Category: Personal Finance

NEFT vs RTGS vs UPI vs IMPS: A Comparative Study

In today’s digital era, electronic fund transfers have become the norm, revolutionizing how we transact money. Multiple options, such as RTGS, NEFT, UPI, and IMPS, are available. Let us delve into the blog better to understand these options.

NEFT: An Overview

It stands for National Electronic Funds Transfers and is a RBI-governed funds transfer method. NEFT started in November 2005 and is a safe and secure method of transferring small amounts of money.

Features

Fees and Charges: Online NEFT transactions are free of charge and offline transfers cost up to ₹50 in charges.
Processing Time: Processing time is in under 2 hours. In some cases, it may also take up to 12 hours.
Maximum Limit: There is no maximum limit per day for NEFT transactions.

RTGS: An Overview

It stands for Real-time Gross Settlement and is used to transfer higher amounts. RTGS ensures that the funds are transferred securely and without dependence on other transactions, thus minimizing risk.

Features

Fees and Charges: RTGS online transfers do not have any levied charges.
Processing Time: RTGS is the fastest method to transfer higher-value amounts, and the transaction is settled in real-time, under 30 minutes.
Maximum Limit: The Reserve Bank of India (RBI) has not set any maximum transaction limit.

UPI: An Overview

It was launched in 2016 by the National Payments Corporation of India (NPCI) and stands for Unified Payments Interface. The unique feature of UPI is the ease of transferring money, this lets you send money from your bank account to another by simply entering someone’s phone number, UPI ID, or scanning a QR code. This fund transfer facility is available through your mobile 24*7.

Features

Fees & Charges: UPI payments service is free and does not charge any transaction fees.
Processing time: UPI is an instant payment and transfer method.
Maximum Limit: UPI’s maximum transaction limit per day is 1 Lakh.

IMPS: An Overview

It stands for Immediate Payments Service and was first established by NPCI in 2010. An IMPS funds transfer is a better fit for you than UPI as it allows immediate transfer of amounts up to 5 Lakhs.

Features

Fees & Charges: IMPS transfer fees can range from ₹2.5 to ₹25 + GST depending on the amount value and choice of bank.
Processing time: IMPS transfers amount usually within 30 minutes.
Maximum Limit per day: The transaction limit of IMPS is 5 Lakhs.

Comparison Chart

Basis	NEFT	RTGS	UPI	IMPS
Minimum Transfer Limit	No minimum limit	₹2 Lakh	No minimum limit	No minimum limit
Maximum Transfer Limit	No upper limits (max. ₹50,000 per transaction)	No limit	₹1 Lakh	₹5 Lakhs
Time Taken	Up to 12 hours (usually within 2 hours)	Real-time (within 30 Minutes)	Instant	Real-time (within 30 Minutes)
Service Availability	Online + Offline	Online + Offline	Online + Offline	Online + Offline (chargeable)
Security	Safe, backed by RBI	Safe, backed by RBI	Safe, backed by NPCI	Safe, backed by NPCI
Service Fees	No charges on online NEFT transactionsOffline NEFT transactions are charging between ₹2.5 to ₹50	No charges for online transactionsFor offline: ₹2L to 5L transaction: up to ₹25 applicable₹5L & above transaction: ₹25 to ₹50 applicable	Free of cost	₹2.5 to ₹25 (varies from bank to bank)
GST charges	GST charges are applicable	No GST charges for online RTGS transaction₹15 + GST is charged for offline RTGS transaction	No charges	GST charges are levied
Service Availability during Bank Holidays	Available	Available	Available	Available
Suitability	Suitable for loan repayment and credit card payments	Suitable for transactions exceeding ₹2 lakhs.	Suitable for instant transfers upto ₹1 lakh	Suitable for transactions ranging between ₹1 lakhs to ₹2 lakhs
Operated by	RBI	RBI	NPCI	NPCI

Charges

Let’s have a look at which one is cheaper NEFT vs RTGS vs UPI vs IMPS:

Amount	NEFT	RTGS	UPI	IMPS
Below 2 Lakhs	Free	Not Applicable	Free	₹2.5 to ₹15 + GST charges
2 Lakhs to 5 Lakhs	₹25 to ₹30 + GST charges if applicable	Free of cost	Not Applicable	₹2.5 to ₹15 + GST charges
5 Lakhs & above	₹25 to ₹50 + GST charges if applicable	maximum ₹50 + GST charges	Not Applicable	Not applicable

Conclusion

In conclusion, NEFT, RTGS, UPI, and IMPS are distinct electronic fund transfer systems with varying features and benefits. NEFT is suitable for small transactions, RTGS for higher amounts, IMPS for instant transfers up to 5 Lakhs, and UPI for quick transfers up to 1 Lakh without charges. Each method caters to different needs and preferences in online transactions.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Liquid Funds Vs Ultra Short Fund: Which One Should You Choose?
2	Active or Passive Mutual Funds: Which Is Better?
3	SIP vs Lump Sum: Which is Better?
4	Mutual Fund vs PMS: Which is Better?
5	Multi-Cap Vs Flexi-Cap Mutual Funds? Which Is Better

Frequently Asked Questions (FAQs)

What is the minimum amount for an IMPS transfer?
The amount transferable through an IMPS can be as low as Re.1.
What is the limit of IMPS in Indian bank?
Account holders can transfer up to Rs. 2 lakh through IMPS in a day.
Is RTGS mode of payment safe?
RTGS is a highly safe and secure mode of payment which is monitored by the RBI. It is even more secure as it is used majorly for money transfers of higher amounts.
Which is better, NEFT or UPI?
It depends on the user’s preferences and amount of transfer. While UPI transactions are processed instantly, NEFT transactions may take upto 2 hours to process.
Is IMPS a better mode of transfer than NEFT and RTGS?
IMPS allows immediate transfer of funds and this service can be accessed even on bank/public holidays. That is why this service is often considered better than NEFT and RTGS.

March 13, 2024

Explainer on Green Bonds: History, Process, Pros, Cons, and Future Outlook

Ever wondered how your investments can benefit both your wallet and the environment? That is the power of Green Bonds! These innovative financial instruments are shaking up the investing world, offering investors a chance to earn great returns while supporting sustainable projects that promote environmental well-being.

In our today’s blog, we will discuss green bonds – regular bonds with an eco-friendly twist.

Green Bonds Overview

Green bonds are a type of debt security used to finance projects with environmental benefits. These projects can include renewable energy, energy efficiency, clean water, sustainable agriculture and conservation. The government, corporations, and non-profit organisations issue these bonds. The average maturity is comparatively longer for green bonds, i.e., 17 years.

Did you Know?

The Swedish Environment Protection Agency issued the first-ever environmental bond in 1993.

Green Bonds History

It took decades for green bonds to evolve from a niche concept to a major sustainable finance topic.

The Story

In 2007, the Intergovernmental Panel for Climate Change, a UN agency, focused on providing scientific data about climate change and its economic implications.

A report was released that established the connection between human activities and global warming. This revelation, coupled with the rising frequency of natural disasters, provoked Swedish pension funds to ponder how they could leverage the funds that they managed to resolve the aforementioned problem.

Seeking guidance, they approached their bank, SEB (Skandinaviska Enskilda Banken AB). The bank then recognised the synergy and fostered a unique solution bridging the financial needs with environmental expertise. SEB then facilitated the connection between these financial endeavours and the World Bank and provided its extensive expertise in investing in environmental projects globally.

The solution was obvious in observation. But despite the World Bank’s promising environmental projects and proven issuance record of bonds, a critical question remained: how could investors gain absolute confidence that their contributions directly managed climate issues?

This sparked another collaboration with CICERO, the Centre for International Climate and Environmental Research – an interdisciplinary research centre for climate research in Oslo. CICERO scientists were leading experts on climate issues who could provide a sound and reliable view of whether a project would positively impact the environment.

In 2008, this initiative led to the discovery of the first ‘labelled green bond’ by the World Bank and catalyzed the entire green bond market.

Did you Know?

The global green bond market has surpassed the threshold of INR 134 trillion in cumulative issuance.

Green Bonds in India

To reduce the carbon intensity of the economy, the Union Budget 2022-23 announced the issue of green bonds.

The categories of green bonds include renewable energy, energy efficiency, sustainable management of natural resources, clean transportation, sustainable water, green building etc.

For the same, a framework known as Green Bond Principles was designed by the International Capital Market Association (ICMA).

The four core components as outlined by ICMA green bond principles are as follows

1. Use of Proceeds

The government of India will use the proceeds raised from Sovereign Green Bonds (SGrB) to finance and refinance expenditure either partially or wholly for eligible green projects and it will be made sure that proceeds get allocated to projects within 24 months after the issuance.

2. Project Evaluation and Selection

The Ministry of Finance has constituted a “Green Finance Working Committee” (GFWC) headed by the Chief Economic Advisor and GFWC. They will meet twice a year to support the Ministry of Finance with the selection and evaluation of projects. However, the initial evaluation of the project will be done by the concerned Ministry with the help of experts.

3. Management of Proceeds

The proceeds will be deposited to the Consolidated Fund of India (CFI) and then the funds from CFI will be withdrawn as and when needed for eligible green projects.

A separate account will also be created by the Ministry of Finance (GOI) to monitor the proceeds allocation and avoid any malpractice. Additionally, the Public Debt Management Cell (PDMC) will keep track of proceeds within the existing guidelines

4. Reporting

The Indian Government has pledged to offer investors transparent reporting about the allocation of the proceeds from green bonds and the environmental impact of projects funded.

Read Also: What are Bond Yields?

The Process of Issuance of Green Bonds

The concerned Ministry will conduct an initial evaluation to identify the list of eligible green projects depending on the framework and submit it to GFWC.
Members of the GFWC under the guidance of a climate specialist from Niti Aayog as well as the Representative from the Ministry of Environment, Forest and Climate Change, will evaluate and analyse the complete list of the submitted projects.
Once the Finance Bill is passed, the Ministry of Finance will notify the Reserve Bank of India (RBI) about the amount of eligible green expenditures for which proceeds from green bonds can be used.

India’s First Green Bond

India issued the first tranche of its Sovereign Green Bonds worth INR 8000 crore on January 25, 2023, and the proceeds were used for green projects such as solar power, wind and small hydro projects and other public sector projects that help reduce the economy’s carbon footprint.

This offering was sold in 5-year and 10-year tenors through a uniform price auction on January 25, 2023. A similar offering was scheduled for February 9, 2023.

Also, driven by the shared goal of sustainable development, the World Bank Group and the Indian Government joined forces. The World Bank Sustainable Finance and ESG Advisory Services provided technical assistance and expertise to launch the sovereign green bond program, a key initiative to maximise finance for India’s climate transition and green growth.

Did You Know?

In 2015, Yes Bank, a private sector bank in India, successfully issued India’s first-ever green infrastructure bond, raising INR 1,000 crores.

Green Bonds Future Outlook

India has set an ambitious target of achieving net zero carbon emissions by 2070. Green Bonds are expected to play an essential role in mobilising the massive investments needed for this transition.

The Indian Government plans to issue more sovereign green bonds and encourage more involvement from private companies and municipalities.

Are green bonds good for long-term investing?

Green Bonds can be a good option for both long-term investing and ethical investing, but it depends on your individual goals and preferences.

Pros

Green bonds can offer similar returns as traditional bonds, depending on the creditworthiness of the issuer and the conditions prevailing in the market. These bonds may even outperform conventional bonds in some situations.
These bonds can diversify your portfolio, potentially spreading the risk and enhancing its resilience.
By choosing green bonds, you can contribute to financing environment-friendly projects that best align with your values.

Cons

The green bond market is relatively young in India, so long-term history data might be scarce.
The bonds may have lower trading volumes compared to traditional bonds, which will impact the bond’s liquidity.
The extremely long tenure of these bonds may make them undesirable.

Remember – Prioritizing ethical choices may affect your returns as compared to a purely profit-driven investment strategy.

Read Also: CAT Bonds: An Easy Explainer

Conclusion

To sum it up, whether green bonds are a good choice depends entirely on your financial goals, risk tolerance and ethical values. Analyse carefully what matters most and do proper research before investing because not all green bonds are perfect.

Frequently Asked Questions (FAQs)

What are green bonds?
Green bonds are a type of fixed-income security issued by the Government, municipalities, and corporations.
Why should I invest in green bonds?
You should invest in green bonds to make a positive impact, diversify your portfolio, and align your values with your investments.
Are green bonds risky?
Green bonds are riskier than traditional ones because of the limited availability of past data and lack of liquidity.
Are green bonds only for ethical investors?
No, anyone can invest in green bonds. But research well to ensure they meet your specific goals.
When was the first tranche of sovereign green bonds launched in India?
The first green bond in India was launched on January 25, 2023

March 13, 2024

Best Credit Cards in India: Factors and Features Explained

Most people require credit cards for various purposes, each with unique preferences based on their lifestyle and earnings. In this blog, we present some of the best credit cards in India for 2024, assisting you in making informed choices.

What are Credit Cards?

A credit card allows cardholders to borrow money and repay it, including interest and other agreed-upon charges, either in full by the billing date or over time in the form of EMIs.

Factors to consider before taking a Credit Card

When applying for a credit card, consider the following factors:

Credit Score: A high credit score will help you to get your credit card application approved quickly as banks believe people with high credit scores are responsible borrowers.
Fees: It is an important factor to know whether the credit card is requiring any charges or not. Many credit cards require joining and annual fees.
Interest rate: Higher interest rates lead to more significant burdens on repayments, especially on EMIs.
Other benefits: Credit card holders enjoy some benefits like reward points, cashback, instant discounts, air miles, fuel surcharge waivers, and welcome benefits.

Best Credit Cards in India

This list represents the best credit cards with their joining and annual fees.

Name of the Credit Card	Joining Fees	Annual Fees
IDFC First Millennia Credit Card	Nil	Nil
Niyo Global International Travel Card	Nil	Nil
ICICI Instant Platinum Card	Nil	Nil
Dhanlaxmi Bank Platinum Credit Card	Nil	Nil
Amazon Pay ICICI Credit Card	Nil	Nil
SimplyCLICK SBI Card	Rs 499 plus taxes	Rs. 499 plus taxes (one time)
SBI SimplySAVE Credit Card	Rs 499 plus taxes	Rs. 499 plus taxes (One time)
HDFC Millennia Credit Card	Rs. 1000	Rs. 1000
RBL Shoprite Credit Card	Nil	Rs. 500
The American Express SmartEarn	Rs. 495 plus taxes	Rs. 495 + applicable taxes (Waived off after transactions of Rs. 40,000 and above in the previous year of card membership)

Note – the list is subjective.

Let’s delve into the details of each credit card:

1. IDFC First Millennia Credit Card

This is a lifetime free credit card tailored specifically for millennials

Receive a welcome gift voucher worth Rs. 500 on reaching a spending threshold of Rs.15,000 within the first 90 days of card issuance.
Enjoy Interest-free cash withdrawal.
Cashback and Rewards:
- 5% cashback is available for your first EMI transaction, within 90 days of receiving your credit card.
- You will receive 6X reward points on every online purchase.
- Get one reward point for every Rs.100 spent using your credit card.
- 10x reward points on every transaction that is made on your birthday.
Discount of 25% on your movie ticket up to Rs.100 monthly.
Enjoy up to 20% off at 1,500 restaurants across India.

2. ICICI Instant Platinum Card

If you have a low credit score, then you can go for it. It is useful for students, housewives, and non-salaried people.

Reward Points: Earn reward points and redeem them in categories of fashion, electronics, health and beauty, e-vouchers, and home and kitchen.
Interest rate: This card has the lowest interest rate of just 2.49% per month.

3. Niyo Global International Travel Card

This credit card is for those who travel a lot. Here are some benefits:

You can save up to 5% via discount on overseas transactions.
This credit card can be utilized in 150 countries across POS, ATM, and e-commerce.
Free lounge access at international airports across the globe.
Save 5% to 20% on international purchases through VAT refunds.
Interest rate up to 6.5%.

4. Dhanlaxmi Bank Platinum Credit Card

5% cashback on supermarket and departmental store purchases
It offers up to 20 lakhs cover in air accident insurance.
Low and attractive interest rates

5. Amazon Pay ICICI Credit Card

This credit card is for those who want to shop with Amazon India. This card also provides a lot of rewards.

Lifetime Free.
Earn up to 5% cashback for shopping on Amazon (for Amazon Prime members only).

6. SimplyCLICK SBI Card

This credit card provides extra offers on websites such as Cleartrip, BookMyShow, EazyDiner, Netmeds, etc.

Get an Amazon gift card voucher worth Rs 500 as a bonus.
Annual fee waiver if the threshold of Rs. 1,00,000 is crossed in transactions.
5x rewards on all online transactions.
Convert your transactions into easy monthly EMIs by using Flexipay.
Globally accepted in 24 million outlets across the world.

7. SBI SimplySAVE Credit Card

This credit card offers higher reward points on daily transactions like groceries, dining, movies, departmental store purchases, and many more.

1% fuel surcharge waiver on transactions.
10X points on theaters, dining, groceries, and department store purchases.

8. HDFC Millennia Credit Card

One of HDFC Bank’s most popular credit cards is the Millennium, primarily because of the perks and incentives it offers.

5% Cashback on transactions done on Flipkart, BookMyShow, Amazon, Myntra, Sony LIV, Swiggy, Tata CLiQ, Uber, Zomato, and many more.
1% Fuel surcharge waiver.
20% off on Dine Out.
Total 8 complimentary domestic lounge access per calendar year with 2 per quarter.
Receive gift vouchers worth Rs.1,000 if the transaction is Rs.1 lakh and above.

9. RBL Shoprite Credit Card

This credit card gives benefits for shopping, entertainment, and fuel spending. It offers value back as reward points and direct discounts with some brands.

Avail up to 2000 points in terms of rewards.
5% cash back on grocery purchasing.
10% discount on movie ticket bookings.

10. The American Express SmartEarn Credit Card

This credit card will maximize savings on every purchase. Enjoy additional benefits such as bonus cashback, fee waiver, gift vouchers, etc.

Fuel Surcharge waiver.
EMI conversion option with American Express EM.
5X Membership Rewards Points on every Rs. 50 spent on Amazon and Paytm Wallet
Cardholders will get Rs. 500 cashback as a welcome gift.

Read Also: How to Improve Your Credit Score?

Conclusion

This blog presents the top ten credit cards in India, enabling readers to compare features, rewards, and benefits. A good credit score is essential when applying for a credit card. Choose the card that aligns with your needs to leverage its advantages effectively.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Performance Of IPOs Launched In 2023
2	From Private to Public: Decoding the IPO Journey
3	Buying vs Renting: Which Is The Better Choice?
4	How Do You Apply for PAN 2.0 Online and Get It on Your Email ID?
5	What is National Company Law Tribunal?

Frequent Asked Questions (FAQs)

Which debit card type is most prevalent in India?
The popularity of Contactless Debit Cards has seen a massive uptrend.
Should I get a credit card?
A credit card helps you manage your finances by allowing you to repay after the billing cycle. While this is a revolutionary invention, people should be cautious and prevent maxing out their credit card limits. So, the decision to opt for a credit card should be taken after careful consideration.
What was the first credit card in India?
The first credit card in India was introduced by the Central Bank of India in collaboration with MasterCard and Visa in the late 1970s. It was known as the “Central Card”.
What is the most widely accepted type of credit card?
Visa and Mastercard are the most widely accepted credit cards due to their international presence.

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

March 11, 2024

Non-Convertible Debenture (NCD) vs Fixed Deposit (FD): Meaning, Features, and Differences Explained

Are you unable to choose between putting your money into Non-Convertible Debentures (NCDs) and Fixed Deposits (FDs)? You’re not alone! Both options are popular among investors looking for safety and consistent returns, but they both come with their own sets of pros and cons. In today’s blog, we’re comparing NCDs with FDs.

Fixed Deposits – An Overview

It’s a well-known conventional investing choice for risk-averse investors. Fixed deposits are financial instruments offered to the general public by banks and non-banking financial organizations (NBFCs) that allow them to deposit money for a predetermined amount of time and receive a guaranteed fixed return. Both cumulative and non-cumulative options are available with the fixed deposit, giving investors the choice of receiving interest payments periodically or all at once when the fixed deposit matures.

Features of Fixed Deposits

1. The length of a fixed deposit may usually be chosen with flexibility; it can be anywhere from seven days to ten years.

2. Many banks provide an automatic renewal option that lets investors reinvest their money without having to go through any extra steps.

3. Fixed deposits often provide flexibility in the amount invested, with most banks allowing a minimum investment of INR 5000.

4. Fixed deposits are extremely low-risk investing options since they provide a guaranteed return.

5. Senior citizens benefit further from fixed deposit investments by earning interest rates higher than standard rates.

Non-Convertible Debentures (NCDs) – An Overview

Debt instruments, known as NCDs, are issued by corporate entities to raise long-term capital from the general public. Investing in debentures entails lending money to corporate entities in exchange for a fixed interest rate for a predetermined length of time. The principal amount of the loan is repaid by the company on the maturity date.

Two forms of debentures exist: convertible debentures, which can be converted into equity shares of the company after a specific length of time, and non-convertible debentures, which cannot be converted into equity shares. NCDs are issued in the primary market initially, but they can also be traded in the secondary market, offering investors greater liquidity.

Features of NCDs

1. NCDs have a fixed interest rate that is set at the time of issue by the issuing firm.

2. An investor will get consistent, recurring income from NCDs.

3. NCDs are issued for a particular period, after which the principal amount is repaid.

4. Purchasing NCDs entitles you to become a creditor of the business, allowing you to make claims against its assets in the event of its insolvency.

5. Due to the high risk associated with investment in corporate houses, these NCDs are rated by the credit rating agencies based on the creditworthiness of the issuing company.

Difference between NCD and Fixed Deposit

We’ll now explain the distinction between a fixed deposit and an NCD.

Interest Rate – Fixed deposit interest rates typically range from 4 to 7% annually, whereas NCD interest rates often range from 8 to 10%.

Issuer – Corporations issue NCDs to generate capital, whereas banks or other financial organizations issue fixed deposits.

Risk – NCDs possess higher risk as private business houses issue them. As some business houses have low credibility, investing in their NCDs can put your money at higher risk. On the other hand, FDs are issued by banks and other financial institutions that the Reserve Bank of India regulates.

Liquidity – Investment in NCDs offers higher liquidity than Fixed Deposits as they can be traded in the secondary market. Still, no such benefit is available in fixed deposits, although a premature withdrawal option comes with a penalty.

Taxation – NCDs held by an investor in demat are exempted from tax deducted at source while keeping the NCD in physical form attracts TDS if the annual payout is more than 5000 INR. Interest earned from a fixed deposit is fully taxable as per your tax slab if it is above 40000 INR (50000 INR in case of a senior citizen) in a financial year.

Credit Rating – The rating of NCDs by credit rating agencies is mandatory, while the fixed deposits issued by the banks are not required to get rated by any agency; however, corporate fixed deposits issued by non-banking financial companies are required to get the rating from any credit rating agency.

Interest Rate Risk – As NCDs are tradable in the secondary market, their price may vary based on interest rates prevailing in the economy, while fixed deposits don’t have any such kind of risk.

Safety – Assets of the company generally back the issuance of NCDs while the fixed deposit issued by the bank is insured against the bank’s insolvency up to 5 lakh INR.

Conclusion

Investment in fixed deposit is suitable for the investor with lower risk-taking ability and is happy with a lesser return on their investment. At the same time, NCDs can be opted for by investors looking to earn some extra return and can take additional risk for that. Overall, the above comparison shows the features of both fixed deposits and NCDs.

On a short note, investors must consider their risk profile, investment goal & objective before deciding between fixed deposits and NCDs.

Frequently Asked Questions (FAQs)

Can I withdraw my investment from a fixed deposit before maturity?
Yes, you can withdraw your investment before maturity, but you need to pay some penalty to the issuing authority.
Can I sell NCDs in the secondary market?
Yes, after NCDs are issued in the primary market, they are listed in the secondary market like any other securities.
What is the shortest and longest duration for which an NCD can be issued?
NCDs cannot be issued for less than 90 days and more than 20 years.
What is the minimum and maximum duration for which a fixed deposit can be issued?
The fixed deposit can be issued for a period ranging from 7 days to 10 years.
Is investment in NCD better than investment in fixed deposits?
NCDs generally carry higher risk as compared to bank fixed deposits but offer higher returns; hence, it is suitable for only those investors who can take risks for higher returns.

March 11, 2024

Financial Scams in India: Types, Resolution, and Awareness

Did you know that during the financial year 2023, the Reserve Bank of India (RBI) registered bank frauds exceeding INR 30,000 Cr in value? Nowadays, financial scams have become more prevalent, making it difficult to distinguish fraudulent activities from genuine ones.

As per the reports of Statista in 2023, the Reserve Bank of India reported 9,103 financial scams across India. In this blog, we will understand how to avoid scams with the aim of increasing awareness.

Prevalence of Financial Scams in India

In 2023, India’s financial sector witnessed a surge in sophisticated scams and frauds that exploit evolving technologies and capitalize on unsuspecting individuals. Here are some facts pertaining to the year of 2023:

The national cyber crime helpline receives around 50,000 Calls every day, totalling over 13.1 lakh complaints in the entire year.
During investment and due process, a total of 2.95 lakh fake SIM cards, 46,000 devices, 2,810 websites, and 595 mobile applications were blocked.
Approx. 35% of the total scams focussed around customer service and KYC.
Approx. 24% of the total scams focussed on sextortion.
Approx. 22% of the total scams were focused on online bookings and QR codes.

While scams are spread out in the entire country, some states witnessed more than others. Data for some of the individual states (& UTs) are as follows:

Uttarakhand – 243 cyber crimes per capita
Gujarat – 226 cyber crimes per capita
Haryana – 381 cyber crimes per capita
Telangana – 261 cyber crimes per capita
Delhi – 755 cyber crimes per capita

It is an undisputed fact that the country is facing an epidemic of scams and frauds. Hence, we must know about the varied types of scams happening around the country.

UPI Scam

The advent of UPI transactions marked an important milestone in the digital era of payments in India. However, fraudsters and scammers are using different social media platforms like WhatsApp to gain access to a number of individuals and defraud them via various means, such as claiming to be bank representatives, NGOs, etc. They feed on fear of the victims and compel them to adhere to the fraudsters’ demands.

In the year 22-23, reported UPI fraud cases exceeded 95,000, a notable increase from the 84,000 cases reported in 2021–2022, as per the Ministry of Finance.
Shockingly, 55% of all digital payment frauds in India are associated with UPI transactions.
According to the reports, it has been witnessed that 50% of these scams have an average ticket size of less than Rs 10,000.
In 2023, UPI fraud, bank fraud, and email scams resulted in a staggering financial loss exceeding INR 200 cr.

QR code scam alert

Nowadays, QR code scams are on the rise in India, with fraudsters employing deceptive tactics to lure victims into scanning fraudulent QR codes, resulting in the direct theft of funds from their bank accounts.

As per police statistics, 41% of the 50,000 reported cybercrime incidents in Bangalore revolved around QR codes.

Part-time job scams

Fraudsters are using social media to target their audiences with promises of easy part-time work and handsome salaries.

As per a report in 2023, Delhi police addressed 467 complaints about internet fraudsters advertising part-time work—an alarming increase from the 32 complaints reported in 2020.

Courier Scam

These kinds of scammers are targeting young audiences and claiming that courier parcels, allegedly containing drugs or other illegal items, are being sent in their names to foreign countries.

Bengaluru police addressed around 163 such courier reports in 2023, and the cumulative financial loss from these scams was more than Rs 5 cr.

Malware warning frauds

Fraudsters are increasing in delusive tactics, like fake customer support, cashback links, or emails, to convince unsuspecting consumers to install malware, screen mirroring, or remote access apps.

Tech support scams are becoming a worrying factor where 7 out of 10 consumers fall victim to such schemes.

Financial Scams Awareness

Protecting yourself from financial scams and fraud in India requires awareness and caution. Frauds and scams exist in different forms: phishing, emails, and phone calls. Some steps to protect yourself are stated below.

Educate yourself

Knowledge is a great way to defend yourself from scams and frauds. Stay informed and updated about scams and fraud. Government bodies provide information about current scams and how to avoid them.

Verify PIN

Do not share your PIN or any other personal information with anyone. Reputed organizations will not ask for your PIN.

Two-step -verification

It is essential to enable the two-step verification factor. This will help you to give an extra layer of security.

Use strong passwords

Create strong and unique passwords for your files, including social media sites, banking files, etc. Always use a combination of letters, numbers, and special characters, and avoid using the same passwords for multiple portals.

Beware of fraud phone calls

Avoid picking up calls from suspecting numbers and do not provide any confidential details on such calls, even if they claim to be representatives of corporations.

Ask help

If you become the victim of a scam, then consult with the police and legal professionals to seek resolution as quickly as possible.

Financial Scams Resolution

In a recent interview, the Director General of Police (DGP) of Uttarakhand, Ashok Kumar, spoke on cyber crimes in India. He explained a few preventive steps to minimize cyber crimes, fraud, and scams. The pointers are stated below:

Notify your bank’s customer service immediately, report your incident to them, and ask for help to cease your bank details.
File a complaint with NCRP (National Cyber Crime Reporting Portal).
Contact your local police station and also file an FIR.
Keep a close eye on your account’s transactions.

Conclusion

In conclusion, it is crucial to stay informed and cautious to avoid falling victim to scams and fraud in India. By educating themselves, verifying identities, enabling two-step verification, using strong passwords, being wary of fraudulent phone calls, staying updated, and seeking help when needed, individuals can protect themselves from financial scams and fraud.

Frequently Asked Questions (FAQs)

What is Fraud?
It is defined as the false representation of facts or providing false statements to another party for the specific purpose of gaining something that may not have been supplied without the deception.
What are two basic types of Fraud?
The courts classify fraud under two major types: criminal and civil.
What is an example of a fraud scheme?
Common frauds include Ponzi schemes, phoney job offers, false billings, bogus investment opportunities, etc.
Why is it important to understand fraud?
Fraudsters have evolved their methodology in recent times. Therefore, we need to stay aware of their movements so that we can protect ourselves from getting defrauded.

March 7, 2024

Explainer on Portfolio Management Services (PMS): Features, Types, Charges, Taxation, and Risks

If you have accumulated significant wealth during your career and wish to seek professional help in managing the funds, then Portfolio Management Services (PMS) can prove helpful to you.

Today’s blog will focus on individuals who wish to gain more profound knowledge of Portfolio Management Services (PMS).

Portfolio Management Services Overview

Portfolio management services, or PMS, is a financial service offered by financial institutions. This service primarily focuses on investing investors’ funds with a larger portfolio than the average individual. Such investors can invest their money in this service, and a team of qualified fund managers will allocate it to various asset classes based on their investment goals.

Typically, investors allocate a portion of their portfolio to equity but cannot manage it effectively due to a lack of professional knowledge. This is where PMS comes in; with a minimum investment of 50 Lakhs, your entire investment amount will be given to a portfolio management company, and their team of seasoned professionals will allocate it among various asset classes based on market and economic conditions. In exchange, they will charge a fee for their services.

The first announcement of the SEBI regulation for PMS dates back to 1993. All Portfolio Management Companies are required to adhere to the compliance standards established by SEBI.

Minimum Investment Amount

Over time, PMS’s minimum investment amount has undergone modifications. The PMS legislation was first established in 1993, with a minimum investment value of 5 lakh. In 2012, the minimum investment amount was raised to 25 lakh; in November 2019, it was further increased to 50 lakh.

Features of PMS

1. Investment in PMS provides customized solutions as per investors’ objectives.

2. The fund managers have vast experience in managing funds

3. PMS fund managers generally diversify the investment across different asset classes, ultimately lowering the risk.

4. Reports like transactions, profit and loss, etc., will be sent periodically to investors, and they can also check the same on the online platform provided by PMS companies.

5. PMS is a product with a minimum ticket value of 50 lakhs, which is generally suitable for HNI investors.

Types of PMS

A financial institution offers a variety of portfolio management services, including

1. Discretionary Portfolio Management– The portfolio managers make all investment-related decisions under this category of portfolio management services on the client’s behalf. Before making any investments, the fund management is at liberty and is not required to confer with the investor. The majority of the clients choose this type of service.

2. Non-discretionary Portfolio Management– The fund manager must obtain the client’s confirmation before investing in this kind of service. The client receives financial advice from PMS’s investment team but ultimately decides whether or not to act on the advice.

3. Advisory Services – In this arrangement, a fund manager will merely offer advice to investors on various asset classes; the investor will decide whether to follow the fund manager’s recommendation.

4. Active Portfolio Management – The ultimate goal of active portfolio management is to maximize investor return, which is accomplished by actively allocating funds to various asset classes. The fund management actively chooses the allocation of funds and where to invest them.

5. Passive Portfolio Management – The fund manager uses this investment management technique to allocate the funds to stocks that track indexes and increase steadily over time.

Charges of PMS

The charges of PMS can be classified into 3 different categories-

Fixed Charges

This is what every PMS charges as its main fee. This is an ongoing charge that depends on the average value of your investment and varies from 1% to 3%. The fee is due regardless of the fund manager’s performance ratings. This is the minimum amount that must be paid to the PMS firm regardless of the fund’s performance.

Below is the illustrative table of the same.

Fees	2%
Investment Amount	50,00,000
Return on Portfolio	20%
Profit	10,00,000
Portfolio Value at the year-end	60,00,000
Fixed Charges 2%	1,20,000
Net Value of Portfolio after Fees Adjustment	58,80,000

Performance Based

The fund’s returns are used to determine these fees. The fund management will charge a fee based on the percentage of profit made above the minimum rate, also referred to as the hurdle rate.

We can better understand this by using an example. For example, if the hurdle rate is 8% the profit sharing ratio is 20% above the hurdle rate, and your investment of Rs. 50 lakh yields a 20% return on your portfolio, your total profit will be Rs. 10 lakh, of which Rs. 4 lakh is the minimum profit that needs to be delivered. The company will then charge a fee of 20% of the remaining profit of 6 lakhs.

Below is the illustrative table for the same.

Fees	Profit Sharing – 20% above 8% Hurdle Rate
Investment Amount	50,00,000
Return on Portfolio	20%
Profit	10,00,000
Value of Portfolio at the end of the year	60,00,000
Hurdle Rate 8%	4,00,000
Profit over hurdle rate	6,00,000
Profit Sharing 20% of 6,00,000	1,20,000
Net Value of Portfolio after Adjustment	58,80,000

Hybrid Fee Structure

This fee schedule combines a profit-sharing concept with a fixed fee. In this instance, the hurdle rate is typically higher than in a performance fee-based approach, and the fixed charge rate will be lower than in a fixed charge model. This is intended for PMS managers who wish to profit from both fee structures.

Taxation

Equity Taxation – If a portfolio is heavily weighted toward the equities asset class, the tax rate on the profit amount will be 15% if the holdings are sold within a year, and the appropriate rate will be 10% above 1 lakh if the holdings are sold after the year.

Non-Equity Taxation – The portfolio will be considered a short-term gain and included in the investor’s income at their slab rate if it is sold within three years and does not concentrate in the equity asset class. If the units are sold after three years, they will be considered a long-term gain and subject to a 20% tax with indexation benefit.

Dividend Income –All dividend income earned on the investment will be included in the investor’s income and taxable as per their tax slab.

Exit Load – If you withdraw your money before a predetermined amount of time, PMS firms typically charge an exit load, ranging between 1 to 3%.

Risks

The risks investors should consider before investing in PMS are listed below.

1. Performance of Fund Manager – Evaluating the fund manager’s performance before investing is essential. Looking for a fund manager with a stable track record is usually advisable.

2. Market Risk – Due to the investment’s significant exposure to the equities asset class, there is a greater chance of losses and a rise in portfolio volatility.

3. Liquidity Risk – Because certain illiquid securities are difficult to sell, investing in them may affect your portfolio liquidity.

4. Regulatory Risk – As previously stated, the minimum ticket size for investing in PMS has increased from 25 lakhs to 50 lakhs in 2019. Future legislative changes of this nature could affect PMS’s investment strategies and tax consequences.

Conclusion

We’ve gone over the benefits and risks of investing in PMS with you; this service is for high-net-worth individuals (HNIs) who understand the risks involved in this kind of investing. Suppose an investor is willing to assume the risk of this product and is seeking a better return. In that case, they should consider all the important characteristics before making a decision.

Before making any investing decisions, we advise you to speak with your financial advisor to better understand your ability to accept risk.

Frequently Asked Questions (FAQs)

Is PMS investment permissible for NRIs?
Yes, You can invest in PMS as an NRI.
How do I access my PMS portfolio valuation?
In addition to sending clients statements regularly, PMS businesses offer their clients an online portal through which they can monitor their assets, transaction statements, and profit and loss statements.
How can you evaluate PMS performance before purchasing?
Before purchasing PMS, you can evaluate its performance by comparing its returns to the appropriate benchmark and examining the consistency of its returns over an extended duration.
Does PMS have a lock-in period?
PMS offers the flexibility of no lock-in period. However, redeeming your investment before the allotted time will incur an exit load.
Is there a guaranteed return in PMS?
No, PMS company cannot provide investors with a guaranteed rate of return.

March 7, 2024

Detailed Guide on Bond Investing: Characteristics, Types, and Factors Explained

We all must save some money, but if our risk-taking capacity does not allow us to take exposure in equity, then the option of bonds seems viable.

Today, we’ll explain what bonds are, how they function, and their kinds.

Introduction of bonds

Bonds fall within the category of fixed-income securities. Bonds are debt securities offered by private institutions and federal and state governments to raise funds to cover their costs. An entity issues bonds to investors to raise funds and, in turn, pays “coupon” payments. The payments are based on fixed interest rates, decided at the start of the tenure.

Characteristics of Bonds

Issuer – Bonds may be issued by both private and public institutions, including business houses, state and federal governments, and municipalities.
Face Value – Also referred to as the par value or redemption value. It represents the nominal value of security in the eyes of the issuer. This value, along with the interest component, is returned to the investor on the maturity date of the bond.
Coupon Rate – It is the interest (on face value) paid out periodically to the investor.
Tenure – It relates to the duration of bond issuance; for example, if a bond is issued on January 1, 2020, for a tenure of five years, its maturity date will be January 1, 2025.
Issuance of Bonds – Bonds are initially issued on the primary market and subsequently traded on the secondary market.
Ratings – The task of rating the bond based on the company’s creditworthiness is carried out by several credit rating firms that perform a thorough analysis of both the issuer and the bond itself.
Yield to Maturity (YTM) – YTM is the bond’s internal rate of return (IRR) if the investor holds the bond till maturity.

Bond issuance process

The borrowing entity prepares a bond indenture that contains all the relevant details, such as the par value, coupon rate, maturity date, tenure, and credit rating.
The bond indenture is then circulated in the primary market to accept applications from investors.
The borrower then regularly pays the coupon amount to the bondholder, and the borrower can default only in case of financial turmoil.
The unallocated applications are returned to the investors, and allocated investors are sent the bond confirmation that acts as proof of lending to the issuer.
The borrower then regularly pays the coupon amount to the bondholder, and only in case of financial turmoil can the borrower default.
At the end of the tenure, the borrower pays the face value of the bond and any accumulated interest.

Types of Bonds

Bonds are divided into various groups according to their characteristics.

Treasury Bonds

The central government issues bonds of this kind, with maturities ranging from ten to thirty years. With little to no credit risk, it is considered the safest bond.

Municipal Bonds

The municipal or state governments issue these bonds to generate money for the state’s welfare projects.

Corporate Bonds

Corporate entities issue these bonds to generate money for various operational needs. While they often offer greater yields than government bonds, these bonds also carry a higher risk.

Zero-Coupon Bonds

As the name suggests, Zero-coupon bonds do not make periodic coupon payments but pay the entire interest component at the end of the tenure. These bonds are redeemed at face value and are issued at a discount. Thus turning the discount into the interest component of the bond.

Junk Bonds

The bonds allocated below BBB rating by credit rating agencies are called Junk bonds. These bonds often provide the highest yield but carry the highest risk. These are generally issued by organizations that are prone to default.

Convertible Bonds

This bond has an option to convert the bonds into stocks. These bonds allow the investor to earn greater returns when the company’s shares increase.

Callable Bond

The bond allows the issuer to redeem the callable bonds at a predetermined date before maturity. These bonds protect the borrowers if the interest rate decreases as it allows for refinancing the borrowing at the decreased rates.

Putable Bond

This bond allows the bearer to redeem it at a predetermined date before its maturity. This bond protects the holder from an interest rate increase as it allows the holder to sell the bond back to the issuer at a predetermined price.

Floating Rate Bonds

These bonds’ interest rates fluctuate in line with the repo rates set by the Reserve Bank of India.

Inflation Linked Bonds

The coupon rates on these bonds are typically higher than the overall economic inflation rates. The coupon payments of these bonds are adjusted to preserve their real worth after adjustment of the inflation rate.

Perpetual Bonds

These bonds don’t have a maturity date because the bond’s issuer is not required to pay the par value to the bondholder. As long as they own the bond, the bondholder will continue to receive interest.

CAT Bonds

Insurance companies issue CAT bonds, also known as catastrophe bonds, to investors to help them assume the risk of certain calamities like earthquakes and floods. These bonds typically have a high yield as they come with higher risk.

Capital Gain Bonds

A select few institutions issue these bonds, allowing them to benefit from capital gains made on selling real estate, including buildings and land, under section 54EC.

Advantages of investing in bonds

Regular Income – Bond investments provide consistent income because the bond issuer is expected to make coupon payments regularly.
Less volatile – Bonds are well-liked by investors with low-risk tolerance since they are relatively less volatile than equity investments but offer greater returns than normal bank FDs.
Diversification – Allocating a portion of the portfolio to fixed-income securities lowers the overall risk. Bonds will continue to yield returns even in an equity market decline.
Capital Preservation – If the company becomes insolvent, bondholders have a higher probability of receiving their principal amount than equity shareholders.

Disadvantages of investing in bonds

Credit Risk – The bondholder must bear the risk of not receiving their payment obligations in the case of default.
Lower Return – Historically, in comparison to equity investing, bonds offer a lower rate of return.
Reinvestment Risk – Reinvestment risk arises when an investor cannot reinvest the interest at the same YTM rate as when the bond was first issued. Failure to reinvest the coupon at YTM rate would result in a decreased rate of return over the tenure of the bond.
Inflation Risk – Rising inflation over time may cause the purchasing power of bonds, other than inflation-linked bonds, to decline more than equity shares.

Factors that affect bond prices

Interest Rate – Interest rates and bond prices are inversely correlated. This implies that bond prices may decrease when interest rates rise, and vice versa.
Maturity Date – When investing in bonds, investors must consider their investment duration. Bonds with longer maturity dates are more sensitive to interest rates, whereas bonds with shorter maturity dates are less sensitive.
Credit Quality – The price of high credit-rated bonds will rise due to investor demand outpacing that of lower-rated bonds.
Supply and Demand – Bond price will be impacted by supply and demand; if supply is high and demand is low, bond price will be lower, and vice versa.

Additional factors to be considered

Credit Risk – Risks of issuer not paying the instalments is called Credit Risk. It is advisable to opt for credit-worthy issuers when shortlisting borrowers in order to limit the risk of default.
Liquidity of Bonds – An investor should consider bonds that provide greater liquidity, which generally exists in credit worthy issues.
Investment Goal – When choosing which bond to invest in, you should consider your investment horizon, risk tolerance, and investing goal.
Maturity of Bonds – Bonds with shorter maturities are less susceptible to fluctuations in interest rates; conversely, the prices of bonds with longer maturities are more unstable.
Taxation – Since the interest on bonds is taxable according to the income tax bracket, an investor should think about the tax consequences before investing.

Conclusion

Bonds are typically a good option for risk-averse investors who prefer steady returns on their capital rather than portfolio volatility. It is advisable to do your research to find the right kind of bond to buy because each type has a different risk-reward profile.

Frequently Asked Questions (FAQs)

Q1. What is the primary risk affecting corporate bonds?

Ans. The primary risk connected to corporate bonds is default risk, often known as credit risk.

Q2. What kind of bond is the safest?

Ans. Bonds issued by the Government of India are regarded as the safest kind of bonds available in the Indian market.

Q3. What is the primary distinction between YTM and coupon rate?

Ans. The Yield To Maturity (YTM) is a bond’s internal rate of return (IRR) if the investor holds the bond till maturity, and the coupon rate is the set interest paid by the bond’s issuer on its face value.

Q4. Are bond interest payments taxable?
Ans. Yes, bond interest receipts are taxable according to the investor’s income tax bracket.

Q5. Is it possible to sell the bond before it matures?
Ans. Yes, you can sell the bonds on the secondary market before they mature.

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

March 2, 2024

Sectoral Funds Decoded: Riding the Investment Roller-Coaster

Imagine sitting on a steep roller-coaster ride, coupled with the fear of a crash. That is the world of sectoral funds!

If you do not want to end up stranded in the financial cosmos, read today’s blog, in which we will uncover the secrets of sectoral funds and whether they deserve a place in your investment portfolio.

Overview of Sectoral Funds Decoded

Sectoral Funds are a type of equity mutual fund that only invests in companies operating within a specific sector or industry of the economy.

These funds allow the investor to gain concentrated exposure to a particular sector and amplify their returns if that sector outperforms the broader index. However, sectoral funds have increased risks due to a lack of diversification.

These funds focus on various sectors and industries such as technology, healthcare, consumer staples, financial services, energy, and infrastructure.

Benefits of Sectoral Funds Decoded

Sectoral funds can offer tempting advantages to investors. Let us have a look at the benefits of sectoral funds:

When a chosen sector experiences a boom, sectoral funds can outperform diversified funds. Imagine the tech boom of the late 90s; any technology-focused fund would have given incredible returns to investors.
Investing in such a fund offers the investor an opportunity to gain exposure to the sector without analysing each stock within the industry.
Sectoral funds can be used for tactical portfolio diversification, allowing you to capitalise on short-term trends and sector rotation.

Risks

Sectoral funds come with a high probability of losses. If the chosen sector underperforms, sectoral funds will suffer as fund managers will not have room for diversification and protecting the capital.
These funds are inherently more volatile than diversified funds. Therefore, sharp swings in prices/NAVs are more likely to occur.
Understanding the sector dynamics and prospects is essential and complex at the same time before investing. Failure to interpret the sector’s trajectory during the investment horizon could lead to significant losses in the short term.
In the race to earn benchmark-beating returns, choosing the right sectoral fund, after considering the political, economic, and technological landscape, is highly crucial because making the wrong choice might lead to inadequate returns or even losses in the short and medium term.

Performance

The Covid-19 pandemic sent shockwaves throughout the global economy, and many sectors were impacted differently. Sectoral funds felt the heat too.

The Sunny Side

Pharma Funds – As the pandemic raged, demand for healthcare products soared and pharma funds were riding the wave since they delivered consistent returns.

Technology Funds – With the world shifting online, technology companies thrived. Tech-focused funds witnessed exponential growth because of increased dependence on remote work, communication and entertainment platforms.

The Dark Side

If you invested in these sectoral funds, you must have witnessed their consolidation in the past couple of years.

Technology Funds – The initial sector boom, fuelled by the growth of online platforms and digital transformation, faded away when the economies reopened, and offline activities resumed.

Compared to their respective benchmark, some top-performing sectoral funds that doubled their returns during the Covid-19 pandemic were not even at par post-Covid.

As of 23rd February 2024, the broader Nifty 50 index has risen over 91% since November 2020, while the Nifty IT index has risen 82%.

Pharma Funds – Something similar happened with pharma stocks. During the height of the pandemic, these stocks surged due to increased demand for vaccines, diagnostics, and other medical equipment, eventually leading to better pharma funds’ performance. The demand for medical products flattened once the initial panic subsided and vaccine rollouts progressed. This led to a massive correction in the stock prices of the pharma sector.

As of 23 February 2024, the broader Nifty 50 index has risen 91% since November 2020, while Nifty Pharma has only given 64% returns.

Returns Comparison

The table below shows the performance of different sectoral funds in the past 4 years relative to their benchmark.

Technology Sector

Scheme	2023	2022	2021	2020
ABSL Digital India Regular	35.75	-21.64	70.47	59.03
SBI Technology Opportunities Regular	24.82	-15.46	66.43	47.45
ICICI Prudential Technology Fund Regular	27.45	-23.22	75.74	70.59
S&P BSE IT TRI	28.28	-22.70	58.45	60.05

*(S&P BSE IT TRI is the benchmark index for technology funds)

Pharma Sector

Scheme	2023	2022	2021	2020
Nippon India Pharma Fund Regular	39.15	-9.9	23.93	66.44
SBI HEALTHCARE Opportunities Regular	38.24	-6.02	20.15	65.83
ABSL Pharma and Healthcare Regular	37.67	-12.68	19.54	53.84
S&P BSE Healthcare TRI	37.97	-11.5	21.54	62.61

*(S&P BSE Healthcare TRI is the benchmark index for pharma funds)

Example

Let us understand the cycle of sectoral funds with the help of the table.

Suppose investor A invested in technology and pharma funds during Covid 19. Some of the top-performing funds gave massive returns and significantly outperformed their respective benchmark indices, affirming the beliefs of the investor. The table shows that S&P BSE IT TRI & S&P BSE Healthcare TRI gave a return of 58.45% and 21.54% respectively in the year 2021.

However, investor A stayed invested in these funds with the hope of getting more profits. But after the COVID wave subsided, the market witnessed a stark contrast in the performance of both the technology and pharma sector funds, and these funds gave returns of -22.7% & -11.5%, respectively. Thus leading to catastrophic losses.

This example indicates that sectoral funds concentrate their investments in specific sectors. This concentration leads to their performance moving in tandem with the cyclical nature of the underlying sector. Therefore, the exposure of unsystematic (diversifiable) risk increases substantially.

*(The funds mentioned above are for educational purposes only and are not recommendations).

Read Also: History of Mutual Funds in India

Conclusion

After analysing the pros and cons and the recent performance of sectoral funds, the million-dollar question remains: Should you invest? As with most investment decisions, the answer is not a simple ‘yes’ or ‘no’. It depends on your risk tolerance and investment goals. Consider sectoral funds if you are a long-term investor, have a high-risk tolerance, and have a firm conviction in a particular sector. Avoid sectoral funds if you are a short-term and risk-averse investor lacking sector expertise.

Ultimately, the decision is yours. Sectoral funds can be a powerful tool to maximise wealth, but they also need a deep understanding of the sector-specific risks.

Frequently Asked Questions (FAQs)

Why should I invest in sectoral funds?
Sectoral funds offer investors the potential for higher returns (with increased risk). Thus making them a lucrative investment vehicle for those who can take the risk.
Are sectoral funds right for me?
The answer depends on your risk tolerance, investment goals, and knowledge of the chosen sector.
Is there a magic formula for picking the right sectoral fund?
No, there is no guaranteed recipe for success. So, one should evaluate all factors before investing.
Can I time the market with sectoral funds?
Predicting market trends can be tricky. Therefore, performing self analysis is of utmost importance.
Can sectoral funds help me get rich quickly?
Sectoral funds do carry the potential to offer high returns but simultaneously come with amplified risks and volatility. Do not invest in these funds with a get-rich-quick objective!

February 27, 2024

NISM Certifications: An Easy Explainer

When you talk to someone about investing in mutual funds, he or she may remark, “I know someone who knows about mutual funds.” This person can then advise you which funds are suitable for you to be invested in.

Is that correct? Can you invest based on the advice of anyone. No, things shouldn’t be that way. It is appropriate to inquire about the individual’s educational background and professional experience, whether they possess the required certificates issued by the authority and are qualified to offer financial advice.

We will discuss such authority and certifications in this blog.

Overview of NISM

The Securities and Exchange Board of India established the National Institute of Securities Markets (NISM) in 2006 as a public trust. The primary goals of NISM’s founding are to advance ethics, financial literacy, and education in the Indian security market.

NISM’s headquarters are located on a 72-acre facility in Mumbai. The student can choose between full-time and part-time courses offered by the institute.

The six colleges listed below are where NISM conducts its operations:

1. School for Securities Education (SSE)

2. School for Certification of Intermediaries (SCI)

3. School of Regulatory Studies and Supervisions (SRSS)

4. School of Investor Education and Financial Literacy (SIEFL)

5. School for Corporate Governance (SCG)

6. School for Securities Information and Research (SSIR)

Why NISM?

Obtaining an NISM Certification may boost your career aspects in the finance industry. Further, there are regulatory requirements for some of the jobs where you can’t work without getting NISM certification. Some of the benefits / features of NISM Certifications are:

Professionalism – Possessing a NISM Certificate will make you regarded as a professional with the required abilities.

Regulatory Requirement – In the Indian financial industry, there are numerous positions for which you must hold NISM Certification. Only with that specific certificate you can carry out your actions lawfully; otherwise, you are not permitted to provide those services.

Career Growth – Having a certificate in hand after passing the NISM tests would boost your chances of employment and promotions. It will also undoubtedly assist you in advancing in any financial company.

Knowledge Enhancement – The extensive and comprehensive variety of financial-related topics is covered in the NISM courses. Following your successful completion of the program, you will have a solid understanding of that particular subject.

Compliance and Risk – The SEBI has mandated that certain NISM Certificates be held by financial firms to comply with the regulatory framework and compliance standards.

Client Trust – Your client would think highly of you as a competent professional if you are a NISM Certified professional.

List of NISM Certifications

The NISM offers two types of assessments: Certification exams and CPE (Continuing Professional and Education) programs.

Certifications Exams

As of February 2024, NISM offers the following Certifications Exams:

Sr. No.	NISM Exam	Test Duration	Fees (INR)	Maximum Marks	No. of Questions	Pass Marks (%)	Certificate Validity(in years)
1	NISM Series I: Currency Derivatives Certification Examination	2hrs	1500/-	100	100	60	3
2	NISM Series II A: Registrars and Transfer Agents (Corporate) Certification Examination	2hrs	1500/-	100	100	50	3
3	NISM Series II B: Registrars and Transfer Agents (Mutual Fund) Certification Examination	2hrs	1500/-	100	100	50	3
4	NISM Series-III-A: Securities Intermediaries Compliance (Non-Fund) Certification Examination	2hrs	1500/-	100	100	60	3
5	NISM Series IV: Interest Rates Derivatives Certification Examination	2hrs	1500/-	100	100	60	3
6	NISM Series V A: Mutual Fund Distributors Certification Examination	2hrs	1500/-	100	100	50	3
7	NISM-SeriesV-B: Mutual Fund Foundation Certification Examination	2hrs	1200/-	50	50	50	3
8	NISM Series VI: Depository Operations Certification Examination	2hrs	1500/-	100	100	60	3
9	NISM Series VII: Securities Operations and Risk Management Certification Examination	2hrs	1500/-	100	100	50	3
10	NISM-Series-VIII: Equity Derivatives Certification Examination	2hrs	1500/-	100	100	60	3
11	NISM Series-IX: Merchant Banking Certification Examination	2hrs	1500/-	100	100	60	3
12	NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination	3 hrs	3000/-	150	135	60	3
13	NISM-Series-X-B: Investment Adviser (Level 2) Certification Examination	3 hrs	3000/-	150	120	60	3
14	NISM Series-XII: Securities Markets Foundation Certification Examination+	2hrs	1770/-	100	100	60	3
15	NISM Series-XIII: Common Derivatives Certification Examination	3hrs	3000/-	150	150	60	3
16	NISM Series-XV: Research Analyst Certification Examination	2hrs	1500/-	100	100	60	3
17	NISM-Series-XVI: Commodity Derivatives Certification Examination	2hrs	1500/-	100	100	60	3
18	NISM-Series-XVII: Retirement Adviser Certification Examination	2hrs	1500/-	100	100	60	3
19	NISM-Series-XVIII: Financial Education Certification Examination+	2hrs	1416/-	50	50	50	3
20	NISM Series XIX-A: Alternative Investment Funds (Category I and II) Distributors Certification Examination+	2hrs	1770/-	100	100	60	3
21	NISM-Series-XIX-B: Alternative Investment Funds (Category III) Distributors Certification Examination+	2hrs	1770/-	100	100	60	3
22	NISM-Series-XIX-C: Alternative Investment Fund Managers Certification Examination+	3hrs	3540/-	150	120	60	3
23	NISM-Series-XX-Taxation in Securities Markets Certification Examination+	2 hrs	1770/-	100	75	60	3
24	NISM Series XXI-A: Portfolio Management Services (PMS) Distributors Certification Examination	2hrs	1500/-	100	100	60	3
25	NISM Series XXI-B: Portfolio Managers Certification Examination	3 hrs	3000/-	150	120	60	3
26	NISM Series XXII: Fixed Income Securities Certification Examination+	2hrs	1770/-	100	85	60	3
27	NISM-Series-XXIII: Social Auditors Certification Examination+	2 hrs	1770/-	100	100	60	3
28	IBBI- Valuation Examination in the Asset Class: Land and Building	2hrs	5900/-	100	90	60	N/A
29	IBBI- Valuation Examination in the Asset Class: Plant and Machinery	2hrs	5900/-	100	90	60	N/A
30	IBBI- Valuation Examination in the Asset Class: Securities or Financial Assets	2hrs	5900/-	100	90	60	N/A

Source – https://www.nism.ac.in/

Each exam has its own set of requirements; some include negative grading; some not. Duration for exams may vary from two hours to three hours.

Moreover, each exam has a unique significance in its subject. For example, NISM VA is required for distributors of mutual funds, and NISM XA and XB are required for investment advisors.

CPE Exams

NISM Institute also offers the Continuing Professional Education (CPE) exams, which is for holders of current certificates. If the current certificate expires, it can be revalidated by completing the appropriate NISM exam before it expires.

Revalidation of the certificate is possible through online CPE (eCPE) or a one-day session called “Continuing Professional Education.”

You can give exam after the six-hour training session, and upon passing it, you will receive a new certification with updated validity. The NISM-certified instructors conducts the offline CPE program.

You can participate in the online CPE session from the comfort of your home with just a laptop and an internet connection. Following your attendance for the entire session, you will receive a fresh certificate after completing the feedback form and submitting the test.

CPE Exams

Not every exam is offered through the CPE or eCPE program. Have a look at the table below to know the exams offered via CPE:

Sr	Module Name	CPE Duration	CPE Fees (INR)	ECPE Duration	ECPE Fees (INR)	Certificate Validity
1	NISM Series – I: Currency Derivatives	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
2	NISM Series – II-A: RTA Corporate	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
3	NISM Series – II-B: RTA Mutual Fund	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
4	NISM Series – III-A: Securities Intermediaries Compliance (Non-Fund)	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
5	NISM Series – IV: Interest Rate Derivatives	6-hrs appx	2500/-	N/A	N/A	3 years
6	NISM Series – V-A: Mutual Fund Distributors	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
7	NISM Series – V-B: Mutual Fund Foundation	6-hrs appx	2500/-	N/A	N/A	3 years
8	NISM Series – VI: Depository Operations	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
9	NISM Series – VII: Securities Operations and Risk Management	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
10	NISM Series – VIII: Equity Derivatives	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
11	NISM Series – IX: Merchant Banking	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
12	NISM Series – XIII: Common Derivatives	6-hrs appx	2500/-	N/A	N/A	3 years
13	NISM Series – XV: Research Analyst	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
14	NISM Series – XVI: Commodity Derivatives	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
15	NISM Series – XVII: Retirement Advisor	6-hrs appx	2500/-	N/A	N/A	3 years
16	NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years
17	NISM-Series-XXI-B: Portfolio Managers	6-hrs appx	2500/-	3 – 5 hrs appx	2500/-	3 years

Source – https://www.nism.ac.in/

How to register for NISM Exams

1. First, you need to visit – https://certifications.nism.ac.in/

2. You must register your profile if you are visiting for the first time.

3. You must use your login credentials to access the website after registering.

4. The exam, day, time, and test center must be chosen.

5. You will next be prompted to pay the examination fees.

6. The study materials are available for download in PDF format following a successful payment.

7. You must appear at the testing location on the scheduled exam day with the necessary documentation, such as your original admit card and identity evidence.

Conclusion

A certificate from NISM facilitates your entry into the finance industry. It is important to note that passing the NISM exam does not grant you complete freedom in the profession; you should follow the regulations and guidelines. There is usually a three-year validity limit on all certificates, after which you must retake the exam or enrol in a CPE program if you want to continue.

Possessing these certificates identifies a person with extensive and professional expertise in the finance industry. However, keep in mind that holding NISM certifications may give you a competitive advantage over others, but in no manner it can guarantee you a job or make you superior to others.

To conclude, to gain professional status and pursue a career in finance, you can obtain the NISM Certifications.

Frequently Asked Questions (FAQs)

Who is the regulator of NISM?
NISM is regulated by the SEBI (Securities Exchange Board of India).
Are NISM exams costly?
NISM examinations are not extremely expensive; the typical range of exam costs is INR 1,500 – 3,000.
Can I reschedule my exam once I’ve reserved a time slot?
You are allowed to change your exam date as long as it’s fifteen days away.
When will the NISM exam results be available?
After completing the exam, you will be prompted to fill out a survey form. Once the exam is submitted, your results or scorecard will be shown on the screen, and after 15 days, you can download the certificate from the NISM website.
What is the validity period of NISM Certificate?
The validity is three years, after which you must retake the exam or simply present for the CPE exam to have your certificate re-validated.

February 20, 2024

The Art of Value Investing: Meaning and Strategies

In the hustling world of finance, where trends shift and fortunes change quicker than ever, one strategy stands the test of time and is known as value investing.

This approach has guided investors to discover gems in the rough for decades. But is value investing still relevant in an age of instant satisfaction and flashy IPOs?

In today’s blog, we will be analysing the concept of value investing and how to assess a company’s true worth.

Concept

Value investing is an investment philosophy based on buying stocks that are trading below their intrinsic value. Intrinsic value represents the true worth of the company estimated by analysing its fundamentals, such as financial statements, business models, and industry trends.

The concept of value investing functions on the following principles,

Undervaluation:

Value investors generally look for stocks that are trading less than their intrinsic value and offering a discount.

Margin of Safety:

MoS is when an investor buys below intrinsic value, providing a buffer against unforeseen events and protecting against overpaying.

Contrarian Approach:

Value Investors are predisposed to buy stocks out of favour with the market, betting the market will eventually recognise the true value.

Long-term Investing:

Focusing on holding stocks for an extended period and waiting for the market to catch up with their intrinsic value.

Read Also: Intrinsic Value vs Book Value

Benefits

The core advantage of value investing lies in its ability to control market inefficiencies. Recognising and buying undervalued stocks with a margin of safety can help investors achieve returns that exceed the market average over the long term.
Value investing inherently emphasizes on buying stocks trading below their intrinsic value. This helps create a buffer against downturns, which means that even if the market price falls, it is less likely to fall below the intrinsic value.
Value investors generally prefer companies with strong financial health, stable business models and consistent cash flows. This focus on fundamental strength helps preserve capital by investing in companies with a higher chance of fighting market storms and keeping themselves financially sound.
Value investing encourages a disciplined and research-driven approach to investment in the market. The focus is on fundamental analysis, and emotional decisions based on market sentiments are avoided, eventually preventing investors from getting into impulsive trades.
Additionally, value investors often adopt a contrarian approach, which can lead to significant gains if markets correct their mispricing.
Value investing also offers emotional benefits. Investors can avoid the anxiety and stress linked with reactive trading decisions and short-term market noise by focusing on research and analysis.

Risks

The success of value investing hinges on finding market inefficiencies. If the market is truly efficient, recognising undervalued stocks might be difficult.
Value investing demands patience and discipline from the investors. It might take a long time for the market to identify a company’s true value.
Going against the market sentiment and buying unpopular stocks can be emotionally challenging, and investors need to stick to their convictions.
Not every cheap stock is a good investment. Some companies appear undervalued but may have legitimate reasons for low prices, such as poor management, structural decline or hidden liabilities. These value traps can lead to losses and destroy the investor’s confidence if not identified correctly.
Broader economic trends such as regulatory shifts, recession or any industry-specific changes can also impact even the fundamentally strong companies.

Key Metrics

Some of the key metrics that an investor needs to look for are as follows.

Price-to-Earnings Ratio (P/E Ratio)

This ratio tells us how much an investor would have to pay to own a piece of a company based on how much profit the company makes. A lower P/E ratio indicates that a stock is undervalued as we would have to pay less to gain the profit. However, it is essential to analyse and compare the P/E to the company’s industry average and historical P/E ratios.

For example, Consider two companies

Company A

Stock price – INR 50

EPS – 5

PE Ratio – INR 50/5 = 10

Company B

Stock Price – INR 100

EPS – 20

PE Ratio – INR 100/20 = 5

Company A is trading at a higher multiple of their earnings. Thus, Company B is undervalued when compared to A.

Debt-to-Equity Ratio

This ratio compares the company’s total debt to its equity. A lower debt-to-equity ratio shows that a company is less risky in financial terms as they don’t have to worry much during reduced margins.

For example, consider two companies

Company A

Debt – INR 1 lakhs

Equity – INR 2 lakhs

Debt-to-Equity Ratio – INR 1 lakhs/ INR 2 lakhs = 0.5

Company B

Debt – INR 3 lakhs

Equity – INR 1 lakhs

Debt-to-Equity Ratio – INR 3 lakh/INR 1 lakh = 3

With a Debt-to-Equity ratio of 0.5, Company A has less debt relative to its equity, indicating a more conservative financial structure and low financial risk.

On the other hand, Company B has a debt-to-equity ratio of 3, reflecting more debt than its equity, indicating a higher financial risk.

Price-to-Book Ratio (P/B Ratio)

This ratio compares a company’s stock price to its book value per share. A low P/B ratio indicates that the stock is undervalued.

For example, consider two companies

Company A

Stock Price – INR 20

Book Value per share – INR 10

P/B ratio – 20/10 = 2

Company B

Stock price – INR 40

Book value per share – INR 20

P/B Ratio – 40/20 = 2

While Company A trades at INR 20, Company B trades at INR 40. B is expensive and overvalued at a superficial level, but after calculating the P/B ratios, they both seem equally valued in the market.

Return on Equity (ROE)

This metric measures a company’s ability to generate profit from the equity of shareholders. Higher ROE indicates a well-organized use of capital.

Consider a company named ABC Technologies with an income of INR 10 Lakhs and shareholder equity of INR 50 Lakhs.

ROE – Income/shareholder’s Equity = INR 10 lakhs/INR 50 lakhs = 0.2

This shows that for every rupee provided by the shareholders, ABC Technologies generates 20% of profit.

Discounted Cash Flow (DCF)

This model helps estimate the present value of the company’s future cash flow, allowing investors to analyse the stock’s intrinsic value.

For example, to estimate a company’s intrinsic value using a DCF model, an investor needs to forecast the future cash flows, which is the core part of the model, and to forecast the future cash flow, an investor first needs to.

Project financial statements by analysing historical track records.
Use applicable assumptions to predict Cash Flows for coming years and estimate the terminal value of the company using different methods.
Then, determine the appropriate discount rate to reflect the risk linked with the company and the projected cash flows.
Now, the investor can use the chosen discount rate to bring each year’s forecasted Cash Flows back to its present value (PV) and then add the PV of all the future cash flows to arrive at the present value of all future cash flows.
Add the present value of the terminal value to the present value of free cash flows to get the estimated intrinsic value.

*(Remember that real-world DCF models involve complex adjustments and calculations).

PEG Ratio

This ratio compares the company’s P/E ratio to its expected earnings growth rate. A lower PEG ratio indicates that a stock is undervalued relative to its growth potential.

For example, Consider 2 companies

Company A

P/E Ratio – 20

Expected EPS growth rate – 10 %

PEG Ratio – 20/10 = 2

Company B

P/E Ratio – 15

Expected EPS growth rate – 5%

PEG Ratio – 15/5 = 3

A PEG ratio closer to 1 indicates undervaluation relative to the company’s growth potential (like company A).

Additional Tips for Value Investing

Do not choose cheap stocks, look for quality companies with strong financials that are trading at a discount.
Understand and analyse the company’s business model and competitive landscape before investing.
It may take time for the market to identify the worth of an undervalued company. So, patience and confidence in our choices are extremely important.

Value Investing v.s. Growth Investing

Value investing seeks stocks currently trading below their intrinsic value, whereas growth investing seeks stocks with high growth potential, irrespective of the current valuation.
Value investing uses fundamental analysis, including metrics like P/E ratio, P/B ratio, etc., while growth investing uses growth metrics like revenue and sales growth, market share, etc.
The former is used for longer time-frames and needs patience, while the latter can be used in medium timeframes.
Features of value investing include reduced downside risk and capital preservation, whereas features of growth investing include the potential for significant returns with comparatively higher risk.

Value Investing for Beginners

Grasp the core principles and understand the philosophy of value investing along with the metrics used to identify them.
Make financial statements a friend and analyse the industry trends carefully.
Beginners should avoid making impulsive decisions and should stick to their investment goals.

Conclusion

To wrap it up, only invest money you can afford to lose because past returns do not guarantee future success, and not every cheap stock is a good investment. Value investing isn’t a get-rich-quick scheme fuelled by speculation. Instead, it is a research-driven approach built on patience and deep fundamental analysis.

Frequently Asked Questions (FAQs)

Why should I consider value investing?
Value investing focuses on strong fundamentals and protects from market downtrends.
Isn’t the concept of value investing outdated in the fast-paced market?
No, because value investing helps you discover undervalued gems.
Is value investing risky?
Remember that every investment comes with a risk. Every investor needs to focus on thorough research and diversification of their portfolio.
How do I get started with value investing?
Practice fundamental analysis and gradually add individual stocks to your portfolio while analysing their trends.
Is value investing right for me?
It depends on your specific risk tolerance and investment goals.

February 19, 2024

Category: Personal Finance

NEFT: An Overview

Features

RTGS: An Overview

Features

UPI: An Overview

Features

IMPS: An Overview

Features

Comparison Chart

Charges

Conclusion

Frequently Asked Questions (FAQs)

What is the minimum amount for an IMPS transfer?

What is the limit of IMPS in Indian bank?

Is RTGS mode of payment safe?

Which is better, NEFT or UPI?

Is IMPS a better mode of transfer than NEFT and RTGS?

Green Bonds Overview

Did you Know?

Green Bonds History

The Story

Did you Know?

Green Bonds in India

The Process of Issuance of Green Bonds

India’s First Green Bond

Did You Know?

Green Bonds Future Outlook

Are green bonds good for long-term investing?

Pros

Cons

Conclusion

Frequently Asked Questions (FAQs)

What are green bonds?

Why should I invest in green bonds?

Are green bonds risky?

Are green bonds only for ethical investors?

When was the first tranche of sovereign green bonds launched in India?

What are Credit Cards?

Factors to consider before taking a Credit Card

Best Credit Cards in India

1. IDFC First Millennia Credit Card

2. ICICI Instant Platinum Card

3. Niyo Global International Travel Card

4. Dhanlaxmi Bank Platinum Credit Card

5. Amazon Pay ICICI Credit Card

6. SimplyCLICK SBI Card

7. SBI SimplySAVE Credit Card

8. HDFC Millennia Credit Card

9. RBL Shoprite Credit Card

10. The American Express SmartEarn Credit Card

Conclusion

Frequent Asked Questions (FAQs)

Which debit card type is most prevalent in India?

Should I get a credit card?

What was the first credit card in India?

What is the most widely accepted type of credit card?

Fixed Deposits – An Overview

Features of Fixed Deposits

Non-Convertible Debentures (NCDs) – An Overview

Features of NCDs

Difference between NCD and Fixed Deposit

Conclusion

Frequently Asked Questions (FAQs)

Can I withdraw my investment from a fixed deposit before maturity?

Can I sell NCDs in the secondary market?

What is the shortest and longest duration for which an NCD can be issued?

What is the minimum and maximum duration for which a fixed deposit can be issued?

Is investment in NCD better than investment in fixed deposits?

Prevalence of Financial Scams in India

UPI Scam

QR code scam alert

Part-time job scams

Courier Scam

Malware warning frauds

Financial Scams Awareness

Educate yourself

Verify PIN

Two-step -verification

Use strong passwords