Pocketful

Category: Investing

  • Best Places To Park Your Short Term Money

    Best Places To Park Your Short Term Money

    We put in a lot of effort at work to earn money, and thus, it’s only natural to be able to access that money at a moment’s notice. 

    We make long-term investments to achieve long-term goals, but what about your immediate financial needs? This blog will explore the best ways of investing your extra cash so that you can earn some extra money! 

    Liquid Investments – Overview

    Liquid investments are financial assets that can be quickly and readily converted into cash. They are integral to financial independence as they allow you to respond to unforeseen events without damaging your long-term financial investments. 

    A popular rule of thumb is that an individual should have a contingency reserve in the form of liquid money equal to six times their monthly expenses. This reserve allows the individual to be secure during financial emergencies and helps mitigate financial risks. 

    Investment Avenues

    In the universe of finance, there are various options where you can park your liquid money and earn some return on it. Some of them are mentioned below.

    Banks Savings Account 

    It is regarded as the easiest and safest place to park your short-term funds. Investing money into this vehicle can yield upto 4-5% annual nominal return (dependent on bank rates). It is appropriate for investors who prioritize liquidity as it is considered equivalent to hard cash. 

    Savings accounts are also extremely safe due to the DICGC (Deposit Insurance and Credit Guarantee Corporation) insurance of upto 5 lakhs. New investors with unstable incomes are drawn to this investment opportunity due to its high liquidity and safety. 

    Bank NameInterest Rate
    HDFC Bank Savings AccountUp to 3.5%
    Axis Bank Savings AccountUp to 3.5%
    Kotak Mahindra Bank Savings AccountUp to 4%
    State Bank of India Savings AccountUp to 2.7%
    Punjab National Bank Savings AccountUp to 3%
    (As of 29th May 2024)
    Savings account

    Bank Fixed Deposits 

    If you allow a lock-in period, bank-fixed deposits are a good alternative to savings accounts. Bank FDs often yield returns 2-3% higher than bank savings accounts. This higher interest rate comes at the cost of a lock-in period. A prepayment penalty can be enforced if you withdraw the funds from this investment during the tenure of the FD. 

    The interest rates offered depend on the length of the investment. Generally, the longer the term, the higher the rate. 

    Did you know?

    Smaller and newer banks offer higher rates for fixed deposits than larger banks to increase their market size.

    Bank NameInterest Rate
    HDFC Bank Savings Account3% – 7%
    Axis Bank Savings Account3% – 7.4%
    Kotak Mahindra Bank Savings Account2.75% – 7.4%
    State Bank of India Savings Account3.5% – 6.25%
    Punjab National Bank Savings Account3.5% – 6.25%
    (As of 29th May 2024)

    Short-Term Debt Funds 

    A “Debt Fund” is a mutual fund based on the debt asset class. Typically, your money is invested in fixed-income instruments like short-term bonds, money market securities, and debentures. Mutual funds in the debt category typically give better returns than FDs. They are appropriate for investors who want to invest their money for a period of six months to one year. However, since they are traded on the market, debt funds experience significant volatility, but the risk is lower than a corresponding equity fund.

    Scheme Name2020202120222023
    ICICI Pru Short-Term Gr10.65%3.88%4.66%7.40%
    HDFC Short-Term Debt Gr10.96%3.86%3.53%7.14%
    UTI Short Duration Fund Dir Gr10.97%9.04%4.41%7.59%
    Nippon India Short-Term Gr9.48%4.42%3.20%6.82%
    ABSL Short Term Gr Reg11.06%3.84%4.19%6.90%
    short term debt funds

    Arbitrage Funds 

    Arbitrage funds are a type of hybrid mutual fund that uses futures, a form of derivative investment, to generate returns similar to debt funds. This is how it works: the fund manager buys shares using your money and sells them later. The difference in prices (known as the spread) between the stock and its future contract creates a return. On average, these funds are able to generate returns between 4% and 8% annually.

    Scheme Name2020202120222023
    Kotak Equity Arbitrage Gr4.33%3.96%3.42%7.38%
    Edelweiss Arbitrage Gr5.25%4.58%5.11%7.89%
    Axis Arbitrage Gr4.91%4.61%4.95%7.68%
    HDFC Arbitrage Gr4.30%4.17%4.73%7.78%
    Invesco India Arbitrage Gr5.02%4.15%5.85%8.07%

    Liquid Mutual Fund 

    Liquid mutual funds invest in treasury bills, corporate papers, and other money market instruments. These assets are called money market securities since they have zero to low risk and a maximum maturity of one year. With a return of 4% to 7%, the liquid fund provides a marginally better yield than a bank savings account. Since liquid funds are linked to market risk, investors may experience portfolio volatility during unusual circumstances; hence, returns on these products cannot be guaranteed.

    Scheme Name2020202120222023
    Axis Liquid Gr4.33%3.36%4.95%7.13%
    ABSL Liquid Retail Gr4.40%3.38%4.95%7.19%
    ICICI Pru Liquid Gr4.39%3.35%4.85%7.08%
    HDFC Liquid Gr4.11%3.21%4.77%6.95%
    Edelweiss Liquid Reg Gr4.12%3.23%4.66%6.85%

    Read Also: How to find and identify undervalued stocks

    Conclusion

    Investing your liquid money is extremely important. However, many factors need to be considered before choosing one investment vehicle. Therefore, it is advisable to consult a financial advisor before making such decisions. 

    Frequently Asked Questions (FAQs)

    1. Are Liquid funds better than Bank Fixed deposits?

      Investment in liquid funds offers higher returns than bank fixed deposits but also carries market risk.

    2. What is the meaning of Liquid investments?

      Liquid investments can be converted into cash immediately without a significant loss in value.

    3. Why is a Liquid fund better than a Savings account?

      Generally, liquid funds offer a slightly better return than a savings bank account because a liquid fund invests your capital in money market instruments, which typically yields better returns.

    4. How does an Arbitrage fund work?

      Arbitrage funds profit from the price difference between the derivative and cash segments of the market by simultaneously buying and selling securities in both markets.

    5. What is the taxation on an Arbitrage fund?

      Arbitrage funds attract equity taxation; if the holdings are sold within one year, they are taxed as short-term capital gain, attracting a 15% tax on profit. However, if sold after one year, they are considered long-term capital gain, attracting a tax rate of 10% over and above one lakh of profit.

  • What is Front-Running : Definition, Legality and Front-Running vs Insider Trading

    What is Front-Running : Definition, Legality and Front-Running vs Insider Trading

    Have you ever thought about whether your broker is getting the best deals for you or themselves? The shocking truth is that some brokers engage in a deceptive practice called front-running, using your trade details to line their pockets.

    In this blog, we will expose the world of front-running, explain how it works, and tell you how to protect yourself from becoming a victim.

    Overview of Front-Running

    Overview of front running

    Front-running is a deceitful practice in the financial markets. It generally involves a broker or an advisor using their advanced knowledge of upcoming trades to make personal profits. This is considered a form of market manipulation and illegal with non-public information.

    For instance, a broker gets wind of a client’s order to buy a massive block of shares in Company X. Knowing this will likely drive the price of Company X’s stock up; the broker quickly buys some shares for themselves beforehand. The price jumps once the client’s large order executes, and the broker sells their shares at a profit.

    Front Running is unethical because it gives the abuser an unfair advantage. They are essentially exploiting their access to privileged information unavailable to the general public. This creates an uneven playing field and undermines trust in the markets.

    Is Front Running Legal?

    Front-running’s legality depends on the type of information used.

    When done with non-public information, where a broker uses knowledge of a client’s upcoming trade or firm’s internal plan to earn profits. This violates insider trading laws and can lead to serious legal consequences.

    Front-running is not necessarily illegal when based on public information. For instance, if there is an announcement of a change in an index at the time of rebalancing (which stock will be removed or entered), traders can try to front-run the trade by buying or selling those stocks beforehand. The index rebalancing will likely affect the stock price.

    Front-running is illegal when it exploits confidential information for personal gain. Its legality becomes less clear-cut when it relies on publicly available knowledge.

    Index Front Running

    Index front-running is a strategy that exploits the predictable changes in index composition.

    Financial indices like the S&P 500 or NIFTY 50 are calculated based on free-float market capitalization method and periodically rebalance their holdings. This means they add or remove companies from the index to maintain a particular market representation.

    Index funds passively track these indexes, and when the index composition changes, the index fund managers are obligated to buy or sell the affected securities to mirror the index.

    Traders watch for signals indicating upcoming index rebalancing. This information is usually public and available through announcements or index methodology analysis.

    Before the index rebalances, these traders buy stocks likely to be added to the index (anticipating a price increase) or sell stocks expected to be removed (anticipating a price decrease).

    When the index fund initiates buy or sell activity to rebalance, it can cause the stock prices to move in the direction that the front-runner anticipated.

    Difference between Front Running and Insider Trading

    Front Running and Insider Trading are both unethical practices in the financial world, but they differ in the critical source of information used for gaining an unfair advantage.

    Front-running abuses advance knowledge of client orders or anticipated market movements. This information may not be confidential, but it is not publicly available either.

    On the other hand, Insider Trading relies on material, non-public information about a company that has yet to be disclosed. This could be upcoming mergers, acquisitions, earnings reports, or product launches. Insiders, like company executives or board members, are privy to this information.

    The brokers front-running the client’s order owes them a fiduciary duty. Brokers and advisors are required to work in the best interests of the clients.

    Front-running is like a cashier at a store who sees someone with a lot of groceries and quickly buys milk before the price increases because of high demand.

    Insider Trading is like a factory worker who knows a new, superior product is about to be released and buys company shares before the public announcement.

    How to Protect Yourself?

    • Keep up-to-date on the latest trends and discussions about front-running in the financial markets. Understanding how it works is the first step to mitigate it.
    • Consider using platforms or tools that obscure your transaction details before they are broadcast publicly. This can help reduce the window for front-runners to act. However, this option might only be available on some platforms.
    • Front-running is easier during periods of high trading volume. Try placing your trades when there is less activity or in tranches, which reduces the chance of front running.
    • Look for centralised exchanges with anti-front-running solid measures. Such exchanges employ mechanisms like transaction batching or order book shuffling to make it harder to predict specific trades.

    Read Also: Business Cycles of a Company

    Conclusion

    Front-running raises questions about the balance of information in the market and erodes trust. It harms investors by giving an unfair advantage to those with advanced knowledge. Regulatory bodies like the Securities & Exchange Board of India (SEBI) consistently work to prevent front-running through stricter rules and fines for offenders.

    By working together to combat front-running, we can create a fairer and more transparent financial environment for everyone.

    Frequently Asked Questions (FAQs)

    1. How can I tell if a broker is front-running my trades?

      It can be challenging for individual investors to detect front-running definitively. However, some red flags might exist, such as huge price movements after placing an order and orders taking an unexpectedly long time to execute.

    2. Is front-running legal?

      It completely depends. Using material non-public information is illegal.

    3. Who can front-run?

      Brokers, traders with access to order flow data, or anyone who learns about the large trade beforehand.

    4. What are the consequences of front-running?

      Fines, legal trouble and reputational damage for the perpetrator.

    5. How is Front Running different from Insider Trading?

      Front running might misuse non-public client information, while insider trading uses confidential, non-public information which is not available to the general public.

  • What is a Stock Broker? Meaning, Features, Types, and Commissions Explained

    What is a Stock Broker? Meaning, Features, Types, and Commissions Explained

    Stock Brokers have become the new talk of the town, but very few know about its importance and relevance in the ever-changing world of finance. They play a crucial role in helping achieve your investment goals while maintaining security and efficiency. 

    In this blog, we’ll explore the ins and outs of what brokers do, the different types, and why they’re essential for your financial success.

    Meaning of Stock Broker

    Meaning of Stock Broker

    Think of stock brokers as financial matchmakers, linking buyers and sellers in stock markets. They connect traders and investors and facilitate transactions in seconds. Stock brokers are authorized members of the stock exchange (NSE and BSE) and thus charge a commission or brokerage for providing their services. 

    Read Also: Is It Better To Buy Stocks When The Market Is Up Or Down?

    Features of Stock Broker

    1. Brokers act as an intermediary between investors and the securities market.
    2. Some brokers are authorized to provide investment advice to their clients.
    3. Brokers execute buy and sell orders on behalf of their clients.
    4. Brokers provide customer support to assist clients with managing their accounts, technical issues, and general inquiries.
    5. Brokers educate their clients regularly through webinars, training, etc. 

    Types of Stock Broker

    Types of Stock Brokers

    There are generally two types of brokers:

    1. Full-Service Broker – Also known as traditional brokers, they provide other financial services such as retirement planning, investment advice, portfolio management, tax planning, etc, along with facilitating trading in the securities market. The charges levied by them are generally high, and they are considered the most expensive type of brokers. Their offices are situated in different cities in order to provide clients with physical support as quickly as possible. Examples of full-service brokers are Motilal Oswal, Kotak Securities, and Sharekhan.
    2. Discount Broker – Discount brokers provide only a platform for executing trades and offer the cheapest brokerage. They do not provide any major type of support beyond trades to their customers; thus, investors are required to execute transactions by themselves. Examples of discount brokers are Zerodha, Upstox, Groww, etc.

    Types of Participants in Securities Market

    1. Traders – They are considered intraday traders who buy and sell shares daily; they bet on stocks for short-term profit and exit the positions daily. They are generally uninterested in the company’s fundamentals as they execute their trades based on technical parameters.
    2. Investors – Investors are generally focused a lot more on a company’s fundamentals; they tend to do comprehensive research regarding the company’s finances, management, etc. before making any investment decision. They invest for a longer period and are not interested in the short-term movement of the stock prices.

    How to Identify the Right Stock Broker?

    How to Identify the Right Stock Broker?
    1. The selection of a broker depends on your investment style. If you are an active trader, you must look for a broker who will offer you the lowest brokerage to minimize transaction costs. On the other hand, long-term investors tend to prefer brokers who offer educational training, research reports, etc., along with execution services.
    2. You must check the broker’s registration with the regulating authorities and its past record of default and fines, if any.
    3. The broker’s trading platforms must be user-friendly, have proper research tools, and have sections that allow traders to make robust decisions in their trading applications while safeguarding their data.
    4. You must also evaluate the broker’s customer support services and grievance redressal mechanism.

    How does a broker Earn Money?

    The major sources of revenue for a stock broker are as follows-

    1.  Commission/Brokerage – The brokers charge a commission/brokerage as a fee for executing trade through their platform.
    2. Account Maintenance Fees – Brokers charge their customers an annual maintenance fee in exchange for continuing to provide online services.
    3. Margin Interest – Brokers lend money to their clients and charge interest on it. 
    4. Subscription Services – Some full-time brokers charge subscription fees to their customers for the research reports they provide.

    Impact on the Stock Market without a Stock Broker

    Impact on Stock Market without Broker

    Stock brokers play a significant role in the securities exchange, and without their existence, the stock market would face catastrophic effects. A few of them are mentioned below:

    1.  Reduced Liquidity – The stock brokers provide immense liquidity to the markets with their ability to match orders from buyers and sellers in an instant. Without stock brokers, finding buyers and sellers would be nearly impossible. 
    2. Increased Volatility – Brokers stabilise the market by providing liquidity to traders. They manage large volumes of trades quickly, thus leading to reduced volatility. In their absence, the markets would face erratic price movements, therefore further increasing the bid-ask spread. 
    3.  Limited Access for Retail Investors –  Stock brokers make it easy for newbies and retail investors (with limited capital) to invest in the market. The broker’s absence would make it exceptionally difficult for retail investors to enter the stock market.  
    4.  Higher Costs – The stock brokers work on low margins while keeping the bid-ask spread narrow. Their absence would lead to increased costs due to the widening of the bid-ask spreads. 

    Read Also: What Happens When a Stock Share is Delisted?

    Conclusion

    Stock brokers play an important role in the functioning of the stock market. They allow investors to easily access the investment opportunities available in the security market. 

    However, retail investors need to choose the right broker that aligns with their investing style. Regardless of the broker you choose, you must invest your time in educating yourself about the securities market and its investment strategies.

    Frequently Asked Questions (FAQs)

    1. Do I need a stock broker to invest in the securities market?

      It is possible to open a Demat account without a broker but to invest in the stock market; you must have a broker who facilitates the transactions.

    2. What is the difference between a full-service broker and a discount broker?

      A full-service broker will provide you with additional services along with buying and selling of securities such as PMS, research, etc., while discount brokers will only provide you with a trading platform.

    3. How can I deposit funds with my broker?

      Brokers allow you to deposit and withdraw funds digitally through your demat account which is linked with your bank account.

    4. Can I open my demat account with multiple brokers?

      Yes, you can open multiple demat accounts with different brokers. However, only one account with a broker is permitted.

    5. Can I buy or sell shares online through my mobile phone?

      Yes, most brokers offer a mobile application through which you can buy and sell shares.

  • Explainer On Geopolitical Tensions

    Explainer On Geopolitical Tensions

    You enjoyed a delicious dinner last night and woke up this morning to the news of one nation launching an airstrike against another. Your first thought might be about how these geopolitical tensions will impact the stock markets and your portfolio.

    In this blog, we will give answer to all such questions; keep reading to find out.

    Geopolitics refers to the political interactions between countries and regions. Now, geopolitical tension, as the term suggests, relates to conflicts or political concerns between two or more countries.

    What is happening around?

    Geopolitical tensions are not new. They occur frequently, whether through major events or smaller incidents around the world. Things can get messy when we struggle to understand how these situations impact the global markets or, say our Indian stock market.

    If we take the recent case, Iran’s consulate in Damascus, Syria, was destroyed by Israel in the early hours of April 1, 2024, killing eight Iranian officers, including a senior member of the Iranian Islamic Revolutionary Guards.

    Following the assault, Iran directly attacked Israel with about 300 drones and missiles in retaliation. Subsequently, Iran intercepted a container ship near the coast of the United Arab Emirates, alleging it had ties to the Zionist dictatorship in the Gulf.

    This prompted a military intervention by the United States, the United Kingdom, and France to intercept some Iranian missiles, a move that signals an escalation of hostilities between Iran and Israel, as well as a reaction from the G7 and UN Security Council.

    Because of this, the global markets fell around 2% in a single day.

    Impact of the Geopolitical Tensions

    Impact of the Geo Political Tension

    Crude Oil Prices

    The price of oil will be directly impacted in case of geopolitical tensions. Crude oil prices can exacerbate market uncertainties.

    Investors can closely watch the oil prices. The Middle East countries—Iran, Saudi Arabia, and Iraq, for example—produce over 36% of the world’s oil and hold roughly 52% of its reserves.

    Did you know

    Israel and Iran combined produce around 4.1% of global production of oil, roughly around 3.8 million barrels per day.

    Supply Chain Disruption

    War scenarios significantly influence imports and exports. Maritime chokepoints like the Red Sea and the Strait of Hormuz pose significant risks to international trade and economic stability if the situation worsens. The commerce routes could be negatively impacted by any disruption to these channels.

    Inflationary Conditions

    Increased oil prices would cause inflationary conditions to grow, and the government might implement harsh measures to manage those conditions. Furthermore, if the central banks take a cautious stance in reaction to unstable market conditions, the possibility of interest rate reductions may be further postponed.

    Indian trade with Israel and Iran

    India’s import and export of goods to Israel totalled approximately 2.3 billion USD in FY 23 and 8.4 billion USD in FY 24. The country’s top exports to Israel were diesel (worth 5.5 billion USD) and polished and cut diamonds, which were estimated to be worth 220 million USD.

    India mostly imports petroleum ($85 million) and methanol ($176 million) whereas its main exports to Iran are rice ($1.03 billion) and organic chemicals ($113 million).

    What should Investors do?

    What should investors do?

    In Geopolitical tensions, there are a number of scenarios that could occur, such as correction in equity markets, rise in inflation, trade delays, import-export misbalance, etc. A protracted conflict situation would negatively affect the global economy and could cause each country’s GDP to drop by 1% to 2%. In such a scenario, the market may correct sharply, perhaps by more than 10%.

    Any investor with a longer investment horizon needs to view such circumstances as a chance to build wealth over time. Further, it would help if you build your portfolio based on your risk tolerance. For example, when it comes to the equity asset class, small and mid-cap stocks will be the most volatile during any correction. If you want to be extra cautious, you can move toward large-cap stocks, which are thought to be more defensive during market downturns.

    On the other hand, as the conflict intensifies, inflation will rise, which can raise interest rate risk in fixed-income instruments.

    Every market correction should see the gradual deployment of fresh money, with some tactical calls also being taken into account.

    Read Also: Explainer on Portfolio Management Services (PMS)

    Conclusion

    In summation, geopolitical tensions are nothing new; they occur regularly around the world. One can keep an eye on events involving the USA as there’s a great saying, ‘When America sneezes, the world catches a cold”.

    Regarding the Israel and Iran case, the Indian stock market may have a knee-jerk reaction in response to the increasing tension between Israel and Iran, as this could result in an increase in crude oil prices and ultimately widen India’s trade deficit.

    Investors should view corrections as a chance to build wealth by investing extra capital in such times, rather than panicking and liquidating their holdings. Further, it is wise to get in touch with your financial advisor before making any investment decision.

    Frequently Asked Questions

    1. What happened between Iran and Israel on 1 April 2024?

      Israel launched an airstrike on Iran on 1 April 2024, killing 8 Iranian officers in the process. Iran responded by attacking Israel with more than 300 airstrikes, which exacerbated the situation and brought on a state of war.

    2. What are the major sectors that will be impacted by the Iran and Israel war situation?

      The primary industries that will be impacted by the conflict between Iran and Israel are oil, gas, and energy

    3. How could India play a role in mediating or de-escalating the tension situation between Israel and Iran?

      India has the ability to defuse the situation by supporting diplomatic efforts and peaceful conversations, as well as by offering relief and support to those in need.

    4. Could a disruption in the shipping route in the Gulf region will affect India?

      Yes, a disruption in the shipping route will impact the Indian economy, as the Persian Gulf is an essential route for India’s oil imports. A significant portion of crude comes from this route, and any disruption will affect India’s energy sector.

    5. Does Israel have nuclear weapons?

      As per intel agencies, Israel has nuclear weapons, but officially, the country is denying that it does not possess nuclear weapons.

  • Top Sugar Companies In India

    Top Sugar Companies In India

    When something pleasant happens to us, we all want to eat something sweet. When a child starts crying, we buy them chocolate, but have you ever considered how much profit sugar companies make and how they operate?

    No worries. Read the blog and explore the performance of India’s top five sugar companies based on the market capitalization.

    Overview of Sugar Companies

    Sugar companies specialize in producing, processing, and distributing sugar, sweeteners, and associated products such as ethanol and power. The Indian sugar sector dominates the global market, producing 37 million metric tons in 2022. The sugar industry is India’s second most agro-based sector, behind cotton. Sugar production contributes significantly to India’s GDP and economic growth.

    Reasons to invest in India’s Sugar sector

    Reason to invest in India's Sugar Sector

    There are numerous reasons why one should invest in sugar companies, a few of which are mentioned below:

    1. Sugar is a commodity with steady global demand; it is utilized not just for direct consumption but also as a raw material in various sectors, including the food and beverage industry.
    2. Sugar firms have direct exposure to food and beverage markets. Rapid income and urbanization result in increasing consumption of processed food and beverages.
    3. Sugar firms also produce ethanol, which, when combined with gasoline, can be considered a valuable complement to the company’s growth.

    Factors to be considered before investing in the Sugar sector

    One should consider the below mentioned factors before investing in Sugar companies:

    1. Sugar prices are regarded as highly volatile due to demand and supply factors, which directly impact a company’s revenue and stock price movements.
    2. The numerous government policies could substantially impact the company’s growth and profit margins.
    3. The shift toward healthy behavior can directly affect sugar demand; any negative impact could significantly impact the companies’ revenues.

    Overview of the best Sugar Companies in India

    Let’s analyse the top sugar companies in India based on their market capitalisation:

    Triveni Engineering & Industries Ltd.

    The company was founded in 1932 by Shri Ganga Prasad Agarwal, and its main office is in Kanpur, Uttar Pradesh. Over time, the company has entered several new industries. The company is well known for employing efficient manufacturing processes and for creating sugar goods of the greatest quality. The company operates seven factories, each producing 61,000 tons of sugar.

    Bajaj Hindusthan Sugar Ltd.

    Former freedom fighter turned businessman Shri Jamnalal Bajaj founded Bajaj Hindusthan Sugar Limited on November 24, 1931. The company opened its first plant at Gola Gokaran Nath in the Lakhimpur Kheri area of Uttar Pradesh. From 400 to 13,000 tonnes of crushed cane per day, the company’s capacity increased. The districts of Pratappur, Rudauli, Kundarkhi, and Utraula in Uttar Pradesh are home to the company’s four production sites.

    Balrampur Chini Mills Ltd.

    It is one of India’s leading sugar-producing firms, formed in 1975 and headquartered in Kolkata, West Bengal. The company is part of the K.K. Birla Group. The company’s operations include the manufacture of ethanol, power, and sugar and generating biogases as a byproduct of sugarcane processing. The corporation operates several sugar mills in Uttar Pradesh. The corporation has an extensive distribution network via which it exports its sugar to numerous foreign markets.

    Shree Renuka Sugars Ltd.

    The company was founded in 1995 by Narendra Murkumbi and his mother, Vidya Murkumbi. The company has a total crushing capacity of 46,000 TCD (tons crushed per day) and a refining capacity of 1.7 MTPA (million tons per year). They proudly operate one of the world’s largest sugar refineries at Kandla on the western coast and another in Haldia on the eastern coast. The firm is India’s largest ethanol manufacturer, with a capacity of 1,250 kiloliters per day.

    EID Parry (India) Ltd.

    The company sells sweeteners and nutraceuticals. It was started in 1788 by a British trader, Thomas Parry, who opened its first sugar mill at Nellikuppam, Chennai, in 1842. EID Parry became an Indian firm in 1975, changing its name to EID Parry India Limited, and it was eventually acquired by the Murugappa group in 1981. The company has six sugar factories and has a crushing capacity of 40,000 tons.

    Read Also: List Of Best Ethanol Stocks in India

    Comparative study of top Sugar Companies:

    CompanyShare Prices (INR)Market Capitalization (INR crores)
    Triveni Engineering & Industries Ltd.3637,947
    Balrampur Chini Mills Ltd.3827,711
    Shree Renuka Sugars Ltd.42.89,110
    Bajaj Hindusthan Sugar Ltd.33.64,288
    EID Parry (India) Ltd.63611,282
    (As of 18th May 2024)

    Income Statement Analysis (F.Y. 2023 | INR crore)

    CompanyTotal IncomeTotal ExpensesNet Profit
    Triveni Engineering & Industries Ltd.6,390.515,844.401,791.80
    Balrampur Chini Mills Ltd.4,728.654,331.68275.53
    Shree Renuka Sugars Ltd.8,686.208,808.90-135.7
    Bajaj Hindusthan Sugar Ltd.6,360.346,498.50-134.74
    EID Parry (India) Ltd.3,152.902,797.50196.8
    Income Statement Analysis

    Financial Statement Analysis (F.Y. 2023 | INR crore)

    ParticularTotal AssetInventoryTotal EquityCurrent Liabilities – Borrowings
    Triveni Engineering & Industries Ltd.4,454.441,996.492,665.25222.4
    Balrampur Chini Mills Ltd.5,402.162,318.682,875.431,449.87
    Shree Renuka Sugars Ltd.7,494.402,237.00412.71,248.40
    Bajaj Hindusthan Sugar Ltd.15,939.342,612.724,434.803,851.15
    EID Parry (India) Ltd.3,985.60978.62,882.10397
    Financial Statement Analysis

    Cash flow analysis (F.Y. 2023 | INR crore)

    ParticularTriveni Engineering & Industries Ltd.Balrampur Chini Mills Ltd.Shree Renuka Sugars Ltd.Bajaj Hindusthan Sugar Ltd.EID Parry (India) Ltd.
    Cash Flow from Operating Activities397.44452.91856.6792.31-366.55
    Cash flow from Investing Activities1,413.65-858.75-344.712.3376.08
    Cash flow from Financing Activities-1762.36405.82-453.1-833.2268.98
    Cash flow analysis

    The cash flow from operational operations for EID Parry India Ltd. in FY 2023 was negative, as seen in the above table, whereas all other firms reported positive figures.

    Key Performing Indicators (FY 2023)

    ParticularsTriveni Engineering & Industries Ltd.Balrampur Chini Mills Ltd.Shree Renuka Sugars Ltd.Bajaj Hindusthan Sugar Ltd.EID Parry (India) Ltd.
    Net Profit Margin (%)31.65.9-2.18-1.429.17
    ROCE (%)19.6712.9617.120.727.71
    P/E Ratio3.6429.29-47.42-42.18.78

    Future of the Sugar Industry

    The government has implemented several initiatives to stimulate ethanol production, which is essential for the industry’s growth. The “National Policy on Biofuels” indicates that the government set a target of 20% ethanol blending in petrol by 2030, which was later moved to 2025-26.

    In addition, the processed food and beverage industry, particularly alcohol and soft drinks containing sugar, is expanding rapidly. As a result, the sugar industry’s future seems more promising.

    Read Also: List Of Best FMCG Stocks In India

    Conclusion

    In summation, the sugar industry is considered a defensive sector because sugar demand is consistent. Including sugar stocks in your investment portfolio can provide good diversification. However, before making any investment decision, you should extensively study the companies and industry difficulties. Further, it is suggested that you consult with your financial advisor before making any investment decision.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1List Of Best Jewelry Stocks in India 2025
    2List of Best Liquor Stocks in India
    3List of Best Chemical Stocks in India 2025
    4List Of Best PSU Stocks in India 2025
    5List Of Best Pharma Stocks in India 2025

    Frequently Asked Questions (FAQs)

    1. Which Indian state is a leader in sugarcane production?

      Uttar Pradesh is the highest sugarcane-producing state in India, followed by Maharashtra and Karnataka.

    2. Which is the largest sugar company in India?

      Based on market capitalisation, as of May 2024, EID Parry (India) Limited is the largest sugar company in India.

    3. How do we evaluate the performance of sugar companies’ stocks?

      Sugar companies’ stock performance can be evaluated based on various factors, such as revenue, net profit margins, inventory turnover ratios, geographical diversification, and production capacity.

    4. What are the long-term prospects of the sugar sector?

      Sugar companies’ future outlook is bright due to the increase in the population and disposable income of consumers, which will raise the demand for sugar. Further, the government of India has set a target of 20% ethanol blending in petrol by 2026, which will further improve sugar stocks’ revenues.

    5. What are the various factors that affect sugar stock prices?

      Various factors affect sugar stock prices, including but not limited to: government regulation, commodity prices, technological development, etc.

  • Why Are PSU Stocks Falling? Key Insights and Considerations

    Why Are PSU Stocks Falling? Key Insights and Considerations

    The Indian infrastructure sector is the backbone of the nation’s economic growth. Financing these large-scale projects is crucial, and project finance has filled the gap. However, the RBI recently introduced draft guidelines aimed at revamping this system.

    In this blog, we will learn about these new RBI regulations and explore their impact on lenders and borrowers. Further, we will also understand whether they usher in a new era of prudence in project finance.

    PSU Stocks – An Overview

    PSU stocks refer to the shares of companies that are categorised as Public Sector Undertakings. These are businesses where the Indian government holds a majority stake, i.e., at least 51% ownership. Examples of PSUs include LIC, BHEL, Indian Oil, BSNL, NTPC, ONGC, SBI, etc.

    These companies operate across sectors like energy, oil & gas, power, banking, insurance, infrastructure, manufacturing, and telecommunications.

    PSUs have a profound impact on the economic growth of India through the provision of vital goods and services, the promotion of balanced development, as well as the effective implementation of government policies.

    Read Also: What is PSU Index? Performance, Comparison, Benefits, and Risks

    Why there was a fall in the PSU stocks?

    Fall in PSU Stocks

    The share of PSU stocks witnessed a sharp decline of up to 13% after the Reserve Bank of India’s implementation of more stringent regulations regarding project finance on 7 May 2024.

    But, what is Project Finance?

    Project Finance is a way to fund long-term infrastructure and industrial projects. It is distinct from conventional corporate loans, as it depends on the project’s cash flow for debt repayment rather than the creditworthiness of the sponsoring companies. In the event of default, lenders generally have limited recourse to the sponsor’s assets due to the project’s status as a distinct entity. The primary concern revolves around the security of the project’s assets and revenue.

    It is often used for large and complex projects that have high initial expenses, such as power plants, toll roads, bridges, tunnels, dams, etc.

    Let us have a quick overview of RBI’s new guidelines for project finance:

    As per the RBI letter dated 7 May 2024, Banks must increase their provisions for loan defaults during the project’s construction phase. The provisioning amount for this loan can be as high as 5% in contrast to the existing 0.4%. This may result in higher borrowing costs for developers and infrastructure companies.

    The proposed implementation of the 5% provisioning requirement is set to be carried out gradually until the fiscal year 2027.

    The provisioning requirements shall be alleviated as the project advances towards the operational phase. Once operational, banks may be required to only set aside 2.5% of the outstanding loan and this reduction can be further minimised to 1% if the project meets the specific financial performance benchmarks.

    The RBI has proposed minimum exposure requirements for projects that are financed by multiple lenders, also known as consortium lending. This means that each participating bank needs to have a minimum loan portion relative to the total project cost.

    Additionally, it is stipulated that when the participant lenders collectively have an exposure of up to INR 1,500 crore, no individual lender shall be permitted to have an exposure that is less than 10% of the aggregate exposure, and for projects where the aggregate exposure of lenders is more than INR 1,500 crore, the individual exposure floor will be 5% or INR 150 crore, whichever is greater.

    Objectives of RBI Guidelines

    Objectives of RBI Guidelines

    There are two main objectives behind RBI’s new guidelines on project finance:

    • The primary objective behind this is to prompt lenders, i.e., banks and financial institutions to exercise greater caution when providing financing for projects. The RBI has mandated banks to allocate higher provisions (up to 5% during construction) to ensure careful assessment of project risks before allocating funds. This can make project finance more stable in the future, with fewer loan defaults.
    • Implementing more rigorous loan approval procedures and emphasizing risk mitigation measures could catalyse project developers to enhance their project planning, feasibility, and overall execution. This will lead to higher quality projects with better chances of success and timely completion.

    Impact of the New RBI Guidelines

    The new draft guidelines for project finance by the RBI are anticipated to have a diverse influence on the myriad of stakeholders participating in this domain:

    • Lenders will need to set aside more money, which can go as high as 5%, for lending during construction. As a result, developers can expect borrowing rates to increase by 100-150 basis points. This means that loans will become more costly.
    • The implementation of more rigorous loan approval procedures and the presence of a cautious lending climate may result in setbacks in obtaining project finance.
    • New reporting requirements and consortium lending norms might add complexity to the loan approval process for banks.

    Read Also: RBI Retail Direct Platform

    Conclusion

    To sum it up, the RBI’s new guidelines for project finance aim to create a more balanced and risk-averse project financing environment. However, short-term challenges for borrowers and lenders may arise, but the long-term benefits of better project quality and stability could be substantial. The success of these guidelines will depend on effective implementation and open communication between lenders, borrowers and regulators.

    Frequently Asked Questions (FAQs)

    1. How will new RBI guidelines on project finance impact borrowing costs?

      With new guidelines, the Banks have to raise interest rates by 100-150 basis points because of increased provisioning needs, making project finance more expensive.

    2. Will new RBI guidelines on project finance affect borrowers?

      The Borrowers will face stricter loan approvals and higher borrowing costs, and there can be project delays.

    3. Can RBI’s new project finance guidelines slow down project financing?

      Tighter regulations and higher costs might cause a tentative slowdown, especially for smaller projects.

    4. Are project finance guidelines released by RBI the final one?

      No, these are draft guidelines. The final regulations may differ after considering the feedback of all stakeholders.

    5. When will RBI’s new guidelines for project finance come into effect?

      A phased implementation of new guidelines is expected, with full effect by March 2027.

  • Explainer On REITs: Should You Invest?

    Explainer On REITs: Should You Invest?

    Have you ever dreamed of possessing a portion of that luxurious house? Buying real estate can be a good investment in the long run, but it usually requires a lot of money. And don’t forget about the illiquidity that comes with real estate.

    What if there existed a means of investing in real estate with a reduced amount of capital, allowing one to reap the associated advantages without encountering the additional inconvenience?

    In this blog, we will explore REITs, their types, how they operate, and the features they have.

    REITs Overview

    REITs stand for Real Estate Investment Trust. REITs own, operate, or finance income-producing real estate. Think of REITs as a mutual fund for real estate. REITs pool money from many investors to buy and manage several properties. Investors can participate in the growth of real estate market without buying or managing any property themselves.

    Features of REITs

    REITs come with some distinct features that make them attractive investment options. Some of their key characteristics are listed below:

    • They are generally listed on the stock exchanges, i.e., NSE and BSE for public trading. Also, they may operate as privately owned, known as non-traded real estate investment trusts.
    • REITs are allocated to various revenue-generating properties, such as apartments, offices, buildings, shopping centres, warehouses, and healthcare facilities.
    • These trusts are generally required by law to distribute a minimum of 90% of their taxable income in form of dividends, which translates into a consistent and regular source of income for prospective investors.

    Did you know?

    Real Estate Investment Trusts (REITs) in the USA have outperformed equities for over 50 years-time frame.

    Types of REITs

    Types of REIT's

    REITs offer various options based on the investor’s inclination toward property type and preferred risk-return profile.

    1. Equity REITs

    These are the most common types of REITs. They directly own and operate income-producing real estate properties. They invest in properties like apartments, office buildings, shopping malls, and hotels and generate income primarily through rent collected from tenants and appreciation of their property value.

    2. Mortgage REITs

    Unlike Equity REITs, mREITs do not own physical properties. Instead, they invest in mortgages or mortgage-backed securities. They earn income from the interest paid on the mortgages and securities they hold and are considered less volatile than equity REITs. However, their returns can be more sensitive to interest rate fluctuations.

    3. Hybrid REITs

    These REITs combine the characteristics of both equity and mREITs. They invest in a mix of real estate properties and mortgages and generate income from rent and interest payments. The risk-return profile of a Hybrid REIT depends on its specific mix of investments.

    4. Public & Private REITs

    Public REITs are the most common and trade on major stock exchanges like any other stock. On the contrary, private REITs are not publicly traded and are generally offered by investment firms to accredited investors with a higher net worth.

    Who should Invest in REITs?

    Why should Invest in REIT's

    REITs can be a good fit for a variety of investors. The following is an analysis of who may find them attractive.

    • Income-Oriented Investors – REITs are known for their steady stream of dividend income, making them ideal for retirees or investors seeking additional income generation within their portfolios.
    • Long-term Investors – REITs are designed for investors with long-term investment horizons. While short-term fluctuations may occur, they provide stable returns and capital appreciation over time.
    • Diversification Seekers—REITs introduce a new asset class to your investment portfolio, mitigating overall risk by not relying solely on equities or bonds. REITs’ performance exhibits a limited correlation with conventional investment options.
    • Investors with limited capital – Investing in REITs offers the opportunity to access the real estate market with a reduced initial capital outlay compared to buying real estate directly. This creates opportunities for individuals who may not have the funds for a conventional real estate acquisition.
    • Passive Investing—REIT ownership entails a lower need for management than direct real estate ownership. Investors benefit from collecting dividends without the burden of property maintenance or tenant management.

    How REITs operate

    REITs function similarly to companies that pool money from investors. This can be done through an IPO or subsequent share offerings. These companies use this pooled fund to acquire and manage income-producing real estate properties. Real Estate Investment Trusts generate income primarily through two ways, i.e., rent and property appreciation.

    Furthermore, comprehending how REITs function can help determine whether they are compatible with your investment objectives and risk tolerance.

    REITs in India

    The concept of REITs is relatively new in India compared to other developed countries such as the USA, UK, etc. The Securities and Exchange Board of India (SEBI) introduced REIT guidelines in 2007, which were later updated in 2014. As of now, there are only five REITs registered with SEBI in India, which are as follows

    • Embassy Office Parks REITs
    • Mindspace Business Parks REITs
    • Brookfield India Real Estate Trust
    • Nexus Select Trust
    • 360 ONE Real Estate Investment Trust

    These REITs primarily focus on income-generating commercial properties like office buildings and business parks.

    Points to consider before investing in REITs

    1. Vacancy Rate: This refers to how many floors, offices or houses are vacant. Always look for REITs that have lower vacancy rates.
    2. Portfolio Mix: Watch the properties owned by REITs and analyse them properly. What kind of properties does each REIT own, and in which location. There should not be any concentration.

      Further, also look for a concentration of top tenants. There can be a case that most of the properties in a REIT are owned by a select few tenants.
    3. Dividend History: Have a look at the track record of dividend and analyse the dividend yield before investing in REITs.

    Read Also: Types of Investment in the Stock Market

    Conclusion

    The realm of REITs is continuously developing. As the market matures and new players emerge, thrilling opportunities will unfold. Conduct additional research on specific Real Estate Investment Trusts that align with your investment objectives, and seek guidance from a financial expert to explore your investment options further.

    Frequently Asked Questions (FAQs)

    1. What are REITs?

      REITs are similar to companies that own, operate or finance income-producing real estate.

    2. Are REITs a good investment?

      It depends on your goals and risk tolerance. They offer several benefits but are also affected by the market fluctuations.

    3. How can I invest in REITs?

      You can buy shares of REITs (individual units) on a stock exchange or invest in REIT mutual funds or ETFs. Further, one can start investing in REITs from as low as INR 500.

    4. What are the drawbacks of REITs?

      There are a few drawbacks of REITs such as risk of broader real estate market, lack of control over investments, etc.

    5. Are REITs 100% safe?

      No investment is 100% safe. In case of REITs, they carry inherent risks, but diversification can help mitigate them.

  • Delisting Of ICICI Securities : Reasons and Brief Explanation

    Delisting Of ICICI Securities : Reasons and Brief Explanation

    Ever heard of a company delisting itself from the stock market on purpose? That is precisely what is happening to the ICICI Securities. In March 2024, the minority shareholders showed their support by voting in favour of ICICI Securities’ delisting, and to merge with its parent company, ICICI Bank. But before you jump to conclusions, this was not bad news. It was a strategic move by ICICI Bank to simplify its structure and create a more robust financial force.

    In this blog, we will explore the reasons behind the proposed delisting of ICICI Securities, the process, and how this decision could benefit both ICICI Bank and its shareholders.

    ICICI Securities – Brief

    ICICI Securities is a listed company founded in 1995 as ICICI Brokerage Services Limited and is a subsidiary of ICICI Bank. The company embraced technology and launched a revolutionary online brokerage platform, ICICIdirect.com, in 2000 and pioneered online investment opportunities in mutual funds and government bonds. It expanded its reach through physical ICICI direct branches across India in 2005 and diversified services by offering health and life insurance products by 2006. The company name was officially changed to ICICI Securities in 2007.

    On November 9, 2023, the Reserve Bank of India approved ICICI Bank’s request to establish full ownership of ICICI securities. About 71.9% of the brokerage’s minority shareholders approved the delisting, which is higher than the regulatory requirement of a two-thirds majority.

    The ICICI Bank is offering 67 shares of ICICI Bank for every 100 shares of ICICI Securities held by the shareholders. However, there was some disagreement among investor groups. Institutional shareholders, who have a more significant stake, supported the delisting, while some retail investors opposed it.

    Additionally, the Quantum Asset Management Company (QAM), with a 0.21% stake in ICICI Securities, voted against the deal. According to QAM, ICICI’s offer for the stake is undervalued. It should be priced at approximately INR 940 per share, considering the lowest multiple among its comparable peers in the market. This valuation is significantly higher than the current offer on the table by the ICICI Bank.

    Why Retail Investors are not in favour of Delisting

    Why Retail Investors Not in favour of ICICI Delisting

    A few Retail Investors are opposing the delisting of ICICI Securities because of the Swap Ratio concern:

    Swap Ratio Concern – Retail investors felt that the exchange rate offered by ICICI Bank (67 shares of ICICI Bank for every 100 shares of ICICI Securities) undervalued the ICICI Securities. They believe that their holdings are worth more than the offered price, and the swap ratio would not translate to the same potential growth as holding separate stocks.

    If you’re not familiar with Swap Ratio, it refers to the exchange rate at which shares of the acquiring company (ICICI Bank in this case) are offered for shares of the target company (ICICI Securities). It establishes the percentage of ownership a target company shareholder will receive in the new or surviving company.

    Read Also: Delisting Of ICICI Securities : Reasons and Brief Explanation

    Reasons for Delisting of ICICI Securities

    Reasons for Delisting of ICICI Securities

    ICICI Securities is proposed to become a wholly-owned subsidiary of ICICI Bank, which would give ICICI Bank complete ownership and control over ICICI Securities.

    The Bank believed that merging the two entities would improve efficiency and allow it to offer a broader range of financial products and services under one roof. The Delisting would also allow for streamlining operations and decision-making processes within the bank.

    Delisting – An Overview

    The Delisting refers to removing a company’s stock from a stock exchange, i.e., NSE and BSE in India. This means the stock can no longer be traded on an exchange. The companies might delist their shares for several reasons, such as mergers and acquisitions, non-compliance with listing requirements, financial distress, etc. Generally, the delisting can be classified as voluntarily or involuntarily.

    • Voluntary Delisting
      A company might choose to go private or get acquired by another company. In this case, the company will generally offer shareholders a way to sell their shares before the delisting happens. ICICI securities is a case of voluntary delisting.
    • Involuntary Delisting
      This happens when a company does not follow the stock exchange listing requirements. There are different requirements a company needs to meet to stay listed, such as maintaining a specific price or filing several reports on time. The exchange can delist, if a company does not meet the listing requirements.

    You must wonder what happens to the shares after the company is delisted, particularly in case of Involuntary delisting. Even though delisting makes things trickier, you still own a stake in the company, as indicated by your shares. Let’s have a quick overview:

    • Once the company is delisted, you can no longer trade it on the stock exchange. This significantly reduces liquidity, meaning finding a buyer for your shares might be challenging.
    • You might be able to sell your shares on the Over the counter (OTC) market, which is essentially a network of dealers who trade securities outside of exchanges. However, OTC markets are less regulated and generally have wider bid-ask spreads than the stock exchange.
    • Shareholders might find it challenging to sell their shares as there may be limited buyers in the OTC market.
    • In case of voluntary delisting, the acquirer provides the buyback window. The shareholders can sell their holdings to the promoters before delisting.

    Read Also: ICICI Bank Case Study: Financials, KPIs, Growth Strategies, and SWOT Analysis

    Conclusion

    The delisting of ICICI Securities will mark a turning point for the company and ICICI Bank. While some retail investors expressed concerns, the goal is to create a more efficient financial institution. Only time will tell the impact of this strategic move. The company may be delisted, but the decision positions them for future growth as a part of a stronger financial entity.

    Additionally, the delisting will pave the way for a more streamlined and competitive financial giant. This could be a positive development for ICICI Bank and the Indian financial landscape. Also, SEBI is currently reviewing multiple complaints regarding the delisting. Upon the collection of substantiated evidence, the SEBI will initiate an investigation. The actions that SEBI may take remain uncertain.

    Frequently Asked Questions (FAQs)

    1. Why ICICI Securities is getting delisted?

      The purpose of delisting is to simplify ICICI Bank’s structure, and achieve better integration between the two entities.

    2. Did ICICI Bank take this decision because of the poor performance of ICICI Securities?

      No, it was a strategic decision to delist ICIC Securities, and not due to negative performance of the company.

    3. Did everyone agree with the delisting?

      The institutional investors favoured the delisting; however, a few retail investors opposed it.

    4. What will happen to the shareholders of ICICI Securities?

      The shareholders of ICICI securities will receive the ICICI Bank shares in exchange for their holdings.

    5. Will this delisting affect the stock price of ICICI Bank?

      The long-term impact remains to be seen, but the move overall aims to strengthen the banking operations.

  • What are Treasury Bills: Meaning, Benefits and How to Buy?

    What are Treasury Bills: Meaning, Benefits and How to Buy?

    What are T-bills? What are the benefits, risks, and investment strategies of T-bills? How are T-bills risk-free? We’ll uncover all such questions in this blog.

    What are T-bills?

    Treasury bills, also known as T-bills, are short-term instruments (maturity less than a year) issued by the government.

    It is one of the safest investments as it is backed by the financial stability of the government.

    T-bills don’t give any interest. So, how do investors make profits? These are zero coupon investments that are issued at a discount to fair value and have a maturity of a year or less.

    Example: Let’s consider a T-bill with a face value of INR 1,00,000 of maturity 3 months. The investor buys the T-bills at INR 99,000 (at a discount) and receives INR 1,00,000 after 3 months. In this case, the investors earn INR 1,000

    Issuers of T-bills

    T-bills are issued by the government to meet short-term needs and manage the liquidity. In India, T-bills are issued by the RBI (Reserve Bank of India) on behalf of the government. As of April 2024, we have three different types of T-bills based on the maturity: 91 days, 182 days, and 364 days.

    Did you know?

    In India, the Reserve Bank of India issued the first T-bills in 1917.

    How do T-bills work?

    How do T-bills Work
    • Issuance – T-bills are issued through auctions, including competitive and non-competitive auctions on behalf of the respective treasury departments or central bank, i.e. the RBI.
    • Competitive Auctions – Investors place bids for yield rates they are willing to accept. Until the authorities issue the required securities, the top bids are accepted first.
    • Non-competitive Auctions – Investors accept the yield that has been previously decided. Small institutions and individual investors usually prefer this kind of auction.
    • Maturity Period – T-bills are generally issued for 3 months, 6 months, and a year. Currently, in India, we have T-bills for 91 days, 182 days, and 364 days. Investors may choose the maturity according to their investment time horizon and liquidity needs.
    • Discount / Interest – Unlike other coupon-bearing bonds, T-bills don’t pay coupons or interest. Instead, the investor earns at the time of maturity when the government repays the face value of the T-bill.
    • Secondary Market Trading – T-bills can be traded in the secondary market before maturity, offering liquidity and flexibility to investors. Secondary market trading refers to the buying and selling T-bills between investors before the maturity date, which generally happens on exchanges, i.e., NSE and BSE in India. In the secondary market, the market price of T-bills fluctuates according to the market demand of the securities. Transacting in the secondary markets may incur fees or charges, including brokerage or commissions.

    A T-bill is said to be at a premium if its market price is greater than the face value. This means that there is more demand than supply in the secondary market. Conversely, if the T-bill has a market price lower than the face value that means it is trading at a discount.

    Benefits of Investing in T-bills

    • Safety – T-bills are safe havens for investors because they are backed by the government. They are preferred by investors who don’t want to take much risk and secure their capital.
    • Liquidity – T-bills are highly liquid investments offering flexibility to investors to rebalance or adjust portfolio easily.
    • Short-term Horizon – T-bills allow investors to invest for a short-term. They can park their funds temporarily in T-bills while awaiting other investment opportunities.
    • Predictable – T-bills offer a fixed rate structure, allowing investors to predict the rate of return with certainty, unlike other securities like equity, hedge funds, and many others.
    • Diversification – T-bills have a low correlation with other securities like equity and real estate. Including T-bills in the portfolio helps the investors to reduce overall portfolio risk and enhance risk-adjusted returns.

    Read Also: Why Debt Funds Are Better Than Fixed Deposits of Banks?

    Risks associated with T-bills

    • Interest Rate Risk: The market price of T-bills fluctuates in the secondary market according to the interest rate. When interest rates rise, T-bills are discounted at a high rate, leading to lower prices and capital loss for investors.
    • Inflation Risk: The real rate of return earned on a T-bill may be negative in case inflation exceeds the rate of return earned. This deteriorates the purchasing power of investors.
    • Call Risk – These risks are associated with only special types of T-bills that are callable T-bills. In callable T-bills, the government has the option to redeem them before their maturity date.
    • Regulatory or political risk: Political instability or any other regulatory changes may affect the returns.

    Investing in T-bills

    Investing in T-bills

    Investors can invest in T-bills through direct purchase from the treasury or from brokers or dealers. A Primary Dealer (PD) or a Scheduled Commercial Bank is authorized to deal in government securities, including T-bills, in India. Some of the major PDs in India include the State Bank of India (SBI), ICICI Bank, HDFC Bank and Axis Bank and many others.

    One can also buy T-bills via the RBI Retail Direct Platform. If you’re unaware of this platform, then checkout our blog on the same: Reserve Bank of India : Retail Direct Platform

    Further, T-bills trade on an exchange post issuance, which means you can also buy/sell them in the secondary market, i.e., the NSE and BSE.

    Read Also: What is TREPS & Why Mutual Funds Invest in it?

    Conclusion

    In today’s dynamic financial landscape, understanding the characteristics, benefits and risks of investing in T-Bills can allow investors to make informed decisions aligned with their investment objectives and financial goals. T-Bills offer straightforward and transparent investment opportunities, and their simplicity, safety and short-term nature make them a preferred choice for investors seeking liquidity, capital preservation, and predictable returns. But it also comes with risks that the investors should consider before making any decisions.

    Frequently Asked Questions (FAQs)

    1. What is the minimum investment amount for T-Bills?

      The minimum investment amount for T-Bills depends on the country and the specific auction. In India, it is INR 10,000 and multiples of INR 10,000 thereafter.

    2. Are T-bills adjusted for inflation?

      No, T-Bills are not inflation-adjusted securities. The interest earned on T-Bills is fixed and does not change with inflation.

    3. Can the investors reinvest the proceeds from T-Bills automatically after maturity?

      Some platforms or financial institutions offer automatic reinvestment options for matured T-bills, which allow investors to reinvest the amount in new T-bills without manual intervention.

    4. Are T-bills and T-bonds different?

      T-Bills are short-term securities with maturity periods of up to one year or less, while T-Bonds and T-Notes refer to longer-term securities with maturity periods ranging from 2 to 30 years.

    5. How does a change in credit rating affect returns on T-bills?

      T-Bills are backed by the government’s creditworthiness, making them less sensitive to credit rating changes than corporate bonds or other debt securities. However, significant changes in a country’s economic or fiscal health may impact investor confidence and T-Bill prices.

    Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

  • Strategies To Boost Your IPO Allotment Chances

    Strategies To Boost Your IPO Allotment Chances

    Have you ever dreamed of getting in on the ground floor of a new company? IPOs, or Initial Public Offerings, allow you to do just that. But snagging shares can feel like winning the lottery.

    This blog uncovers the secrets of the IPO allotment process. We will also explore the quota system, ensuring you understand how your chances stack up against other investors.

    But before delving deep, let’s take an overview of IPO – An IPO, which stands for Initial Public Offering, is the first time a private company offers its shares to the public for investment. It’s an essential event in the life journey of a company that marks its transition from being privately owned to a public entity listed on a stock exchange, i.e., the NSE and BSE in India.

    Objectives of IPO

    Objectives of IPO

    Companies pursue IPOs for several vital objectives. Some of them are listed below:

    • The primary objective is raising capital. Companies gain access to a large pool of funds by selling shares to the public. This capital can be used for various purposes, such as funding expansion plans, developing new products or services, paying off debt, or acquiring other businesses.
    • Going public can enhance a company’s reputation and visibility. Publicly traded companies are subject to regulations and reporting requirements, which can help gain investor’s confidence.

    Read Also: What is the IPO Allotment Process?

    What is Quota in an IPO?

    In an IPO allotment, quotas refer to the pre-determined percentage of shares reserved for different investor categories.

    Retail Individual Investors

    These are regular investors applying for a maximum of INR 2 lakh. They are generally allocated at least 35% of the total offering, but it can be as high as 50% depending on the IPO.

    Non-Institutional Investors (NIIs)

    These are high-net-worth individuals (HNIs) applying for more than INR 2 lakh. They do not have a fixed quota, and their allotment depends on the remaining shares after retail and QIB allocations.

    Qualified Institutional Investors (QIBs)

    These are institutional investors such as banks, mutual funds, and insurance companies. They are allocated a minimum quota, which can range from 10% to 60%, depending on the regulator’s approval and the type of IPO. (Book building or Fixed price)

    Knowing the quota systems helps you understand your chances of allotment. Your chances might be lower if the retail quota is small and the IPO is heavily subscribed.

    Procedure of Allotment

    Procedure of Allotment

    From here, we’ll focus on the Retail Investors applying for the IPO. The allotment procedure for an IPO can be broken down into three stages, i.e., Application, Allotment, and Notification.

    Application

    Investors submit their applications to invest in the IPO through their demat or bank accounts and specify the number of lots they wish to buy and the price they are willing to pay. As per the regulator, i.e., the SEBI, the application window for an IPO shall be kept open for at least three working days. Further, for mainboard IPOs, the minimum application value must be within the range of INR 10,000 to 15,000.

    Allotment

    • Once the application window closes, the registrar reviews the subscriptions received.
    • If the IPO is undersubscribed, which means there are fewer applications than shares offered, investors will likely get all or most of the shares they applied for.
    • On the other hand, if the IPO is over-subscribed, which means there are more applications than the shares offered, a computerised process determines how shares are allotted.
    • In a minor oversubscription, investors receive a proportionate share of their application.
    • In a large oversubscription, a lottery system is used for allotment of shares.

    Post Allotment Notification

    • Within a few days of the allotment process, investors are notified about the status of their applications via text message or email.
    • This information is also available at the investor’s trading account or the registrar’s website.
    • Successful applicants will have the allotted shares credited to their demat accounts, and the funds will be debited accordingly.
    • Unsuccessful applicants will have their application money refunded, or in case of ASBA (Application Supported by Blocked Amount), the amount will be unblocked by the Bank.

    Read Also: What is the IPO Cycle – Meaning, Processes and Different Stages

    How to increase the chances of Allotment?

    The thrill of a successful IPO investment is undeniable. However, with popular offerings often experiencing massive oversubscription, many hopeful applicants end up empty-handed. While there is no guaranteed method, some strategic steps can improve your chances of allotment.

    • Be picky about your IPO
      Do not get swept away by the IPO hype. Research the company thoroughly. Look for a solid business model, strong financials, and promising growth prospects. Less-hyped offerings with strong fundamentals might present a better chance of allotment than trendy companies with sky-high demand.
    • Apply from multiple Accounts and avoid large-size applications
      A single large application might seem like a power move, but it is counterproductive in an oversubscribed scenario. The Registrar of the IPO issue will treat all retail investors equally, and in case of oversubscription, the first priority is to give at least one lot to all the applicants. So, a hefty application from one account will not give you an edge. Additionally, it is suggested to consider spreading your IPO investment across multiple applications using different demat accounts for example, of family members, or friends. This increases your chances of getting at least one lot in case of massive oversubscription. Further, never apply multiple times from the same demat account or PAN number; it will be a case of clear rejection.
    • Do not play the Bidding Game
      There is a common misconception that bidding at the lower or upper end of the price range improves your chances of allotment. The reality is that it does not increase any chances. IPO allotment is a computerised process, and bids are irrelevant. Focus on applying at the cut-off price to increase your chances of allotment.
    • Timing is the Key
      Technical glitches at the last minute can dash your hopes. Ensure you submit your application well before the deadline. Consider applying early at the opening window in case you’re applying on the last day, especially for highly anticipated offerings.
    • Buy Parent Company shares
      Generally, if a subsidiary is planning an IPO, there is a Shareholder quota for those who own shares of the parent company. So, if you’re applying for the subsidiary company’s IPO, then consider buying at least one share of the parent company before the cut-off date to be eligible for the Shareholder’s quota.

    Read Also: Apeejay Surendra Park Hotels Limited: IPO Analysis

    Conclusion

    IPO allotment might seem complex, but with the proper knowledge and strategy, you can increase your chances of success. Apply early, understand the quota system, and consider applying multiple applications via different PAN numbers. By following these suggestions and conducting deep research on the specific IPO, you will be well-equipped to navigate the world of IPO investing.

    Frequently Asked Questions (FAQs)

    1. What is ASBA?

      ASBA stands for Application Supported by Blocked Amount. It is an initiative of the SEBI, where the bank blocks an investor’s amount for subscribing to an IPO instead of upfront debit.

    2. Is getting shares in an IPO guaranteed?

      No, the allotment of shares entirely depends on application volume and quota systems.

    3. How can I improve my chances of allotment?

      Apply early and consider applying through multiple eligible accounts.

    4. What happens after the application window closes?

      The company and registrar analyse the subscriptions received, and allotment is done accordingly.

    5. Can I sell IPO shares before they are listed on the stock exchange?

      No, you can only sell shares once the IPO is listed on the stock exchange.

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