in line with your risk tolerance.

    How does Portfolio Rebalancing work?

    The rebalancing process can be broken down into a few simple steps.

    • Determining asset allocation : Initially, the investor decides the ratio (e.g. 70% equity, 20% debt, 10% gold) based on his goals, risk appetite and time horizon.
    • Portfolio review : It is important to review the portfolio from time to time to see how the ratio has changed.
    • Identifying deviation : Generally, deviation of more than 5% is considered a signal for rebalancing.
    • Taking action: Sell overweight assets and allocate money to underweight assets or allocate new investments there.
    • Repeat : This process is repeated annually, half-yearly or on a fixed schedule.

    Why Is Rebalancing Important?

    • Risk management : When the market is bullish, the proportion of equity often increases and this can make the portfolio more risky. By rebalancing the portfolio, the investor ensures that there is no excessive investment in any one asset class and one does not have to suffer a huge loss in case of a sudden decline.
    • Alignment with long-term goals : Every investor has different goals such as retirement, children’s education or buying a house. Rebalancing ensures that your portfolio helps you achieve these goals. For example, if there are only 10 years left for retirement, it is safer to increase the proportion of debt.
    • Avoid emotional decisions : Often investors make wrong decisions due to greed or fear. In a bull market, one does not feel like selling equities, whereas in a decline it is common to panic and withdraw everything. Rebalancing avoids this cycle and inculcates the habit of disciplined investing.
    • Protection from volatility : Volatility is very high in emerging markets like India. During Covid-19, the stock market fell by 35%, while the debt and bond markets were affected by the increase in interest rates in 2021–22. If the investor had maintained balance at that time, the loss would have been less and the recovery would have been faster.
    • Historical evidence : Many studies show that balanced portfolios perform better in the long run than those portfolios that become unbalanced. Constant balancing may reduce short-term gains a little, but it provides stable and sustainable returns.

    How to Rebalance Investments?

    Step 1: Define Your Asset Allocation

    Start by setting a clear target mix, such as 60% equity, 30% debt, and 10% gold. This allocation should reflect your financial goals, time horizon, and risk tolerance. It acts as your reference point, ensuring you know when your portfolio drifts away from your original strategy.

    Step 2: Review Your Portfolio

    Periodically check your current investments to see how much they differ from your target mix. Over time, market movements can cause equities, debt, or gold to shift from their planned ratios. A deviation of 5 to 10% usually signals it’s time to take action and restore balance.

    Step 3: Select a Rebalancing Approach

    Choose a rule for when you will rebalance. With a calendar-based approach, you reset allocations at fixed intervals, such as every six or twelve months. With a band-based approach, you act only when allocations move outside a set range. Both methods bring discipline and consistency to your investment strategy.

    Step 4: Reallocate Efficiently

    When rebalancing, start with the most cost- and tax-efficient method first. Direct fresh investments or dividends received into underweight assets, rather than immediately selling overweight holdings. If selling is necessary, consider taxes, brokerage costs, and exit loads before making changes. The aim is to realign your portfolio without unnecessarily reducing returns.

    Step 5: Monitor and Stay Disciplined

    After rebalancing, record the changes made, the reasons, and the new portfolio allocations. This habit builds discipline and helps with future decisions. Sticking to a written plan prevents emotional investing during market highs and lows, ensuring your portfolio remains aligned with long-term financial goals rather than short-term market swings.

    Advantages and Disadvantages of Portfolio Rebalancing

    Advantages of Portfolio Rebalancing

    • Risk Management: When your money is invested across different asset classes (such as equity, debt, gold), the entire portfolio is not affected if there is a fall in any one asset. Rebalancing your portfolio at regular intervals ensures this.
    • Discipline in investing : Often people take decisions emotionally by seeing market movements. Rebalancing helps in sticking to a fixed plan and strengthens the long-term strategy.
    • Improved Returns: By selling assets that have become overweight and adding to undervalued options, returns can be smoothed and made more consistent over time.
    • Match with goals :  Every investor has different goals—such as retirement, children’s education, buying a house. Rebalancing keeps the portfolio adjusted according to these financial goals.
    • Reducing volatility: Markets will always fluctuate, but a balanced portfolio helps absorb sudden shocks and ensures steadier, long-term growth.

    Disadvantages of Portfolio Rebalancing

    • Expenses can increase : Every time you change your portfolio, you have to pay brokerage, tax and transaction charges. These expenses seem small, but can reduce returns in the long run.
    • Requires time and effort : Rebalancing is not just buying and selling. It requires constant monitoring of market trends, data and performance of assets. This task can be challenging for busy investors.
    • Short-term impact : Sometimes better performing assets have to be sold and new investments take time to give results. Due to this, short-term returns can decrease.
    • Frequent Rebalancing: Changing portfolio allocations too often can reduce stability. Constant rebalancing may lower long-term returns due to taxes, brokerage fees, and other transaction costs.
    • Timing risk: If rebalancing is done hastily without proper analysis, it may lead to buying high or selling low, which can hurt portfolio performance.

    Common Mistakes to Avoid

    Portfolio rebalancing is an important step to keep investors on track. But sometimes people make small mistakes and harm their investments. Let’s know the common mistakes that are important to avoid:

    • Rebalancing too often : Some investors start changing the portfolio after every small fluctuation. Doing this can increase unnecessary trading costs and tax burden. The right way is to review annually or once in 6 months.
    • Ignoring tax and transaction costs : Tax and brokerage charges may be levied on selling mutual funds or stocks while rebalancing. Ignoring these can reduce the actual return.
    • Making decisions with emotional bias : Often investors hesitate to sell a “winner” i.e. a well-performing asset. But sometimes that is what has to be done to maintain balance.
    • Copying others : Every investor has different goals. Copying someone else’s portfolio will not meet your needs. Always rebalance according to your financial goals.
    • Forgetting long-term goals: When rebalancing, it is crucial to consider major financial goals such as retirement, children’s education, or buying a house. Ignoring these objectives can lead to a funding shortfall in the future.

    Conclusion

    While investing, it is not enough to simply allocate money correctly; it is equally important to manage it consistently over time. Portfolio rebalancing at regular intervals helps you achieve this by keeping your investments aligned with your goals and risk tolerance. Frequent changes are unnecessary, but rebalancing at fixed intervals minimizes risk and promotes better long-term results. Done thoughtfully, rebalancing strengthens your overall investment strategy. 

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Tax on Gold Investment in India: Physical, Digital & SGB Explained
    2How to Set Financial Goals for Your Future
    3Best Stock Alert App in India
    4Best Aquaculture Stocks in India 2025
    5List of Quick Commerce Company Stocks
    6How to Set Financial Goals for Your Future
    7Best Cloud Computing Stocks in India 2025
    8Government Penny Stocks in India 2025
    9Best Safe Investments with High Returns in India
    10Best Diamond Stocks in India

    Frequently Asked Questions (FAQs)

    1. What is portfolio rebalancing?

      It is a process in which portfolio assets are readjusted to their target allocations according to your goals and risk tolerance.

    2. How often should I rebalance my portfolio?

      It is better to do it 1–2 times a year.

    3. Does rebalancing reduce risk?

      Yes, it reduces risk by keeping allocations balanced and returns more stable.

    4. Is portfolio rebalancing costly?

      Brokerage charges and taxes may increase if portfolio rebalancing is done frequently.

    5. What is the main benefit of rebalancing?

      It keeps your investments allocations aligned with your goals and risk profile.

  • What are Exchange Traded Derivatives? 

    What are Exchange Traded Derivatives? 

    The world of trading is filled with terms like Futures and Options, yet many market participants are unsure about what they truly mean. These instruments belong to a broader category called derivatives, which are financial contracts whose value is linked to an underlying asset such as stocks, commodities, currencies, or market indices. Instead of directly owning the asset, derivatives allow participants to manage risks, speculate on price movements, and gain exposure with less capital. 

    In this blog, we will explore derivatives, Exchange Traded Derivatives, their features, types, advantages, disadvantages, and frequently asked questions.

    What are Derivatives & Why Trade on an Exchange?

    A derivative is a financial contract whose value is derived from the performance of an underlying asset, index, rate, or commodity. This “underlying asset” can be anything from a share of a company (like TCS), a commodity (like gold), a currency (like the US Dollar), or even a stock market index (like the Nifty 50). 

    Issues in Private Deals 

    In finance, when two parties create a derivative contract privately without using an exchange, it is called an Over-the-Counter (OTC) derivative. These contracts can be customized to suit the needs of the parties involved, but they also come with risks as mentioned below:

    • Counterparty Risk: It’s the risk that the other party in the deal might not fulfill their part of the agreement. 
    • Undisclosed Details: The price and terms are just between both the parties, nobody else knows the details, which can lead to someone getting a raw deal.

    Example: Consider two friends. Ramesh, a wheat farmer, is worried that prices may fall by the time his crop is ready in three months. Suresh, who runs a biscuit factory, fears wheat prices may rise and increase his costs. To reduce uncertainty, they agree that Ramesh will sell 100 quintals of wheat to Suresh in three months at a fixed price of ₹2,000 per quintal.

    This arrangement protects both of them from price swings, but since it is a private contract, it carries the same risks of an OTC deal. Ramesh worries Suresh may not pay, while Suresh worries Ramesh may not deliver.

    Why Exchange?

    To fix the loop holes and issues, we have exchange traded derivatives (ETDs). Instead of people dealing directly with each other, they trade these contracts on a regulated stock exchange, like the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE) in India. Think of these exchanges as a trustworthy platform that stands in the middle of both the parties and makes sure everyone follows the rules. The presence of an exchange makes everything safer, transparent, making derivatives available to millions of people, including regular investors like you and me.

    FeatureExchange-Traded Derivatives (ETD)Over-the-Counter (OTC) Derivatives
    Trading VenueTraded on a recognized exchange (e.g., NSE, BSE)Traded privately between two parties
    Contract TermsStandardized (fixed size, expiry date)Customized to fit specific needs
    Counterparty RiskVery low, as the exchange guarantees the contract rules are followedHigh, as one party could default
    TransparencyHigh, prices and volumes are publicLow, terms are private
    RegulationRegulated by bodies like SEBILess regulated
    Suitable ForRetail investors and institutionsMainly large institutions and corporations

    Read Also: What is Derivative Trading? Types, Examples, Pros & Cons Explained

    Features of Exchange Traded Derivatives

    • Standardization: All the derivatives of contracts on an exchange are standardized. This means there are fixed rules, like the quantity also known as “lot size”, the quality of the asset, and the end date.  
    • Reduced Risk: This is a major advantage. When you trade on an exchange, the clearinghouse acts as a middleman, ensuring that even if one party defaults or goes bankrupt, the trade is still completed as agreed.
    • High Liquidity: As traders trade on the same standardized contracts on big platforms like the NSE, there are always tons of buyers and sellers around. This is known as high liquidity, it is great because it means investors can easily buy or sell a contract almost instantly at a fair price.   
    • Transparency: On an exchange, trades happen transparently, all the buy and sell orders are visible to traders in real time. The price you see is the real price, based on supply and demand of assets.  
    • Regulations: In India, Securities and Exchange Board of India (SEBI) sets the rules of the trading market for exchanges and brokers to make sure the market is fair and safe for everyone. SEBI’s main job is to protect your interests as an investor, keeping a close eye on all the trading activity.  

    Read Also: Index Derivatives in India

    Types of Exchange Traded Derivatives

    In India, you can trade derivatives on most of the things, but mainly in Futures and Options. These can be based on:

    • Stock Derivatives: These are futures and options on the shares of individual companies like Reliance, Infosys, or HDFC Bank.   
    • Index Derivatives: These are contracts based on a stock market index, like the Nifty 50 or Bank Nifty. Instead of putting all your money on one company, you’re taking a view on the whole market or a specific sector.  
    • Commodity Derivatives: These are contracts on physical goods, you can trade them on exchanges like the Multi Commodity Exchange (MCX), like gold, silver, crude oil, and even some agricultural products.   
    • Currency Derivatives: These contracts are based on currency pairs, like the US Dollar vs. the Indian Rupee (USD/INR). Currency derivatives are a lifeline for importers and exporters who need to protect themselves from fluctuating exchange rates.   
    • Interest Rate Derivatives: These are a bit more complex and are based on bonds and interest rates. They are mostly used by banks and financial institutions to manage risks related to the changing interest rates.   

    Advantages and Disadvantages of Exchange Traded Derivatives

    Advantages

    1. Risk Management: Derivatives are highly used for managing risk. Investors can use them to protect their stock portfolios from sudden market shifts.   
    2. High Leverage: Leverage means you can control a large position of stocks with a small amount of money also called margin.   
    3. Transaction Costs: Compared to normal buying and selling of stocks in the regular cash market, the costs of trading a futures contract (like brokerage and taxes) can be lower.     

    Disadvantages

    1. Leverage Risks: Just as leverage can magnify your profits, it can also amplify your losses quickly. A small price movement in other direction can wipe out your entire investment, and you could even end up owing your broker money.   
    2. Complex: Derivatives are not for beginners as it is complex, concepts like expiry dates, option pricing models, and complex strategies can create difficulty in beginning. Trading without proper knowledge can lead you to losses.   
    3. Time Decay: Options contracts have a limited shelf life as there is a pre defined expiry date. This is known as time decay, if your prediction doesn’t come true in time, your option can expire becoming worthless, and you lose all the money.    

    Read Also: Different Types of Derivatives in India

    Conclusion 

    Exchange traded derivatives are a powerful and vital part of the modern financial world. They offer ways for businesses to manage risk and for traders to act on their market views. The safe and open environment of the stock exchange has made them available to almost everyone.

    The same leverage that can lead to amplifying investors profits can also cause great  losses. These are not tools for beginners, before entering into trading your first derivative contract, the best investment you can make is in gaining knowledge and deeper insight.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1What is Swaps Derivatives?
    2What is AI Trading?
    3What is an Underlying Asset?
    4Different Types of Trading in the Stock Market
    5What is Intraday Trading? 
    6Types of Futures and Futures Traders

    Frequently Asked Questions (FAQs)

    1. Difference between buying a Reliance share and a Reliance future? 

      When you buy a share of Reliance, you pay the full price of the stock upfront and become a part-owner of the company. When you buy a Reliance future, you’re just signing a contract to buy or sell the share at a future date for a set price. You only pay a small margin upfront and don’t actually own the share.   

    2. What is meant by Lot Size? 

      A lot size is the fixed number of units in one derivative contract. For example, if the lot size of future contact is 500, you have to trade in multiples of 500. Investors can’t just buy a contract for 1 or 10 shares.   

    3. What is an “Expiry Date” in Derivatives? 

      This is the end date till the derivative contract is valid. Based on expiry date, the contract is settled, either by delivering the asset or by commonly settling the profit or loss in cash.   

    4. Are ETDs safe for new investors? 

      While the exchange protects you from the counterparty defaulting, derivatives are extremely risky for beginners because they are complex and highly leveraged. It is highly recommended that new investors should gain knowledge and understand all the risks before putting your money.   

    5. Do Investors need a special account for trading via trade derivatives? 

      Yes, you use your Demat and Trading account, but you have to get the “Futures & Options” (F&O) segment activated by your stock broker. This requires proof of income, as brokers need to ensure you can handle the high financial risks involved.

  • What is Margin Shortfall?

    What is Margin Shortfall?

    The use of MTF (Margin Trading Facility) in the stock market allows traders to make large deals with less capital. But the most important thing is to understand margin shortfall. This happens when the margin available in your account falls below the minimum limit. In such a situation, margin shortfall penalty may be imposed and your position may be affected. In this blog we will know what is margin shortfall, its reasons, shortfall rec meaning and easy ways to avoid it.

    What is Margin Shortfall? 

    Margin Shortfall occurs when the available margin in your account falls below the minimum required margin set by the brokerage. This can happen due to a variety of reasons such as a fall in stock price, a rise in haircuts, or both. Let’s understand this with some examples.

    Margin Shortfall = Required Margin – Available Margin

    Suppose you took a delivery trade at a pocketful and the brokerage gave you margin benefit. Now if the market suddenly falls and the value of your holdings decreases, the available margin in your account will go below the required limit.

    For example

    SituationValue
    Required margin₹1,50,000
    Available Margin₹1,12,500
    Margin Shortfall₹37,500

    In this case, the brokerage will send you a margin call, requesting you to add funds by a specified time. If you do not add the funds on time, the brokerage can square-off your position or charge a penalty.

    Common Scenarios of Margin Shortfall

    The formula to calculate the margin shortfall is given below:

    Margin Shortfall = Required Margin – Available Margin 

    For example:  A trader buys 100 shares of ABC at ₹1500 per share. Total investment is equal to ₹1,50,000. We are assuming a haircut of 25%. So, you need to deposit ₹37,500 to start a position and the rest (₹1,12,500) is funded by the broker. Now we will look at different scenarios.

    Case 1: When the stock price falls to ₹1200 (20% drop)

    • New Position Value = ₹1200 * 100 = ₹1,20,000
    • Required Margin = 25% of 1,20,000 = ₹30,000
    • Available Margin = Original Margin – MTM Loss = ₹37,500 – ₹30,000 = ₹7,500
    • Margin Shortfall = Required Margin –  Available Margin = ₹30,000 – ₹7,500 = ₹22,500

    Case 2: Haircut increases from 25% to 35% and no change in stock price

    • New Position Value = ₹1,500 * 100 = ₹1,50,000
    • Required Margin = 35% of 1,50,000 = ₹52,500
    • Available Margin = Original Margin – MTM Loss = ₹37,500 – ₹0 = ₹37,500
    • Margin Shortfall = Required Margin –  Available Margin = ₹52,500 – ₹37,500 = ₹15,000 

    Case 3: Price declines from ₹1,500 to ₹1,200 + Haircut increases from 25% to 35%

    Situation:

    • New Position Value = ₹1,200 * 100 = ₹1,20,000
    • Required Margin = 35% of 1,20,000 = ₹42,000
    • Available Margin = Original Margin – MTM Loss = ₹37,500 – ₹30,000 = ₹7,500
    • Margin Shortfall = Required Margin –  Available Margin = ₹42,000 – ₹7,500 = ₹34,500 

    Use our Margin Trading Facility Calculator

    Types of Margin Shortfall

    Margin shortfall in trading occurs when your trading account has less balance than the required amount. This can happen at different times and circumstances. Let us understand its three main types

    1. Initial Margin Shortfall

    When you take a new position and your account does not have the initial margin (i.e. the amount required to start the trade), it is called initial margin shortfall.

    Example: If a futures contract requires ₹1,00,000 margin and you have only ₹90,000, it is an initial margin shortfall.

    2. Maintenance Margin Shortfall

    After taking the position, if the market price moves against you and the balance goes below the maintenance margin, it is called maintenance margin shortfall.

    Example : You opened a position with a margin of ₹1,00,000, but due to price fall your balance became ₹70,000 while maintenance margin is ₹75,000, then it will be a shortfall.

    3. Difference between the two and brokers’ behavior

    In initial margin shortfall usually the order is not executed or there is a demand to add funds immediately. In maintenance margin, shortfall brokers give you time to add funds, and if the funds do not come on time then the position can be squared off.

    Read Also: What is Stock Margin?

    Regulatory Framework Around Margin Shortfall

    1. SEBI rules : SEBI has made clear guidelines for MTFs. According to the rule, the investor is required to maintain a minimum margin to buy shares, which can be in cash or permitted securities. If it goes below the prescribed limit, it is called margin shortfall.
    2. Role of stock exchange : NSE and BSE take margin reports from brokers daily and take action in case of shortfall. The broker may also be penalized for not updating the margin on time.
    3. Daily reporting and settlement : At the end of every trading day, the broker has to send the client’s margin status to the exchange. Settlement of shares in MTF takes place in T+2 and the margin should be complete during this time.
    4. Margin call and notification : When the margin decreases, the broker sends a notification to the investor so that additional margin can be deposited in time and square-off can be avoided.
    5. “Shortfall REC” and recovery : This means shortfall recovery. In case of non-payment of margin on time, the broker can recover the dues by selling the holding or by other means so that discipline is maintained in the system.

    Risks of Ignoring Margin Shortfall

    1. Forced Square-Off : If you don’t cover your shortfall in time, your brokerage (like Pocketful) can force your position to close as per SEBI regulations. This is called forced liquidation or square-off. This can force you to close your position at a loss in weak market conditions.
    2. Escalating Penalties : In MTF, the broker imposes a penalty on margin shortfall, and if this shortfall is high or happens repeatedly, then the penalty rate can also increase. In the beginning, this rate is relatively low, but it becomes quite high if the shortfall persists continuously.
    3. Possible Suspension from MTF : In case of frequent or large shortfalls, the broking house may temporarily suspend your MTF facility. This means that you will not be able to make margin-funded trades next time until the shortfall is made up. Your liquidity and trading flexibility may be disrupted.
    4. Broker Relationship Impact : Frequent shortfalls may make the brokerage feel uneasy about you; you may not be able to avail special MTF facilities in the future. While this may not directly impact your credit score (like CIBIL), it does impact your breaking relationship and convenience.

    Check Out – Stocks Available for MTF

    How to Avoid Margin Shortfall in MTF

    It is very important to avoid margin shortfalls while trading in Margin Trading Facility (MTF) as it not only leads to penalties but also the brokerage can forcefully square off your position if required. With proper planning, caution and timely monitoring, this risk can be easily minimized.

    Smart risk management tips:

    1. Keep extra margin buffer : Don’t make the mistake of trading on just the minimum margin. Always keep some extra margin so that you don’t shortfall in case of a sudden fall in the market.
    2. Check positions daily : Monitor your MTF portfolio, margin utilization and collateral value daily.
    3. Avoid over-leveraging : Take as much leverage as you can handle. High leverage multiplies the impact of market volatility.
    4. Adopt diversification : Don’t invest all your funds in a single stock or sector. Investing in different sectors reduces risk.
    5. Leverage technology : Keep an eye on real-time margin updates and price movements through Pocketful mobile apps. Keeping alerts on allows immediate action when needed.
    6. Always keep liquidity ready : Maintain some cash or liquid securities in your trading account so that you can top up quickly in case of a margin call.

    Conclusion

    Margin shortfall occurs when the funds in your account are not sufficient to maintain your open positions. An easy way to avoid this is to check your margin balance daily and deposit funds immediately when needed. It is also better to keep a little extra margin buffer so that your positions remain safe even in case of sudden changes in the market and you do not have to face problems like penalty or forced closing.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Key Differences Between MTF and Loan Against Shares
    2Difference between Margin Trading and Leverage Trading
    3Top Tips for Successful Margin Trading in India
    4Smart Beta Funds: Characteristics, Factors, Benefits, and Limitations
    5Different Types of Trading in the Stock Market
    6 What is Margin Funding?

    Frequently Asked Questions (FAQs)

    1. What happens if I have a margin shortfall?

      In such a case, the broker will ask you to add funds or securities, otherwise the positions can be squared off.

    2. How can I avoid a margin shortfall?

      Always keep an extra margin buffer, track positions daily and avoid over-leverage.

    3. Is there any penalty for margin shortfall?

      Yes, as per SEBI rules, a penalty may be levied which is percentage-based.

    4. Can I use idle securities to avoid a shortfall?

      Yes, you can pledge and use idle securities in margin to avoid shortfall.

  • Best Silver ETFs in India

    Best Silver ETFs in India

    Silver has always been part of India’s story. But today, silver is not just a glittering metal in your drawer, it is becoming a smart investment option too and the credit goes to its growing use in industries like solar energy, electronics, and electric vehicles, silver is in higher demand than ever. At the same time, it continues to be seen as a safe haven asset, helping investors protect their money during uncertain times.

    The only catch? Buying and storing physical silver is not convenient. That is why more and more investors have started buying ETFs (Exchange Traded Funds). These funds let you invest in silver without the hassle of owning it physically, no storage, no purity worries, and no making charges.

    In this blog, we will look at the best Silver ETFs in India, see how they work, and understand why they are becoming such a popular choice among investors. 

    What are Silver ETFs 

    Think of a Silver ETF (Exchange Traded Fund) as a simple way to invest in silver, without ever having to buy or store physical silver. Instead of holding silver coins or bars, you buy units of a fund that tracks the price of silver in the market. These ETFs are traded on stock exchanges, just like regular shares. So, when the price of silver goes up or down, the value of your ETF units moves accordingly. Behind the scenes, the fund holds physical silver in secure vaults. So we can say that this is the digital way of holding silver. All you need is a Demat account to get started. In short, Silver ETFs make it easy to invest in silver. 

    List of Best Silver ETFs

    CompanyMarket Cap. (crores)Market PriceExpense Ratio %52 Week High52 week Low
    ICICI Prudential Silver ETF ₹9,481146.020.40₹190₹86.01
    ABSL Silver ETF₹1,580₹144.670.35₹191.65₹86.30
    DSP Silver ETF ₹1,450₹1410.40₹183₹83.30
    Mirae Silver ETF₹377₹1430.34₹185.70₹83.55
    Axis Silver ETF₹638₹144.720.37₹194.80₹85.51
    (As on 24-Oct-2025)

    Read Also: Types of ETFs in India: Find the Best for Your Investment

    1. ICICI Prudential Silver ETF 

    ICICI Prudential Silver ETF is a simple way to invest in silver without having to buy or store it physically. It tracks domestic silver prices and trades on the NSE so you can easily buy or sell anytime the market is open. With a low expense ratio of 0.40% and AUM of around ₹9,481 crore, it’s a popular choice for investors. The ETF has delivered strong returns of roughly 69% in the past year.

    2. ABSL Silver ETF 

    If you are looking to invest in silver without holding bars or coins, the ABSL Silver ETF is a great choice. It tracks the price of domestic silver and currently charges a low expense ratio of around 0.35%. Launched in early 2022, it already has an AUM of about ₹1,580 crore. The fund aims for returns that mirror silver’s domestic price movement

    3. DSP Silver ETF 

    The DSP Silver ETF was launched in August 2022, it tracks the price of silver in India and comes with an expense ratio of about 0.40%. The fund manages around ₹1,450 crore in assets and has given returns of roughly 69% over the past year. 

    4. Mirae Silver ETF 

    The Mirae Asset Silver ETF was launched in June 2023. The fund has an expense ratio of about 0.34%, which makes it one of the more cost-efficient options in this category. Its AUM is around ₹377 crore, and it invests nearly 97% directly in silver, giving you pure exposure to the metal. 

    5. Axis Silver ETF 

    Axis Silver ETF was launched in September 2022, and invests about 97- 98% in actual silver. With an expense ratio of around 0.37% and an AUM of ₹638 crore, it has become a popular choice for investors looking for pure silver exposure. The ETF has delivered strong one-year returns of around 69%, though silver can be a bit volatile. 

    Read Also: How to Invest in ETFs in India – A Beginner’s Guide

    Things to Consider Before Investing 

    Before you add a Silver ETF to your portfolio, it is important to know the sides of the coins. Silver can be a good investment, but like everything in the market, it has its ups and downs. Here are a few things to keep in mind,

    1. Silver prices can be unpredictable

    Silver does not always move in a straight line. Its price depends on both industrial demand and global economic trends, so it can rise sharply, or fall just as fast.

    2. ETFs do not always match silver prices exactly

    Every Silver ETF tries to track the price of silver, but there can be small differences. This is called a tracking error, and while it is usually minor, you should be aware. 

    3. Check the fund’s costs

    Like all ETFs, Silver ETFs charge a small management fee known as an expense ratio. A lower expense ratio means less of your return goes toward fees, so always compare before you invest.

    4. Make sure it is easy to buy and sell

    Choose an ETF that has good trading volume and enough liquidity. This makes it easier to enter or exit your investment without big price gaps.

    5. Think long term

    Silver is not a quick-profit asset. Prices may stay quiet for a while before they move up again, so it’s better suited for investors who can hold it for a few years.

    6. Understand the tax part

    If sold within a year, silver ETFs are treated as STCG and subject to slab rates; if not, they are treated as LTCG and subject to 12.5% taxation without indexation.

    Read Also: How to Invest in Silver in India?

    Conclusion 

    Silver ETFs have made investing in silver simple. You do not need to buy coins or bars or worry about storage, you are just a few clicks from being a silver investor! Silver ETFs are a great way to add some sparkle to your portfolio, hedge against inflation, and benefit from silver’s growing industrial use in areas like electronics and renewable energy. Keep in mind to check a few key things before you invest like the fund’s expense ratio, liquidity, and tracking error. Most importantly, be patient. Silver can have phases, but over time, it can be a good addition in your investment journey. 

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Best Silver Stocks in India
    2List of Best Gold ETFs in India
    3Small-Cap ETFs to Invest in India
    4Top Gold Mutual Funds in India
    5What is a Smart Beta ETF?
    6What is Gold ETF? Meaning & How to Invest Guide
    7What is Nifty BeES ETF? Features, Benefits & How to Invest?
    8Features and Benefits of ETF (Exchange Traded Funds)
    9What is Dividend ETF?
    10Gold ETF vs Gold Mutual Fund: Differences and Similarities

    Frequently Asked Questions (FAQs)

    1. Are Silver ETFs safe?

      Yes. They are regulated by SEBI and backed by physical silver stored safely in vaults. 

    2. Do I need a Demat account to invest?

      Yes, you will need a Demat and trading account because Silver ETFs are bought and sold on the stock exchange. 

    3. How much should I invest in Silver ETFs?

      Keep it moderate which is around 5–10% of your total portfolio is a healthy range for most investors.

    4. What affects silver prices?

      A mix of industrial demand (especially from electronics and solar), inflation trends, and global economic parameters, particularly movements in gold and the US dollar.

    5. Is silver good for long-term investing?

      Definitely! Silver may fluctuate in the short term but f you stay patient, it can add both stability and diversification to your portfolio.

  • Zudio Case Study: Business Model, Marketing Strategy

    Zudio Case Study: Business Model, Marketing Strategy

    Imagine a store where you can walk in with a free mind and pick up anything you want without even worrying much about your bank balance. Yes you have heard this right and millions of Indians are even purchasing from this fashion brand called ZUDIO. This is a fashion brand backed by the TATA group which sells trendy clothes at unbelievably low prices. This fashion brand came out to be a huge hit among the young people and families in tier 2 & tier 3 cities where a prominent fashion brand was missing to cater the audience. 

    Within a short span of time Zudio became a hit across the cities with its main focus on the offline stores and you must be curious how did all this happen so today in this blog we will look at the Zudio case study and break it down so that we can understand the Business model of Zudio, the marketing strategy of Zudio that led to the exponential growth of its offline stores and even the financial analysis of Zudio that is making it rise among the other brands in the city. And at last we will be doing a SWOT analysis of Zudio showing you the evolving fashion sensation.  

    Company Overview

    Zudio started with introducing a small section of clothes inside Star Bazaar (a supermarket owned by TATA Group) as an experiment to look for the customers’ sentiments. This experiment turned out to be positive and in 2016 the first ever standalone Zudio store was opened in Bangalore. This was the official start of Zudio as a separate brand, ready to make its own mark in the fashion world.

    Zudio is owned by a company called Trent Limited which is part of the TATA Group and it’s the same company that runs the popular clothing store, Westside. This connection to Tata and Trent helped Zudio in two ways: first the trust of customers for TATA group and secondly the experience that Trent had already learnt from running Westside for about 20 years, made it an experienced market player. All this helped Zudio in avoiding common mistakes that new companies make, allowing it to grow much faster.

    Mission and Vision

    Zudio’s has one simple mission, to make trendy fashion available to everyone at affordable prices. The brand wanted to cater to anyone that wants to look fashionable on an affordable shopping budget, which includes college students with limited pocket money, young professionals starting their careers, and families looking for good value.

    Target Audience

    Zudio knew exactly who it wanted to sell to as their main focus is on people between the ages of 18 and 35. Talking about the geographic location of the brand, it is mainly located in Tier-2 and Tier-3 cities where 80% of India’s youth population is residing that does not have direct access to the trendy clothes physically.  

    Read Also: Zara Case Study: Business Model and Pricing Strategies

    The Zudio Business Model

    The ‘AAA’ Value Proposition

    Zudio has a strategy that can be categorized under the “AAA Formula” meaning Accessibility that is easy to locate stores, affordability which can be seen in its low priced articles and attractive products keeping the trendy clothes available for the masses, The brand offers fast-fashion collections updated every 2–3 weeks, inspired by international trends.

    Product and Pricing Strategy

    • In-House Brands Only: Zudio stores do not have other brands, rather they create and sell their own products under the same brand name with Zudio’s private labels. This gives the company full control over the clothes design, quality and mainly the price of the articles. 
    • Attractive Pricing: Every article available in the company’s store is available under Rs.999 making it most attractive amongst the customers. Buyers can find T-shirts as low as Rs.199, with these low prices shopping becomes very easy and customers build trust as all the pricing are clear without any confusing discounts or hidden charges. 
    • Up-to-date Fashion: The company keeps the stock up to date as it follows the fast-fashion model where Zudio continuously changes its collections updated every 2–3 weeks by bringing new trendy clothes as per the ongoing fashion allowing the customers to have a variety of choices. 

    Retail and Distribution Strategy

    • The Offline store: In the rapidly increasing digital presence where every brand wants to sell online Zudio sticks to the offline mode with its physical stores and this is the main part of the strategy. This saves the brand from high costs of delivery and even return of the articles, with physical stores the brand brings the customer to the stores where they see and end up buying more than what they have planned for.  
    • Strategized Store Locations: The brand strategically uses the data and looks for areas that have a good population that is residing, working or studying there.  You might have witnessed that the stores are located in highly populated Tier 2 markets than in some posh location with low population density. As the company aims at having at least 2,000 target customers in every 3 kilometer radius to reach its target. 
    • The FOCO Model: Zudio works on an easy franchise model called FOCO, which stands for Franchise-Owned, Company-Operated. In this a person (investor or the franchisee) pays about Rs. 1.5 – 4 crore in setting up the entire store and the company (Zudio) takes over and does everything from managing, running and even the staff selling the products. 

    This model helps in the rapid growth of the brand, as Zudio does not spend its own money in opening the stores which saves the money and investing more in keeping the products priced low. Also the brand word-of-mouth game is very strong resulting in high sales making the stores profitable and this attracts more investors to invest in its franchise model.  

    Supply Chain and Revenue Model

    The clothes are designed in house by the brand and made in large quantities by different manufacturers which keeps the manufacturing cost very low. And the continuous updating of collections makes the clothes sell quickly. Zudio also has a very low unsold clothes stock and focuses on generating the whole revenue from selling a large volume of products.  

    Read also: Nike Case Study: Business Model & Marketing Strategy

    Marketing Strategy of Zudio

    The most surprising thing about this brand is that it spends very little on its advertising, you won’t notice their billboards or ads on TV. 

    Store Advertisement

    Zudio’s main investment is its stores that are minimalistically built in clean large spaces with good lighting. This gives a more fine shopping experience to the customers which overwhelms them and helps in a positive outlay of the store, giving them a positive view about the physical store.   

    Word-of-Mouth

    Due to the pricing and quality of the article the buyers help in offline marketing using the word-of-mouth technique, this plays a proactive role in the advertisement of the brand. The satisfied customers naturally tell their friends and families about the great deals that they have found in Zudio stores which helps in creating a powerful and trustworthy marketing channel of recurring customers.

    User-Generated Content (UGC)

    The brand does not run their own social media campaigns but the customers turns out to be the real marketer of the brand as all the new customers show their new clothes on social media and even platforms like Instagram and Youtube have multiple content creators that post “Zudio Haul” videos showing all their new purchases. Due to this the content becomes a free and authentic advertisement for Zudio which reaches the social media of millions of users making them into new potential customers. 

    Financial Analysis of Zudio

    Overview of Trent Limited’s Performance

    The parent company of the brand Zudio is “Trent Limited” whose total revenue can be seen rapidly increasing which has reached up till Rs.12,375 Cr . in Financial year 2024 and has jumped to Rs.17,134 Cr representing a growth of around 38.5% YoY. in Financial year 2025, making it amongst one of the top performing companies in India. 

    Zudio as the Growth Engine

    Zudio is one of the main growth drivers of Trent in the financial year 2025, Zudio’s revenue crossed the massive milestone of $1 billion, which is about Rs.8,600 crore.

    In the year 2020 Zudio’s share in the total revenue of Trent was about 16%, by 2024 the share reached up to 56% and for the upcoming years the expected growth is about 66% by the year 2026. 

    Store Expansion & Sales Growth

    Starting from the year 2021 Zudio has seen an exponential growth in its store expansion where in FY2021 232 stores were there, in FY2024 it rose up to 545 stores and as per March 2025 there are almost 765 Zudio stores across 235 cities across the country. This rapid expansion of physical stores became one of the reasons for its incredible sales growth. 

    Profitability & Cost Structure

    Zudio’s business model is extremely efficient. The brand earns around Rs.18,000 per square foot of retail space, which is much higher than the industry average of Rs.8,000 – Rs.12,000.

    It maintains low costs by not spending on ads, having an efficient supply chain, and using the capital-light FOCO model for expansion. While the profit margin on each item is not very high, the company makes healthy profits because it sells in such huge volumes.

    Read Also: Adidas Case Study: Business Model and Pricing Strategies

    SWOT Analysis of Zudio

    Now we will be doing the SWOT analysis of Zudio where we will be looking at the A Strengths, Weaknesses, Opportunities, and Threats of the company.  

    FACTORANALYSIS
    Strengths The company has a strong backing from the TATA Group which provides instant trust to the customers, also the company has financial stability and years of retail experience. Zudio has items that are mostly priced below Rs.999 which attracts a large chunk of population resulting in higher sales. Zudio has an efficient business model where the combination of fast fashion, in-house brands, and FOCO franchise model has made the brand grow exponentially. 
    Weaknesses1. Rapidly increasing customer base sometimes become a burden on the store and customers face long queues for billing or trial, affecting their store experience. 2. The challenge to keep the prices low sometimes affects the quality of the article and customers have even complained about the fading or shrinking clothes after a wash. 3. Zero online presence can be one of the greatest weaknesses as the whole population is rapidly Online and shifting towards the shopping methods. 
    OpportunitiesOverseas store expansion, with its stores launched in Dubai it should look for expansion across other countries as well. Zudio shall look for new opportunities in areas like plus-size clothing or sportswear to make it reach among each and every interested buyer.Zudio can transform itself by giving services like “click and collect” where online displayed articles can be directly ordered and then collected from the nearest store, saving delivery costs for the company.
    ThreatsRising competition as the affordable clothes market is getting new big players like Reliance that has launched a competing brand named Yousta which follows the Zudio model also other emerging brands like Max Fashion are some of the strong competitors. Due to rising store numbers the brand can have competition amongst each other. The environmental factors and shift towards a global sustainability can be a major threat as the buyers are getting aware about the consequences that the environment faces due to fast fashion.  

    Read Also: Flipkart Case Study- Business Model and Marketing Strategy      

    Conclusion

    Zudio has truly changed the game in Indian fashion retail. Its success comes from a perfect mix of Tata’s trust, a sharp focus on customers in smaller towns, a super-efficient business model, and a marketing strategy that cleverly turns shoppers into brand promoters.

    It has proven that a brand can become a multi-crore empire without spending heavily on traditional advertising. However, the journey ahead will have its own challenges. Zudio’s next chapter will be all about how it handles the challenges of being so big, fights off powerful rivals like Reliance, and keeps up with what Indian shoppers want next, which might just be better quality and clothes that are kinder to the planet.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Netflix Case Study
    2Meesho Case Study
    3GSK Pharma Case Study
    4Burger King Case Study
    5Haldiram’s Case Study
    6Kalyan Jewellers Case Study
    7Urban Company Case Study
    8Rapido Case Study
    9Lenskart Case Study
    10Parle Case Study
    11CRED Case Study
    12Ather Energy Case Study
    13Blinkit Case Study
    14Zepto Case Study
    15Intel Case Study
    16Case Study on Walmart Marketing Strategy
    17Case Study on Procter & Gamble Marketing Strategy
    18BPCL Case Study
    19Amazon Case Study
    20Bajaj Auto Case Study:

    Frequently Asked Questions (FAQs)

    1. Which company owns Zudio?

      Zudio is owned by Trent Limited, which is the retail company of the Tata Group.

    2. What is Zudio’s business model?

      Zudio uses a fast-fashion model where the brand sells its own affordable, trendy clothes in its physical stores.

    3. How is Zudio producing such low costing products?

      The brand designs its own articles and then gets the clothes manufactured from manufacturers in large quantities which helps them in keeping the price low. 

    4. Why is Zudio not available online?

      The brand concept revolves around physical stores that give a consistent experience to the customers and customers even end up buying more than what they had initially planned for also the Zudio avoids the high costs attached to the online sales and returns. 

    5. Who are Zudio’s main competitors?

      Zudio’s biggest competitors in the affordable fashion market in India include Reliance’s Yousta, Max Fashion, and Pantaloons.

  • Deep Discount Bonds Explained: Meaning, Types, Benefits, and Taxation

    Deep Discount Bonds Explained: Meaning, Types, Benefits, and Taxation

    Imagine your favourite watch company launches a new classic watch and also gives you a special pre-booking offer to get a Rs.80,000 watch for just Rs.20,000 but there is one condition you will receive this watch in five years. You get the same high-value watch for a fraction of the price, the only thing is you wait. This is the concept we witness in Deep Discount Bonds. 

    Deep Discount Bonds are simple, investors buy it for a low price today and get a much higher, fixed amount back in the future. Your profit is the difference between the low price you pay while buying and the high price you get back at maturity, this is because these bonds usually don’t pay regular interest while you hold them. 

    How Deep Discount Bonds Work?

    To understand how these bonds work, let’s look at a real example from the 1990s in India. In the year 1992, IDBI bank offered a bond where investors can just invest Rs.2,700 and in return can earn Rs.1 Lakh in return but after 25 years. In 1996, ICICI Bank launched a Deep Discount Bond named “Ashirwad Bond” where you can just invest Rs.5,200 and get Rs.2 Lakhs in return. Here we witness the idea of Deep Discount Bonds where you invest a small amount today and let it grow into a large sum over many years.   

    Characteristics of Deep Discount Bonds

    • Discounted Prices: Here the discount is your profit, where you buy the bond for much less than its final face value, this is the most important feature. 
    • No or very low Coupon Payments: Investors generally don’t get monthly or yearly interest , the real return is earned in one large payment at the maturity.   
    • Locked in Investment: The maturity period of these bonds is generally 10, 15, or even 25 years. These are best suitable for investors looking for long-term returns and who do not have a liquidity constraint during the holding period.

    Read Also: Detailed Guide on Bond Investing

    Types of Deep Discount Bonds

    1. Zero-Coupon Bonds

    These bonds are designed in such a way that they don’t give regular interest payments, Zero-Coupon Bonds are the most common type of bonds issued. In these bonds the whole return comes from the difference between the low issued price and high returns at maturity. IDBI Bank and ICICI Bank had issued bonds that were zero-coupon in nature in the 1990s.

    2. Low-Coupon Bonds 

    These bonds pay a few regular interest, but the interest rate is minimal.To make them lucrative for the investors, the companies sell them at a deep discount, the investors earn small regular income but the reward is earned at the maturity by getting all your money at once.   

    3. Distressed Bonds 

    Sometimes, a normal bond becomes a deep discount bond. This happens when investors worry about the company’s financial health or due to some market rumours. If everyone starts to get skeptical and think that the company might not repay its loans, they start to rapidly sell their bonds. This panic selling results in falling stock prices, creating a deep discount. These types of bonds are known as “junk bonds” which are often very risky in nature.   

    Advantages and Disadvantages of Deep Discount Bonds

    Advantages

    • Potential for High Returns: As the money is invested for a long time, it can grow significantly. A small investment can give you a large result, making it suitable for your long-term goals.   
    • Lower Initial Investment: As they are sold at such big discounts, you need less money while buying them initially as compared to regular bonds in the market. This makes an easy entrance and accessible to more people with low capital.   
    • Predictable Payout: If the investors have trust in the issuer, you can easily predict your large amount of money at maturity. This helps in easy future planning.   

    Disadvantages:

    • Credit Risk: The companies might fail to pay back the invested amount, this is the biggest risk.It’s important to choose bonds from companies with high credit or issue ratings—AAA is considered the safest.
    • No Regular Income: These bonds don’t provide cash flow till the time they get mature. They are not suitable for people who need a regular interest income.   
    • Interest Rate Risk: Bond prices and interest rates move in opposite directions. If interest rates go up after you buy a bond, its market value will go down. If you need to sell it before maturity, you might have to sell at a loss.   

    Read Also: What are Bond Valuation?

    Taxation

    As the bonds do not pay interest, your profit is taxed as ‘Capital Gains’ on the whole investment, not on ‘Interest Income’ and the tax depends on how long you hold the bond.   

    • Short-Term Capital Gain (STCG): If you sell a listed bond in less than 12 months, your profit is a short-term gain. This profit is added to your total income and taxed as per your income tax slab rate.   
    • Long-Term Capital Gain (LTCG): If you hold a listed bond for more than 12 months, your profits are taxed in long-term gain. This is taxed at a flat rate of 12.5% (plus cess). 

    Read Also: Benefits of Investing in Bonds

    Conclusion

    Deep Discount Bonds offer a unique way to build wealth over time. They let you invest a small amount of money in return for a potentially large future payout. However, they are best suitable for patient investors who have long term goals and are willing to lock their money for many years. Also as we have seen there are no regular interest payments.  Understand the risks, especially credit risk, and check the issuing company’s rating. Ultimately, making smart investments is about gaining knowledge. 

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1What are War Bonds?
    2What is Sovereign Gold Bonds?
    3What is Coupon Bond?
    4What is Insurance Bond?
    5What are Social Bonds?
    6Straight Bond: Key Features, Benefits & Risks
    7What Is a Callable Bond?
    8Government Bonds India
    9Types of Bonds in India
    10Tax-Free Bonds
    11What are Bond Yields?
    12Stocks vs Bonds
    13What is Indemnity Bond?
    14Secured and Unsecured Bonds
    15CAT Bonds: An Easy Explainer
    16What Are Corporate Bonds?
    17What are Contingent Convertible(CoCo Bonds)?

    Frequently Asked Questions (FAQs)

    1. How are Deep Discount Bonds different from regular bonds? 

      The main difference is how investors are paid, a regular bond pays you periodic interest (like an FD). A Deep Discount Bond is sold at a low price and doesn’t pay regular interest and investors receive their profits from the big difference between the purchase price and the full face value of the bond received at maturity.

    2. Are all Deep Discount Bonds risky? 

      No, the risk depends on who issues the bond, not the discounted price. A Deep Discount Bond from a government-backed entity or a top-rated company is very safe. Investors should always check the credit rating (like AAA, AA) to understand the risk.

    3. What is a ‘call option’ and why is it important? 

      A call option gives the bond issuer the right to repay your money and end the bond even before its maturity date. It’s important because if interest rates fall, the issuer might call back your high-return bond, forcing you to reinvest your money at the new, lower rates.

    4. Can monthly expenses be dealt by using Deep Discount Bonds? 

      No. These bonds are not designed for regular monthly payments and they provide the real return at maturity. If you need steady cash flow, regular bonds and FDs will be best suitable for you. 

    5. Where can these bonds be bought?

      Platforms like IndiaBonds, GoldenPi, and Aspero can be helpful for investors to purchase these bonds. For government bonds, you can also invest directly through the RBI Retail Direct schemes though you need a Demat account to invest in these bonds. 

  • What is Step-Up Bond?

    What is Step-Up Bond?

    You were searching for a job and now you have 2 offer letters. Job A offers you a fixed salary of Rs.60,000 per month fixed for the next five years. Job B offers Rs.55,000 per month, but gives you a guaranteed raise to Rs.65,000 per month after two years.

    Which one would you opt for? Your answer shall probably depend on what you expect to happen in the future.

    Investing in bonds is similar to this, when you buy a bond, you lend your money to the bond issuing entity, a company or the government. In return, the entity promises to pay you regular interest and return your initial money after a fixed period. Most bonds are identical to Job A, they pay a fixed interest rate that stays fixed for the whole period. 

    But what if you invest in a bond that is similar to Job B where the interest gets increased after a period of time, giving investors a pre-planned raise. Well, there is and it is known as a Step Up Bond, these bonds are designed for investors who like the idea of growing their income over time.

    What is a Step-Up Bond?

    A Step Up Bond is a type of bond that starts by paying a lower interest rate, but this rate increases at fixed, pre-planned times during the bond’s life. These bonds start with a lower interest rate and after a set period the interest rate automatically rises and you start to get a higher interest rate on the same invested amount.

    This increase in the interest rate is pre-defined by the bond issuing entity on the day of bond issuance. The company or government issuing the bond will clearly state how often the interest rate will increase, by what percentage it will increase and a pre-decided date of rate increase. 

    Investors like this as the income from a step-up bond is predictable. The main reason these bonds exist is to offer some protection to investors in a world where interest rates can change. If your funds are locked into a regular bond with a 7% interest rate and new bonds are suddenly being offered at 8%, you might feel like you are missing out. A step-up bond tries to solve this problem by building those future rate hikes right into its structure in the beginning itself.

    Read Also: Detailed Guide on Bond Investing

    How do Step-Up Bond work?

    Let’s look at some numbers and understand how it works. 

    Suppose you invest Rs.10,000 in a 5 year step-up bond from a company called ‘Pocketful India Ltd.’. The bond’s terms are:

    • For the first 2 years, there would be a fixed interest rate of 6% per year.
    • For the next 3 years, the interest rate will “step up” to 8% per year.
    YearYour Investment (Principal)Coupon Rate for the YearAnnual Interest You Earn
    1Rs.10,0006.0%Rs.600
    2Rs.10,0006.0%Rs.600
    3Rs.10,0008.0% (Step-up)Rs.800
    4Rs.10,0008.0%Rs.800
    5Rs.10,0008.0%Rs.800
    End of Year 5You get back your initial investment of Rs.10,000.

    Features of Step-Up Bonds

    • Scheduled Increased Interests: This is the main feature of these bonds, where the interest rate increases at a pre-decided time interval, like every year or after a few years.
    • Fixed Maturity Date: The bond has a clear end date. This is the date when the issuer is supposed to return your principal amount.
    • Issuer Types: In India, step-up bonds can be issued by various entities, which includes government-backed institutions like HUDCO (Housing and Urban Development Corporation) and NHAI (National Highways Authority of India), as well as private companies like Shriram Finance or L&T Finance.
    • The Callable Feature: This means the issuer has the right to end the bond early and can return your principal before the maturity date. In this you get your money back, but you lose the opportunity to earn the higher interest rates you were waiting for.

    Read Also: What are Bond Valuation?

    Benefits of Investing in Step-Up Bond

    • Growing Income Stream: Investors earn through the increasing interest over time. This can be helpful for long-term financial planning and tackling inflation.
    • Increasing Interest: If you believe interest rates in the economy are going to rise in the future, a step-up bond can be a good way to make sure your invested income will also rise with time. 
    • Calculable Returns: Even though the investment increases, it grows on a fixed schedule and investors know exactly what to expect and at what time.
    • Portfolio Diversification: Adding step-up bonds to your investment is a good way to diversify your fixed-income portfolio beyond regular FDs and traditional bonds.

    Key Factors to Look For:

    • Call Risk : Call means the bond could be called back early before the expiry date. This means you might not get the desired interest rates that attracted you in the first place.
    • Low Initial Returns: To get the promise of higher rates later, you have to accept a lower interest rate at the beginning. This might be lower than what a regular fixed deposit or a traditional bond offers at that time.
    • Market Risk: If you need to sell your bond on the stock market before it matures, its price can be lower than what you paid. 

    Taxation in India

    Like most investments, the earnings from step-up bonds are taxed. The interest you earn from the bond each year is added to your total income and taxed according to your income tax slab. 

    The bond issuer will usually deduct 10% tax on the interest before paying it to you. You can claim this back or adjust it when you file your income tax return. Also additionally there will be a Capital Gains Tax, this applies only if you sell the bond on the stock exchange before its maturity date. If you hold the bond for more than 12 months, any profit is a Long-Term Capital Gain (LTCG) and is taxed at 10% (without indexation). If you sell within 12 months, the profit is a Short-Term Capital Gain (STCG) and is added to your income.

    Read Also: Benefits of Investing in Bonds

    Conclusion

    Step-up bonds are a unique financial tool that offer an interesting solution for investors who want the safety of a bond but are worried about rising interest rates. These bonds provide a clear, scheduled path to a growing income. However, there is also a possibility of call risk where your predicted future income can be hampered.

    By opting a step-up bond is a strategic decision based on your future needs. If you plan to earn slow rising interest rates with time then step-up bonds are best suitable for you. Make an informed choice keeping your future expectations in mind. 

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1What are War Bonds?
    2What is Sovereign Gold Bonds?
    3What is Coupon Bond?
    4What is Insurance Bond?
    5What are Social Bonds?
    6Straight Bond: Key Features, Benefits & Risks
    7What Is a Callable Bond?
    8Government Bonds India
    9Types of Bonds in India
    10Tax-Free Bonds
    11What are Bond Yields?
    12Stocks vs Bonds
    13What is Indemnity Bond?
    14Secured and Unsecured Bonds
    15CAT Bonds: An Easy Explainer
    16What Are Corporate Bonds?
    17What are Contingent Convertible(CoCo Bonds)?

    Frequently Asked Questions (FAQs)

    1. Biggest risk of a step-up bond? 

      The biggest risk is the “call feature,”where the issuer can return your money before maturity, potentially causing you to miss out on the promised higher interest rates in the future.

    2. Which is a better investment option, step-up bonds or fixed-rate bonds? 

      Step-up bonds are potentially better if you expect interest rates to rise periodically, while fixed-rate bonds are better if you expect rates to fall or stay stable. It totally depends upon your future goals.

    3. Can initial investment be fully lost in a step-up bond?

      Investors generally get the full invested amount back, if the bond is held till maturity, unless the issuer defaults (fails to pay), which is a risk with any bond. If you sell the bond before maturity, you are expected to get a lower price than what you have initially paid..

    4. Who can issue step-up bonds in India? 

      They can be issued by both government-related entities (like HUDCO, NHAI) and private sector companies (like Shriram Finance, L&T Finance, and other NBFCs) to raise money from the public.

    • Open Free Demat Account

    Join Pocketful Now

    You have successfully subscribed to the newsletter

    There was an error while trying to send your request. Please try again.

    Pocketful blog will use the information you provide on this form to be in touch with you and to provide updates and marketing.