Blog

What is a Bonus Issue? Meaning, Process, Key Dates, and Impact Explained
Companies have multiple ways to reward their shareholders and manage their capital structure. One such method is through a bonus issue, a term that often leaves investors interested.

This blog delves deeper into what a bonus issue is, its purpose, and its implications for shareholders.

Meaning Of Bonus Issue

A bonus issue is a corporate action where a company issues additional shares to its existing shareholders free of cost, based on the number of shares they already hold. Essentially, it is a way for a company to distribute accumulated profits or reserves without paying out cash.

How Does a Bonus Issue Work?

When a company decides to issue bonus shares, it converts part of its reserves into equity capital. For instance, if a company declares a bonus issue of 1:2, it means that for every two shares a shareholder owns, they will receive one additional share for free. This does not change the overall value of the investment but increases the number of shares held by the investor.

Purpose of Bonus Issues
- Rewarding Shareholders: One of the primary reasons for issuing bonus shares is to reward shareholders without parting with cash. By providing them with additional shares, companies aim to acknowledge the loyalty and trust of their investors.
- Improving Stock Liquidity: A bonus issue can improve the liquidity of a company’s shares. By increasing the number of shares in circulation, trading activity is expected to rise, which can increase the liquidity of the stock.
- Making Shares Affordable: If the share price of a share is high, issuing bonus shares can reduce the price per share, making it more affordable for small-scale investors. This action thus attracts a wider base of shareholders.
- Signaling Strong Financial Health: A bonus issue often signals that a company is confident about its future prospects and has reserves. This can boost investor confidence and enhance the company’s reputation in the market.
Read Also: What is Options Trading?

Process of Issuing Bonus Shares

The process of issuing bonus shares involves several steps and requires compliance with regulatory guidelines set by the Securities and Exchange Board of India (SEBI).
- Board Approval: The process begins with the company’s board of directors passing a resolution to issue bonus shares. This resolution determines the ratio of the bonus issue and the record date, which is the date on which shareholders eligible to receive the bonus shares are determined.
- Shareholder Approval: Following board approval, the proposal must be approved by the shareholders in a general meeting. This step ensures that the interests of all shareholders are considered and that they have a say in the decision.
- Regulatory Filings: Then, the company files the necessary documents with SEBI and the stock exchanges. The documents include providing details of the bonus issue and ensuring compliance with all regulatory requirements.
- Distribution of Bonus Shares: Once all approvals are received, the company distributes the bonus shares to eligible shareholders. The shares are credited to the shareholders’ demat accounts, and they are informed about the credit through their respective depository participants.
Implications for Shareholders
1. No Financial Gain: One important aspect of a bonus issue is that it does not provide any direct financial gain to shareholders. Even though they receive additional shares, the overall value of their holdings remains the same because the market adjusts the share price downward to reflect the increased number of shares.
2. Tax Implications: In India, bonus shares are not taxable at the time of issue. However, when the shareholder sells these shares, capital gains tax is applicable like any other security sale.
3. No Change in Shareholding: Though a bonus issue results in an increased number of shares, the shareholding pattern remains consistent because every shareholder receives the bonus share.
Key Dates

Announcement Date – It is the date on which the Board announces the Bonus issue. It is also known as the Declaration Date.

Record Date – It is the date on which a company that is going to give bonus shares decides the eligible shareholders to receive the bonus shares.

Ex-Date – This is the date by which you need to purchase the shares to be eligible to receive the bonus shares. Generally, it is two days prior to the record date as settlement takes two days in most of the markets.

Impact on the Stock Market
1. Share Price Adjustment: Following a bonus issue, the share price adjusts to reflect the increased number of shares in circulation. For example, if a company issues bonus shares in a 1:1 ratio, the share price is likely to halve because the number of shares has doubled.
2. Market Perception: A bonus issue is often perceived positively by the market as it indicates the company’s robust financial health. It can lead to increased investor interest and potentially drive up the share price in the long run, despite the initial adjustment.
3. Liquidity and Trading Volume: The increased number of shares can lead to higher trading volumes, enhancing liquidity. This can make the stock more attractive to both retail and institutional investors, contributing to a more dynamic market environment.
Indian Case Studies of Bonus Issues

Reliance Industries Limited (RIL):

Reliance Industries Limited is one of the most renowned companies in India. In 2017, RIL announced a bonus issue in the ratio of 1:1. This move was well-received by the market players, leading to a surge in trading volumes and positive investor sentiment.

Tata Consultancy Services (TCS):

TCS is one of the biggest tech companies in India. In 2018, Tata Consultancy Services (TCS) declared a bonus issue at a 1:1 ratio. This was the result of one of the company’s efforts to reward its shareholders and increase the affordability of its shares. The bonus issue was perceived positively and contributed to a boost in the company’s market capitalization.

How can I track Bonus Issues?

Generally, listed companies publish all the corporate announcements at stock exchanges first, i.e., NSE and BSE in India. However, it will be cumbersome for you to monitor updates from each company individually.

To simplify this process, we’ve created a dedicated corporate action page where you can effortlessly track all the latest corporate announcements, including but not limited to dividends, rights, splits, and bonus issues.

You can access the corporate actions page to get the detailed list.

But that’s not all. In addition to our corporate actions page, we recently launched our new WhatsApp service. Now, you can effortlessly stay informed about all corporate actions, including dividends, bonuses, splits, and more, delivered straight to your phone every morning by 9 A.M. for just INR 11!

Sign up now and never miss any corporate announcement.

Read Also: What are Stock Splits? Meaning, Reason, Types, and Impact Explained

Conclusion

Bonus issues are a significant corporate action that reflects a company’s confidence in its financial health and future prospects. However, for shareholders, there is no immediate financial gain. But the long-term benefits of this action can be substantial if the company continues to perform well.

Bonus issues also enhance stock liquidity and make shares more affordable. However, it is crucial for investors to understand the implications of bonus issues and consider them while making an investment decision.

Frequently Asked Questions (FAQs)
1. Why do companies issue bonus shares?
  Companies issue bonus shares to reward shareholders, improve stock liquidity, and make shares more affordable. It’s a way to convert accumulated reserves into equity capital while maintaining investor confidence.
2. How does a bonus issue affect the share price?
  After a bonus issue, the share price adjusts downward to reflect the increased number of shares in circulation. For instance, if a company issues bonus shares in a 1:1 ratio, the share price is likely to halve as the number of shares has doubled, keeping the overall value of the market capitalization the same.
3. Are bonus shares taxable in India?
  Bonus shares are not taxable at the time of issue. However, when shareholders sell these shares, capital gains tax is applicable.
4. How does a bonus issue impact a company’s reserves?
  A bonus issue reduces a company’s reserves as a part of the reserves is converted into equity capital. This process does not affect the company’s cash balance but modifies the structure of its equity and reserves on the balance sheet.
5. Can a bonus issue improve a company’s market perception?
  A bonus issue can signal that a company is financially strong. This can enhance investor confidence and increase market interest in the stock.

June 7, 2024

Synthetic Futures – Definition, Risk, Advantages, Example

Did you know that you can create a payoff similar to a futures contract using call and put options? We are talking about Synthetic Futures, one of the least discussed topics in options trading. Let’s have a deep dive into it.

What are the Synthetic Futures?

A synthetic future contract is a financial instrument that replicates the payoff of a traditional futures contract using other financial instruments such as options, swaps, or contracts for difference (CFDs). However, traders generally use options to create synthetic futures.

In synthetic futures option version, we use options (call and put options) to replicate the payoff of a futures contract. For example, an investor buys a call option and sells a put option of same expiration date for a long synthetic future. And for a synthetic short future, the positions are reversed.

The purpose of doing this is to replicate the payoff of the futures contract (without owning a physical asset) and or to bypass/reduce the limitations/risks associated with trading actual futures contracts.

Risks associated with Synthetic Futures

Liquidity Risk: Traders can face difficulty in executing and exiting synthetic future trades because of limited liquidity available, particularly in stock-specific contracts. Further, a higher bid-ask spread can reduce the profits.
Regulatory Restrictions: The use of synthetic futures contracts may be subject to regulatory compliance and restrictions in certain jurisdictions. Investors should be aware of the applicable laws and regulations governing these contracts in their respective countries.
Counterparty Risk: If you’re trading in Over the counter (OTM) markets, synthetic futures may involve counterparty risk, there is a risk of default or non-performance by any of the involved parties. It is crucial for investors to assess the creditworthiness and reliability of the counterparties before entering into synthetic positions.

Benefits of Synthetic Futures

Lower Margin Requirements: One of the key advantages of synthetic futures contracts is that they often require lower margins compared to traditional future contracts.
Flexibility and Customization: Synthetic future contracts enable investors to speculate on the various asset classes, including commodities, currencies, indices, and even individual stocks. Also, it allows traders to do certain adjustments using call and put options which is absent in future contracts.
Cost Efficient: The ability to make adjustments in the underlying asset helps in saving a lot of money.
Potential for Enhanced Returns: Due to the lower capital requirements and the ability to leverage derivative instruments, synthetic futures contracts offer the potential for enhanced returns.

Example

Consider that Berger paints is trading at INR 500. And a trader purchases a call option of ATM strike price, i.e., 500 strike for INR 50. This call option gives the trader the right, but not the obligation, to buy Berger Paints stock.

Simultaneously, the trader sells a put option of 500 (ATM strike) for INR 30, with the same expiration date.

By doing this, the trader has effectively created a synthetic long futures contract on Berger Paints stock by combining these two options. Thus, he or she can profit from the price increase if the stock price rises above INR 500.

Based on the below formula, the net outflow of synthetic futures will be calculated as follows:

Net Cash Outflow = Call option – Put option = 50-30 = 20

Keep a note that we are buying the ATM Call Option and simultaneously selling the ATM Put Option. Further, the call and put options belong to the same underlying and same expiry. Synthetic Long mimics the payoff of the long futures contract. In case of short synthetic futures, we buy ATM Put Option and sell ATM Call Option of the same underlying and same expiry.

Let us consider a few expiry scenarios:

Berger Paints stock expires at 400 (Below ATM)
- At 400, the 500 CE will expire worthless, hence we will lose call premium paid that is INR 50 but PE will have an intrinsic value of Max (Strike – Spot, 0), i.e., Max (500-400, 0) or 100 as we are short on this put option, we will lose the money from the premium, 30 – 100 = (70)
- Total payoff from the long Call and short Put position would be, -50 – 70 = (120). Here, we made a loss of INR 120.

Stock expires at 500 (At ATM )
- If the market expires exactly at 500, then both the options will expire worthless. Hence, we will lose the premium paid for the call option option = 50. But we will be able to retain the premium for the PE option = 30.
- The net payoff from both the positions will be, 30-50 = (20). Here, we made a loss of INR 20.

Stock expires at 600 (Above ATM)
- At 600, the 500 long CE would have an intrinsic value of 100, we would make, [Intrinsic value – Premium Paid] = 100 – 50 = +50. The 500 short PE would expire worthless; hence we get to retain the premium of INR 30.
- Total payoff would be = +50 + 30 = INR 80

We can conclude that the strategy makes money when the market moves higher and loses money when the market goes down, similar to futures. However, this does not necessarily mean that the payoff is similar to that of futures. To establish that the synthetic long payoff behaves similar to the futures, there should be a payoff symmetry around the breakeven point that is called linearity and then only it will behave like futures.

Conclusion

Synthetic futures contracts have gained popularity in the financial markets as they provide investors with a unique tool to gain exposure to the underlying assets without actually owning them. These contracts are designed to replicate the price movement and characteristics of traditional futures contracts.

By replicating the characteristics of an actual Futures contract, Synthetic futures give flexibility, risk management and increased trading opportunities. However, it is essential to understand the risks involved and have a good understanding of options strategies with proper knowledge and skill.

FAQs

What is a Synthetic Futures?
A Synthetic Future is a financial instrument that mimics a futures contract’s characteristics and potential returns without having its limitations.
Can I create Synthetic Futures apart from Options?
Yes, it can be created using other financial instruments as well, like Swaps and CFDs.
What are the advantages of Synthetic Futures?
It provides alternative trading strategies and effective risk management tools.
What is one of the limitations of Synthetic Futures?
One of the limitations of Synthetic futures is the limited availability of certain synthetic instruments because of low volumes in call and put options.
Is Counterparty Risk involved in Synthetic Futures?
Counterparty risk is the risk of loss from a default of the counterparty. In case of OTC markets, it is a primary risk in synthetic futures and are subject to creditworthiness of the counterparty.

June 7, 2024

What is a Dividend? Meaning, Key Dates, and Types Explained

We know that one should invest a portion of their income in the securities market. But did you know that there’s a way to earn money while being invested?

Today, we’re going to walk you through a unique way to earn passively. We’ll cover what a dividend is, the most important dates you’ll need to know as an investor and the types of dividends that a company can pay.

Meaning Of Dividend

In simple terms, a dividend is a payment by a corporation to its shareholders, which is commonly realized through the company’s profits. When a company earns a profit, it can choose to either reinvest the money back into the business (retained earnings) or distribute a portion of it to shareholders in the form of a dividend. Dividends are a way for companies to reward shareholders for their investment and provide a steady stream of income.

Therefore, dividends are seen as a sign of a company’s financial health and stability. Companies that consistently pay dividends, especially those that increase their dividend payout ratios over time, are often viewed as financially sound and stable. This can make dividend-paying stocks particularly attractive to income-focused investors, such as retirees, who rely on the steady income that dividends provide.

Dividend Key Dates

To fully understand the dividend process, it’s important to know the key dates involved:

Declaration Date

It is the date when the board of directors of the company declares the dividend to be paid out. It usually states how much money is to be given out and dates set for the record date and payment date. The declaration date is the first signal to investors that a dividend will be paid.

Ex-Dividend Date

This is the cutoff date established by the stock exchange. If you purchase a stock on or after this date, you will not be eligible to receive the declared dividend. For one to qualify to be paid the dividend, the person should own the share before the ex-dividend date.

Record Date

This is the date when the company reviews its records to determine which shareholders are eligible to receive the dividend. The record date is usually one business day after the ex-dividend date. It’s the official date on which you must be on the company’s books as a shareholder to receive the dividend.

Payment Date

This is the date when the dividend is actually paid out to shareholders. In other words, it is the date when money is released and transferred to shareholders in their brokerage accounts.

Read Also: What is Dividend Yield?

Example of Dividends

Let’s say Company XYZ declares a dividend on January 1st of $2 per share:

– Declaration Date: January 1st, when the company announces it will pay a dividend of $2 per share.

– Ex-Dividend Date: January 15th. To be eligible for the dividend, you need to purchase the stock by January 14th.

– Record Date: January 16th, when the company checks its records to see who is eligible.

– Payment Date: January 31st, when eligible shareholders receive their dividends.

If you own 100 shares, you will receive a total of $200 in dividends (100 shares * $2 per share) on January 31st.

Calculate Dividend Yield – Dividend Yield Calculator

Types of Dividends

Companies can issue several types of dividends, each with its own characteristics and implications for shareholders:

Cash Dividends

This is the most common type and pays the holder in cash, either to their brokerage account or with a physical check. This is the form of the dividend that most people think about and refer to when they use the term dividend.

Stock Dividends

Instead of cash, shareholders receive additional shares of the company’s stock. In other words, this exercise allows more share ownership without giving out cash. Stock dividends are popular because they allow the holder’s interest in the business to widen without the holder spending money to earn new share rights. Thus, the company can safeguard its cash while satisfying the shareholders.

Property Dividends

These dividends are paid out in the form of assets other than cash, such as products or physical assets owned by the company. Property dividends are rare and can include items like real estate, inventory, or other physical assets.

Special Dividends

These are one-time payments that a company issues, usually when it has accumulated substantial profits or has excess cash reserves. Special dividends are not recurring and are often larger than regular dividends, reflecting a particularly strong performance period for the company.

Preferred Dividends

These dividends are paid to holders of preferred stock and are typically fixed amounts paid on a regular schedule, often quarterly. Preferred dividends have priority over common dividends, meaning they are paid out first. Thus making preferred shares a more predictable income source.

Read Also: How to invest in dividend stocks?

How can I track Dividends?

Generally, listed companies publish all the corporate announcements at stock exchanges first, i.e., NSE and BSE in India. However, it will be cumbersome for you to monitor updates from each company individually.

To simplify this process, we’ve created a dedicated corporate action page where you can effortlessly track all the latest corporate announcements, including but not limited to dividends, rights, splits, and bonus issues.

You can access the corporate actions page to get the detailed list.

But that’s not all. In addition to our corporate actions page, we recently launched our new WhatsApp service. Now, you can effortlessly stay informed about all corporate actions, including dividends, bonuses, splits, and more, delivered straight to your phone every morning by 9 A.M. for just INR 11!

Conclusion

Understanding dividends and their associated dates is essential for any investor seeking to benefit from this form of income. By keeping track of declarations, ex-dividends, records, and payment dates, investors can ensure they are positioned to receive dividends.

Hence, whether you’re an amateur investor or a seasoned pro, dividends can play a valuable role in building a growing portfolio. However, you must perform your analysis before investing in any stock.

Frequently Asked Questions (FAQs)

What are Dividends?
Dividends are the distribution of the company’s earnings to the shareholders.
Is it mandatory for companies to continue paying dividends?
No, a company can stop paying regular dividends if its financial situation does not allow it to part ways with cash. However, most companies continue paying dividends once they have started.
Why Are Dividends Important to Investors?
Dividends provide a regular income stream, which is particularly important for income-focused investors such as retirees. Dividends also act as a sign of a company’s financial health.
Would I receive a dividend if I purchased the share after the ex-dividend date?
No, the ex-dividend date determines who qualifies to receive the dividend. If you purchased the stock on or after the ex-dividend date, you will not be eligible for the declared dividend.
How are dividends taxed?
Dividends are not taxed upto INR 5000 in India. Any dividend income you receive beyond this limit will be taxed according to the applicable tax rates.

June 6, 2024

XIRR Vs CAGR: Investment Return Metrics

We all know that we should choose securities that generate the highest return. But have you wondered which return should we consider while evaluating securities?

This blog will delve deeper into two of the most popular methods to evaluate returns.

What is CAGR?

CAGR stands for the Compounded Annual Growth Rate. It measures an investment’s annual growth rate over time and is often used to measure and compare investments’ past performance or to project their expected future returns. It calculates the constant average growth rate over a period of time for a long-term investment.

The compound annual growth rate isn’t a true rate of return. It describes the growth rate at which an investment has grown, assuming that the growth rate is the same every year and that the profits are reinvested at the end of each year. In reality, this kind of performance is unlikely because the growth rate depends upon multiple outside market factors. However, the CAGR can be used to smooth returns so that they may be more easily understood compared to alternative methods.

Mathematical formula

CAGR = (EV / BV)^(1 / N) – 1

where: EV = Ending value, BV = Beginning value, and N = Number of years

Calculation

Divide the value of an investment at the end of the period by its value at the beginning of that period.
Raise the result to an exponent of one divided by the number of years.
Subtract one from the subsequent result.
Multiply by 100 to convert the answer into a percentage.

CAGR Limitations

It smooths the growth rate, so it does not give a true picture as it ignores volatility and implies that the growth during that time was steady.
It doesn’t account for the inflow and outflow of the funds from the portfolio over the period of time.
It ignores volatility and is hence not useful in forecasting growth rates during unstable times.
It is not relevant for early growth ventures as they are naturally volatile.

Can CAGR be improved?

The major limitation of CAGR is that it calculates a smoothed rate of return over time, ignoring volatility. To improve these limitations, investors can use a risk-adjusted CAGR. A simple method for calculating a risk-adjusted CAGR is to multiply the CAGR by one minus the investment’s standard deviation [standard deviation measures total risk, which is the sum of systematic (market-specific) and unsystematic risk (investment-specific)].

If the standard deviation is zero, the risk-adjusted CAGR is unaffected. If the standard deviation is larger, the risk-adjusted CAGR will be lower.

What is XIRR?

XIRR, or Extended Internal Rate of Return, is a method to calculate the annualized return on investment with irregular Cash flows. It considers all cash inflows and outflows, along with the dates on which they occur, to calculate the annual rate of return. XIRR considers the timing and amount of each cash flow, making it a more accurate method for investments with irregular cash flows. It is more flexible than CAGR as different time horizons and different cash flows can be easily accounted for here.

XIRR calculation is tricky, but any financial XIRR calculator or spreadsheet can do this instantly. XIRR solves for the rate of return that makes the NPV (Net Present Value) of all cash flows equal to zero.

What is the difference between CAGR & XIRR

CAGR	XIRR
Simple rate of return based on Beginning and Ending Value.	More complicated and takes into account both investment outlay and cash flows.
Suitable for calculating returns of one-time investment.	Suitable for calculating returns of investments with irregular cash flows.
Doesn’t consider the timing of cash flows.	Consider the timing of cash flows.
Computes the average annual growth rate.	Computes the Internal Rate of Return (IRR).
Simple to calculate but less accurate.	More complex to calculate but more accurate.

Suitable Metric to Calculate Mutual Fund Returns

If you invest a lump sum amount without a regular series of investments, then one can use the CAGR as the timing of the investment, and periodic cash flows won’t be an issue. But when you choose to invest through SIPs, regular outlays/payments on a particular date, then using CAGR is not an appropriate way to calculate the return, as it ignores the timing of investments and considers only the first and last values. So, in such cases, one can use XIRR to calculate the actual return for your SIP investments.

Therefore, if it’s an open-ended fund with irregular cash flows (in the form of SIPs), then XIRR is the preferred method. If it is a close-ended fund where the fund has a constant growth rate and accepts lump sum cash outlays only, then CAGR is the preferred method.

Conclusion

Both methods are used to calculate returns, and both have pros and cons. Therefore, according to the time horizon and cash inflow/outflow plan, one should decide which method to use.

Absolute return is best for short-term investments, but CAGR is best for longer-term investments with fixed cash outlays. However, XIRR is the most useful in cases of multiple cash flows (SIPs) as it considers the timing of each cash flow while calculating an annualized return.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	NHPC vs NTPC
2	Swiggy Vs Zomato
3	Mahindra & Mahindra vs Tata Motors
4	Tata Power Vs Adani Power
5	Tata Steel vs. JSW Steel

Frequently Asked Questions (FAQs)

What is CAGR?
Compound Annual Growth Rate, or CAGR, is the annual growth of your investments over a specific period of time. In other words, it measures how much you have earned on your investments per year during a given interval.
What is XIRR?
XIRR, or Extended Internal Rate of Return, is the annualized return on investment while considering irregular cash flows.
Which calculation method is better, CAGR or XIRR?
XIRR is better than CAGR as it is more flexible and can calculate the returns on investments with multiple cash flows at different times, while CAGR can only calculate the returns for a single cash inflow and outflow.
Which method should one use to calculate mutual fund returns?
The answer depends on the type of investment. For lump sum investments, CAGR is a good enough measure of returns. However, for investments with irregular cash flows, such as SIPs, XIRR is a better measure of returns.
Can CAGR be negative?
Yes. A negative CAGR indicates losses over time rather than gains.

June 5, 2024

What are Stock Splits? Meaning, Reason, Types, and Impact Explained

Stock split is a unique corporate action in which the shareholder’s shares get divided into multiple shares. While the overall value of the shares remains the same, the shares increase in number.

But what exactly is a stock split, and why does it matter to investors in India? This blog will answer all your questions regarding stock split.

Stock Splits Meaning

A stock split is when a company divides its existing shares into multiple shares. However, the total market value of the company doesn’t change, even though the number of shares increases.

You can imagine cutting a piece of pie into smaller portions — while the number of pieces increases, the total amount of pie remains the same. This move is generally done to make individual shares more affordable and attract a wider range of investors who were unable to enter due to the high price point.

Reason for Stock Splits

Companies make use of stock splits to make their shares more appealing and accessible to investors. When a company’s share price shoots up drastically, it can discourage small scale investors from buying. Therefore, by splitting the stock, companies lower the price per share, making it more affordable and thus increasing liquidity.

For example, imagine a company’s share price has increased to ₹10,000. Many retail investors might find it too expensive to invest. However, if the company announces a 10-for-1 stock split, each share’s price would drop to ₹1,000, making it more attainable for a larger audience.

Types of Stock Splits

There are broadly two types of stock splits. They are explained below:

Forward Stock Split – This is the most common type of split, where the number of shares increases and the price per share decreases. For instance, in a 2-for-1 split, each existing share splits into two, doubling the number of shares and cutting the price per share in half.
Reverse Stock Split – This type is relatively less common, it involves reducing the number of shares, which in turn increases the price per share. For example, in a 1-for-5 reverse split, five shares are consolidated into one, making the price of each share five times higher.

Psychological Impact of Stock Split

Stock splits can have a significant psychological impact on investors. When a company announces a stock split, it creates a perception of growth and confidence in the company’s future. This perception is largely based on the idea that the company seeks the trust of retail investors.

This positive sentiment can drive up demand for the stock, sometimes leading to an increase in the stock price post-split, even though the overall market value of the company remains unchanged.

Calculations of a Stock Split

Let’s break down the calculation with an example. Suppose you own 100 shares of a company, XYZ Limited, with each share priced at ₹500. Your total investment is ₹50,000 (100 shares x ₹500).

XYZ Limited then announces a 2-for-1 stock split. After the split, you will own 200 shares, but the price per share will be halved to ₹250. Thus, your total investment remains the same at ₹50,000 (200 shares x ₹250).

Similarly, if XYZ Limited opted for a 3-for-1 stock split, you would end up with 300 shares priced at approximately ₹166.67 each, maintaining the total value of your investment.

The market value of the company remains the same after the stock split, thus reducing the value of each share.

Pros and Cons of Stock Splits

Pros

Increased Liquidity – More shares at a lower price can increase trading volume and liquidity.
Enhanced Affordability – Lower-priced shares are more accessible to small investors, widening the shareholder base.
Positive Market Perception – A stock split can signal that the company is performing well and expects future growth.

Cons

No Fundamental Change – A stock split doesn’t change the company’s fundamentals. It’s more of a cosmetic change without affecting the company’s market capitalization or intrinsic value.
Possible Volatility – Post-split, stocks can experience higher volatility as new investors start investing. This increase in demand can make the stock appear more valuable than it actually is.

How can I track Stock Splits?

You can access the corporate actions page to get the detailed list.

Conclusion

Stock splits play a crucial role in making shares more accessible and enhancing market liquidity. Although they don’t alter a company’s fundamental value, they can significantly influence investor perception and market dynamics.

Understanding stock splits is extremely important for investors, as it equips them with the knowledge to navigate the market more effectively.

Frequently Asked Questions (FAQs)

Is it mandatory for the listed companies to declare a stock split or reverse stock split once the share price reaches a certain point?
No, it is entirely optional for companies. For example, MRF Ltd. has never done a stock split, and its shares are currently among the most expensive shares to purchase in the Indian share market.
What is the key difference between Forward Stock Split and Reverse Stock Split?
The key difference between the two is that a forward stock split increases the number of outstanding shares, and a reverse stock split decreases the number of outstanding shares. The total market value of the organization remains the same in both cases.
Is there any impact on liquidity by stock split?
Yes, the liquidity of the stock is increased after a stock split as it increases the number of outstanding shares of the company and decreases the price per share, making it affordable to potential investors.
Who announces the stock split?
The company’s Board of Directors have the authority to announce a stock split.
Is there any impact of a stock split on the company’s fundamentals?
No, there is no impact of a stock split on the company’s fundamentals.

June 3, 2024

What is Right Issue of Shares: Meaning, Examples, Features

Have you ever asked yourself how some firms get additional capital without going to the banks and/or financial backers? This brings us to the rights issue — a powerful technique that enables organizations to give current shareholders a chance to purchase more of the same stock at a lesser price.

This blog will dig deeper into the world of capital structure and explain how rights issues work, its advantages, and drawbacks.

Meaning of Right Issue of Shares

A rights issue is a process through which businesses offer existing shareholders an opportunity to buy more shares at a lower price in their efforts to source capital in the market. This approach enables companies to look for capital for expansion, to redeem debts, or for any other purposes without causing major changes in the percentage ownership of the shareholders.

Features Of Right Issue of Shares

Companies exercise a rights issue when they need cash flow for various objectives. The process may allow the company to raise money without incurring underwriting fees. However, few rights may be underwritten if the company wants to secure the amount of capital raised.
These rights are usually distributed as dividends, and the number of additional shares the shareholders can purchase is generally proportional to their existing shareholding. The holder may entirely or partially exercise rights.
A rights issue gives privileged treatment to existing shareholders, who are given the right to buy shares at a lower price on or before a particular day.
Existing shareholders also have the advantage of the right to trade with other concerned market participants until the new shares can be purchased. The rights are sold in a similar way as average equity shares.
Existing shareholders can also disregard the rights; however, their existing shareholding will be diluted post-issue of additional shares if they do not purchase additional shares

Example of Right Issue of Shares

Suppose an investor owns 100 shares of XYZ Ltd., trading at INR 20 per share. The company set forth a rights issue in the ratio of 2 for 5, i.e., all investors holding 5 shares will be eligible to buy 2 more new shares. The company declared a discounted price, say, INR 15 per share. That means, for every 5 shares (at INR 20 each) held by a pre-existing shareholder, the company will offer 2 new shares at a discounted price of INR 15.

Investor’s Portfolio Value (before rights issue) = 100 shares x INR 20 = INR 2,000
Number of additional shares to be received = (100 x 2/5) = 40
Amount paid to buy rights shares = 40 shares x INR 15 = INR 600
Total no. of shares after exercising rights issue = 100 + 40 = 140
Increased value of the portfolio after exercising rights issue = 140 Shares x 20 = INR 2,800

Key Dates of Right Issue of Shares

Announcement Date – It is the date on which the Board announces the Rights Issue. It is also known as the Declaration Date.

Record Date – It is the date on which a company that has offered Rights issue decides the eligible shareholders to receive the right to buy additional shares.

Ex-Rights Date – This is the date before which you need to purchase the shares to be eligible to receive the right. Generally, it is two days prior to the record date as settlement takes two days in most of the markets, which means shares purchased today will be credited to your demat account after T+2 days (Trading day + 2 days). As of December 2023, we have a T+1 settlement in India, so the Ex-Right Date is one day before the record date.

How can I track Rights Issues?

You can access the corporate actions page to get the detailed list.

Conclusion

Rights issue is one way a listed company can raise capital without incurring high costs by offering to purchase new shares to existing shareholders at a fixed price. This process is entirely voluntary and does not require the existing shareholders to participate.

Although this corporate action garners a lot of attention from shareholders due to its enticing features, it is extremely important to perform your analysis before participating in the issue.

Frequently Asked Questions (FAQs)

How is the price of the rights issue determined?
The price of the rights issue is determined by the company based on multiple factors like current market conditions, the company’s financial position, and the discount offered to shareholders.
What are the risks of investing in a rights issue?
The issue in itself does not have any major risk outside of the risk of oversubscription, where shareholders may not be able to acquire their desired number of additional shares. However, there exists a possibility of the company not performing well financially, leading to a decline in share value.
What happens if a shareholder doesn’t participate in a rights issue?
If a shareholder chooses not to participate in a rights issue, their ownership in the company will be diluted as other shareholders will purchase additional shares. However, they can still retain their existing shares.
How are shareholders notified about a rights issue?
Shareholders are notified about a rights issue through official announcements by the company, which include information on the issue size, subscription price, and the timeline.
Why do companies choose to raise money through rights issues?
Companies choose the option of rights issues in order to raise additional capital for various purposes such as funding expansion projects, reducing debt, or strengthening their financial position.

June 3, 2024

Top Power Companies in India

India’s power sector is undergoing rapid transformation. By 2026, the country’s total power capacity is projected to exceed 500 gigawatts, with a significant contribution from solar and wind energy. Electricity demand is increasing every year, particularly in cities and industries. In this context, India’s major power companies are playing a crucial role in providing a continuous and reliable power supply to the nation. In this blog, we will explore India’s top power companies in simple terms.

Top Power Companies in India

S.No	Company	Current Market Price (INR)	Market Capitalisation (in INR crore)	52-Week High	52-Week Low
1	NTPC Ltd	356	3,45,201	371	293
2	Adani Power Limited	135	2,61,076	183	92.4
3	Power Grid Corporation of India Ltd	256	2,38,560	322	247
4	Adani Green Energy Ltd	852	1,40,389	1,179	758
5	Tata Power Company Ltd	366	1,17,045	417	326
6	JSW Energy Ltd	460	80,800	579	419
7	NHPC Ltd	78.2	78,552	92.3	71.0
8	Torrent Power Ltd	1,388	69,922	1,640	1,188
9	SJVN Ltd	SJVN Ltd	28,491	108	69.8
10	CESC Ltd	150	19,905	185	119

(Data as of 31 Jan 2026)

A brief overview of the best REIT Stocks Companies in India is given below:

1. NTPC Limited

NTPC Limited was established in 1975 with the objective of providing reliable and consistent power to the nation. It is one of India’s leading government-owned power companies. NTPC operates power generation projects across various states and supplies electricity to millions of homes. Initially, the company focused on thermal power, but it is now rapidly expanding into clean energy sources such as solar, wind, and hydropower.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
13.28%	115.041%	173.35%

(Data as of 31 Jan 2026)

2. Adani Power Limited

Adani Power Limited was founded in 1996. The company entered the power generation sector at a time when private sector participation in the industry was increasing in India. It established power projects in various states, providing a reliable supply of electricity to numerous cities and industrial areas. Over time, the company modernized its plants and improved its operational processes to ensure greater supply stability. Today, Adani Power is recognized as a major private power producer.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
34.97%	59.17%	1,196.18%

(Data as of 31 Jan 2026)

3. Power Grid Corporation of India Limited

Power Grid Corporation of India Limited was established in 1989. This company’s role is not to generate electricity, but to transmit it reliably from one place to another. If villages, towns, and cities have a consistent power supply, Power Grid plays a crucial role in making that happen. Over time, the company has improved its transmission lines and systems to minimize power outages. Today, it has quietly become a vital link in managing the country’s power infrastructure.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
-8.07%		123.97%

(Data as of 31 Jan 2026)

4. Adani Green Energy Limited

Adani Green Energy Limited was founded in 2015. This company specializes in generating electricity solely from solar and wind energy. Its projects are located in several Indian states, where clean energy is produced. The company focuses not on outdated technologies like coal or diesel, but on generating electricity without harming the environment. Today, Adani Green is considered one of the leading renewable energy companies in India.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
-11.67%	252.64%	-20.45%

(Data as of 31 Jan 2026)

5. Tata Power Company Limited

Tata Power Company Limited was founded in 1915 and is one of India’s oldest private power companies. The company is involved in both power generation and distribution. Over time, Tata Power has shifted its focus to clean energy sources such as solar and wind power. Today, the company continues to play a significant role in meeting the electricity needs of homes, industries, and cities.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
4.18%	78.42%	322.81%

(Data as of 31 Jan 2026)

6. JSW Energy Limited

JSW Energy Limited was founded in 1994. The company operates in the power generation sector and has diversified over time to include various sources such as thermal, hydro, and renewable energy. JSW Energy aims to provide reliable electricity to people and industries. The company has improved its power projects by adopting new technologies and is continuously moving towards clean energy.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
2.49%	108.38%	545.13%

(Data as of 31 Jan 2026)

7. NHPC Limited

NHPC Limited was established in 1975. This company focuses on generating electricity from river water. Its power projects are mostly located in mountainous regions, where hydropower generation is more feasible. NHPC has gradually expanded its operations and is now also working on solar energy projects. The company’s focus is on developing sustainable and clean energy sources.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
3.00%	90.77%	222.57%

(Data as of 31 Jan 2026)

8. Torrent Power Limited

Torrent Power Limited was founded in 2004. The company is involved in both electricity generation and distribution. It has established itself as a reliable power supplier, particularly in urban areas. Torrent Power has steadily improved its network and adopted new technologies to minimize power outages. Over time, the company has also ventured into solar and other renewable energy projects.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
2.80%	206.15%	333.88%

(Data as of 31 Jan 2026)

9. SJVN Limited

SJVN Limited was established in 1988. The company primarily works on hydroelectric projects, generating electricity from river water. Its projects are mostly located in mountainous regions, where hydropower generation is more feasible. Over time, SJVN has also ventured into the solar and wind energy sectors. The company focuses on developing clean and sustainable energy sources.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
-21.39%	124.81%	181.49%

(Data as of 31 Jan 2026)

10. CESC Limited

CESC Limited was founded in 1899 and is one of India’s oldest power companies. The company primarily supplies electricity to Kolkata and the surrounding areas. CESC is responsible for both electricity generation and its distribution directly to consumers. Over time, the company has upgraded its network and adopted modern systems to ensure a continuous and reliable power supply to its customers.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
10.88%	97.58%	146.11%

(Data as of 31 Jan 2026)

Key Performance Indicators (KPIs)

The key performance metrics of the Best Power Companies Stocks in India are mentioned below:

Company	Operating Margin (%)	Net Profit Margin (%)	ROE (%)	ROCE (%)	P/E (x)
NTPC Ltd	20.96	11.55	12.72	9.40	17.58
Adani Power Limited	35.05	22.68	24.27	20.41	3.15
Power Grid Corporation of India Ltd	60.77	34.13	16.75	12.32	17.40
Adani Green Energy Ltd	67.68	13.88	13.47	8.02	113.34
Tata Power Company Ltd	17.29	6.08	11.07	6.08	30.23
JSW Energy Ltd	37.97	16.68	7.13	5.70	48.07
NHPC Ltd	66.17	54.68	7.57	6.21	30.22
Torrent Power Ltd	14.73	10.48	16.56	14.82	24.28
SJVN Ltd	60.20	26.44	5.78	4.45	44.03
CESC Ltd	10.93	8.39	11.39	5.71	14.91

(Data as of March 2025)

Read Also: Best Hydropower Stocks in India

Risks & Challenges in Power Companies

Fuel Price Volatility : Fluctuations in coal and gas prices affect the cost of electricity generation, putting pressure on companies’ planning and operations.
Regulatory & Tariff Uncertainty : Changes in government regulations and electricity tariffs can impact companies’ earnings and investment decisions.
Project Execution Delays : Land acquisition, local approvals, and technical issues often lead to delays in project completion.
Environmental Clearances : Obtaining environmental permits for new projects is a lengthy and complex process.
Debt & Interest Rate Risk : Rising interest rates on loans taken for large projects can increase companies’ expenses.

Future of the Indian Power Sector

Renewable Energy will grow rapidly : India’s total power capacity has now exceeded 500 GW, with renewable energy accounting for nearly 50%. The government aims to further strengthen non-fossil fuel capacity by 2030, so solar and wind projects will see the most significant growth in the coming years.
Batteries and Pumped Storage will be crucial : Solar and wind power do not provide electricity continuously, hence the need for storage is increasing. It is estimated that India’s pumped storage capacity could reach 90–100 GW by 2035, making the power supply more stable.
The Grid System will become smarter : The transmission network is being upgraded to handle renewable energy. Smart grids and digital systems will reduce power outages and allow for better control of the power supply.
Dependence on Coal will gradually decrease : Even today, a large portion of electricity comes from coal, but this proportion is expected to decrease by 2035 as the share of solar, wind, and hydro power continues to grow.
Green Hydrogen will become a new alternative : The government aims to produce 5 million tons of green hydrogen by 2030, which could become a new energy source for both industry and power generation in the future.

Read Also: Top 10 Wind Energy Stocks in India

Conclusion

Today, electricity is integrated into every aspect of our lives, so its future cannot remain the same. The path forward is clear – clean energy, robust systems, and new technologies. Gradually, old ways of thinking will be left behind, and new approaches will emerge. If this pace continues, in the coming years, there will be fewer problems and greater reliability when it comes to electricity. Download Pocketful for a seamless investing experience with zero brokerage on delivery, an easy-to-use platform, and smart tools designed for both new and experienced investors.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Top Pre-Engineered Building (PEB) Stocks in India
2	Top Aerospace Stocks in India
3	Best Chemical Stocks in India
4	Best Shipping Stocks in India
5	Best Growth Stocks in India
6	Best Material Stocks in India
7	List of Best Cement Stocks in India
8	Best Low-Risk Stocks in India
9	Best Cyclical Stocks in India
10	Top Green Hydrogen Stocks in India
11	Best Battery Stocks in India
12	Best Packaging Stocks in India

Frequently Asked Questions (FAQs)

What is India’s power sector?
This sector is involved in generating and distributing electricity to people.
Why is renewable energy growing in India?
Because it is clean energy and a better option for the future.
Which companies are called power companies?
Those that work in electricity generation, transmission, or renewable energy.
Is coal still used for electricity?
Yes, but its use is gradually being reduced.
What will drive the future of the power sector?
Solar, wind, storage, and smart grid systems.

May 31, 2024

Arbitrage Mutual Funds – What are Arbitrage Funds India | Basics, Taxation & Benefits

Ever notice a great deal on a shirt at one store, only to find it slightly cheaper online? That is a small example of arbitrage.

The arbitrage funds use similar tactics to capture profits from price differences. In this blog, we will learn about arbitrage funds and their performance.

Overview

Arbitrage funds are a type of mutual fund that seeks to profit from price discrepancies between different markets. This is achieved by engaging in the simultaneous purchase and sale of securities in various markets, thereby seizing the price difference as a source of profit. For example, an arbitrage fund might buy a stock in the cash market and sell it simultaneously on the futures market if the futures price is higher than the cash price. This is possible due to the occasional lack of perfect alignment between the futures and cash markets, which results in transient price disparities between the two.

These funds are commonly considered a comparatively low-risk investment due to their minimal dependence on the stock market’s overarching trend.

Example

Let’s understand the workings of an Arbitrage fund with the help of an example.

Suppose a stock is trading at INR 100 in the cash market. In the futures market, the same stock might be priced at INR 105 with delivery in a month. An arbitrage fund can buy the stock in the cash market for INR 100 and simultaneously sell the same stock in the futures market for INR 105 (locking in the contract).

Upon the futures contract expiration after a month’s duration, the fund proceeds to fulfil its obligation by delivering the corresponding stock.

Taxation in Arbitrage Funds

Arbitrage funds are taxed like all other equity funds in India. Below is a breakdown of their taxation implications.

Short-Term Capital Gains (STCG) – if you sell arbitrage fund units within one year of buying, the gains are considered STCG and are taxed at a rate of 15% plus any applicable surcharge or cess.
Long-Term Capital Gains (LTCG) – if you hold your arbitrage fund units for more than one year before selling, the gains are considered LTCG. The taxation for LTCG is as follows: up to INR 1 lakh of LTCG earned in a financial year is exempt from tax. Gains exceeding INR 1 lakh are taxed at a concessional rate of 10% plus surcharge and cess.

Benefits of Arbitrage Funds

Low Risk: These funds are widely considered to be among the less risky investments within the mutual fund category because they capitalize on price variations rather than relying solely on the general direction of the market.
Steady Returns: Arbitrage funds can generate consistent returns, even in highly volatile markets, by effectively capitalizing on short-term price inefficiencies. This can provide a buffer against market fluctuations and offer a relatively more consistent source of income.
Liquidity: These funds are highly liquid, so you can easily buy or sell your units on the exchange, allowing quick access to your invested capital.

Risks of Arbitrage Funds

Low Return: The arbitrage opportunities these funds explore usually involve minor price discrepancies. Despite their consistency, their overall returns may be lower than those of alternative, potentially riskier investments.
High Expense Ratio: The active management style and frequent trading involved in arbitrage funds strategies can lead to higher expense ratios compared to passively managed index funds.

Performance Analysis

Some popular funds’ returns are mentioned below:

Scheme Name	2024 (YTD)	2023	2022	2021	2020
HDFC Arbitrage Retail Gr	2.84	6.76	4.06	3.49	3.64
Tata Arbitrage Reg Gr	2.84	7.07	4.04	3.73	4.98
ICICI Prudential Equity Arbitrage Gr	2.86	7.13	4.19	3.85	4.3
SBI Arbitrage Opportunities Reg Gr	2.87	7.43	4.61	3.96	3.51

(Returns are in % and as of 7th May 2024)

Category Performance

Out of the 27 active schemes, 18 have outperformed the benchmark index. In particular, the SBI Arbitrage Fund has outperformed its peers, yielding 2.87% year-to-date.

The average returns of all schemes on the YTD basis are 2.33%, which is at par with the 2.34% returns by NIFTY 50 Arbitrage. For the year 2023, the average return was 7.34%, while the benchmark index registered a slightly higher figure of 8.11%.

Did you know?

The Nifty 50 Arbitrage Index aims to measure the performance of such arbitrage strategies. The index measures the performance of a portfolio involving investment in equity and equivalent short-position equity futures, short-term debt market investments and cash.

Conclusion

Arbitrage funds offer a unique proposition for investors seeking low-risk, steady returns and low taxes. Their capacity to leverage price disparities between markets possesses the potential to serve as a dependable revenue stream while functioning as a safeguard against market instability. However, they do come with limitations, such as lower overall returns than some investments. Therefore, the decision to opt for this fund should be taken after careful consideration.

Remember that every investment carries some level of risk, and it is important to weigh the benefits against the risks involved. Always consult a financial advisor to align your choices with your financial objectives.

Frequently Asked Questions (FAQs)

What are Arbitrage Funds?
Arbitrage mutual funds are funds that exploit the price difference between markets to generate returns.
Are Arbitrage Funds riskier than other mutual funds?
Arbitrage funds are generally low-risk because they do not rely on overall market direction. However, there is always some inherent risk in any investment.
Who should invest in Arbitrage Funds?
Investors seeking low-risk, steady returns and lower taxes can choose to invest in Arbitrage funds.
How are Arbitrage Funds taxed in India?
Arbitrage funds are taxed like any other equity mutual fund. They are taxed on the basis of Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG).
How do Arbitrage Funds work?
One way Arbitrage funds work is to buy stock in the cash market and simultaneously sell it through a futures contract at a higher price in the futures market, pocketing the profit when the contract matures.

May 31, 2024

NIFTY Next 50 – Meaning, Types & Features

Are the gains offered by the Nifty 50 overwhelming you? We are here to inform you that this is only the beginning; discover the possibilities of the Nifty Next 50 market movers!

This blog will explore the Nifty Next 50 and the recent development by NSE in detail.

What Is Nifty Next 50

The Nifty Next 50 index comprises 50 large-cap stocks from the Nifty 100 after the first 50 shares of the Nifty 100 are removed. Nifty Next 50 is a tool that investors use to keep track of and find prospective future large-cap companies. Nifty Next 50 companies can come from various industries, including finance, pharmaceuticals, FMCG, etc. As of September 2023, the Nifty Next 50 stocks comprise around 10% of the NSE’s entire free-float market capitalisation.

Correlation with Nifty 50

Sriram Krishnan, NSE’s Chief Business Development Officer, stated that the Nifty Next 50 index has a beta value of 0.95 and a 71% correlation with the Nifty 50 index.

Did you know?

Over 40 stocks have been upgraded to Nifty 50 within the past 18 years.

Sectoral Weightage

Sectors	Companies	Weightage	Market Cap (in ‘000 Cr)
Finance	7	13.52%	10,45,871.20
Power Generation & Distribution	4	10.63%	8,22,400.78
Insurance	3	10.48%	8,10,640.24
Aerospace & Defence	2	7.07%	5,46,957.10
FMCG	4	6.49%	5,01,711.57
Retail	2	5.88%	4,54,929.85
Capital Goods – Electrical Equipment	2	5.54%	4,28,682.07
Banks	3	4.95%	3,82,849.35
Cement	2	3.20%	2,47,197.61
E-Commerce/App based Aggregator	2	3.08%	2,38,422.56
Gas Distribution	2	3.06%	2,36,450.42
Refineries	1	3.05%	2,36,107.11
Chemicals	2	2.88%	2,22,560.03
Realty	1	2.62%	2,03,000.31
Pharmaceuticals	2	2.53%	1,95,954.21
Auto Ancillaries	2	2.43%	1,87,787.04
Mining & Mineral products	1	2.19%	1,69,188.64
Air Transport Service	1	2.09%	1,62,001.05
Consumer Durables	1	1.53%	1,18,142.28
Steel	1	1.39%	1,07,354.07
Automobile	1	1.38%	1,06,992.52
Railways	1	1.12%	86,616.00
Alcoholic Beverages	1	1.12%	86,325.64
Edible Oil	1	1.02%	78,687.86
Paints/Varnish	1	0.75%	57,794.34

(As of 28th May 2024)

Based on the above table, we can conclude that the finance sector has the highest allocation of 13.52%, followed by the power sector, which has 10.63%.

Nifty 50 vs Nifty Next 50

As previously established, the Nifty 50 and Nifty Next 50 are components of the Nifty 100 index. However, there is a significant disparity in the size of the companies in these two indices, which causes large differences in the returns.

Benchmark Name	2021	2022	2023	2024 (YTD)
Nifty Next 50 TRI	30.9	1	27.2	13.2
NIFTY 50 TRI	25.6	5.7	21.3	3.7

As the above table shows, the Nifty Next 50 Index has surpassed the Nifty 50 benchmark but reflects a higher volatility in returns.

Introduction of Derivative Contracts by NSE

With approval from the Securities Exchange Board of India, the National Stock Exchange launched derivative contracts on the Nifty Next 50 index on April 24, 2024 (SEBI). In this derivative contract, the exchange will provide traders with three series of monthly index futures and option contract cycles—near-month, mid-month, and far-month. The contract typically ends on the final Friday of the expiration month.

Waiver of Transaction Cost

Furthermore, to encourage more people to participate actively in the Nifty Next 50 Index, the NSE has announced that it will waive transaction costs for trading in futures and options contracts on the index for the first six months ending October 31, 2024.

First Monthly Expiry Insight

The first monthly expiry is scheduled for 31 May 2024. The index has shown a turnover of more than 1100 crores within 3 weeks of its launch. The average daily turnover of the Nifty Next 50 Index is 50-60 crores, and the peak turnover is 82 crores. 7 ETFs and 13 mutual funds track the index.

Conclusion

The Nifty Next 50 index allows investors to profit from expanding industries and businesses. However, its volatility is comparable to mid-cap firms. Consequently, investors are urged to consider their risk tolerance before investing.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	What is Nifty BeES ETF? Features, Benefits & How to Invest?
2	What Is Nifty 50? How To Invest In It?
3	Bank NIFTY Intraday Options Trading: Steps, Strategies & Tips
4	Introduction to Gift Nifty: A Cross-border Initiative
5	How has Budget 2025 impacted Bank Nifty?

Frequently Asked Questions (FAQs)

In which year was the Nifty Next 50 Index introduced?
The Nifty Next 50 Index was introduced on 1st January 1997.
Which sector has the highest allocation in the Nifty Next 50 Index?
The banking & finance sector has the highest allocation of 13.26% in the Nifty Next 50 Index, followed by the power sector, which has a weightage of 10.64%.
Should I invest in Nifty Next 50 Index funds now?
Investment in the Nifty Next 50 Index offers a higher return than the Nifty 50 Index but also comes with higher volatility. Therefore, you can consider investing in this index if you have a longer investment horizon and can take risks.
Can I use the Nifty Next 50 Index derivative for trading purposes?
You can use the Nifty Next 50 derivative for trading purposes.
Is the stock in Nifty Next 50 a part of large-cap stocks?
Indeed, the stocks that comprise the Nifty Next 50 belong to the large-cap stock category. This is because the top 100 firms, determined by their free-float market capitalization, are classified as large-cap stocks.

May 31, 2024

How to Improve Your Credit Score?

Have you ever been denied a loan because of your credit score? Or are you someone whose credit score is below 700? A bad credit score can hold you back from reaching your financial goals. But the good news is, you can take control and improve it!

In today’s blog, we will tell you the secrets to boost your credit score and uncover a world of financial opportunities.

Credit Score – An Overview

A credit score is a numerical indicator that reflects how likely you are to repay a loan on time (individual creditworthiness). It is based on your credit history, bill payments, current debt, and how long you’ve had credit accounts open. Lenders use credit scores to decide whether to approve your requests for loans and credit cards and what interest rates you will be charged. In general, the higher your credit score, the better your creditworthiness.

Credit Information Companies (CICs)

In India, credit scores are provided by credit information companies (CICs) licensed and regulated by the Reserve Bank of India (RBI). These CCIs collect and maintain credit information from several lenders and generate your credit report and score.

Below mentioned are the four major Credit Information Companies in India.

TransUnion CIBIL – it is the most prominent CIC in India and maintains the widely used CIBIL score. It was formerly known as the Credit Information Bureau. The company provides services to MSMEs, corporate, individual, and financial clients. It also serves banks, financial institutions, non-bank financial businesses (NBFCs), home finance companies, microfinance companies, and insurance companies in India.
Experian Credit – this is another major credit information company operating in India. It entered India in 2006 as a joint venture with Federal Bank, Punjab National Bank, Axis Bank, Magna Finance, and Union Bank of India. Experian Credit provides nationwide coverage with a database of more than 430 million loan records and has signed up more than 5,000 banking and financial organizations nationwide as members.
Equifax – Equifax is a major player in the world of credit information and is considered one of the ‘Big Three’ credit bureaus alongside Experian and TransUnion. They collect and analyse data on consumers and businesses, providing credit reports, analytics and other credit-related information to several companies. Retailers, utilities, government agencies, financial institutions, and other businesses are among the many industries they target with their solutions.
CRIF High Mark – CRIF High Mark is India’s leading credit information company, licensed and regulated by the Reserve Bank of India. It provides credit information, analytics, and scoring solutions to many clients, including banks, NBFCs, insurance companies, and more.

Factors that Affect Credit Score

Numerous factors affect the credit score of individuals; some of them are:

Credit Utilization Ratio: This compares your credit card balances to your total credit limits. It is the ratio of used credit to the total credit available. A lower ratio (~below 30%) is considered good.
Payment History: This is the most impactful factor on your credit score. It reflects how timely you have made past payments on loans and credit cards. A consistent history of on-time payments is important.
Credit Mix: This refers to your various credit accounts, such as credit cards, mortgages, or instalment loans. Having a healthy mix demonstrates responsible credit management.
Length of credit history: The longer your credit history, the better it shows lenders you have a track record of managing credit over time.

Additionally, internal credit models are statistical models developed and used by lenders. These models analyse borrower data to assess creditworthiness and predict the likelihood of loan repayment.

Lenders collect data on their borrowers, such as loan history, demographics, income, and other alternative data sources. Statistical techniques, such as logistic regression, discriminant analysis, survival analysis, etc., are used to analyse the data and predict defaults.

While statistical methods remain important, the credit scoring landscape is evolving. Machine learning algorithms, particularly random forests, gradient boosting, and deep neural networks, are increasingly used to predict default rates. Therefore, it is essential to maintain a healthy outlook across all possible factors to have a good credit score.

How to Boost Your Credit Score?

There are several techniques you can implement to improve your credit score.

Pay your bills on time, as this is the single most important factor in your credit score. Late payments can seriously damage your score. You can set up auto payments or reminders to help you track your bills.
Keep your credit card under-utilised. Ideally, you should aim to keep your credit utilization ratio below 30%. This shows that you are staying within your credit limit and that you can manage your credit responsibly.
Review your credit report regularly for errors because mistakes on your credit report can bring your score down. You can get a free credit report from the three major credit bureaus. If you find any errors, be sure to dispute them with the credit bureau.
Do not apply for too much credit at once. Whenever you apply for credit, a hard inquiry is placed on your credit report. These inquiries can affect your score for a short period. So, avoid applying for multiple credit cards or loans in a short period.
A secured credit card can be a good way to start building credit if you have bad credit or no credit history. With a secured credit card, you make a deposit that becomes your credit limit. Your credit score will improve as you use the card and make your payments on time.

Conclusion

Credit scores are a numerical representation of your creditworthiness, and building a good credit score takes time and effort, but the rewards are significant. Not only will you qualify for better interest rates, but you will also establish yourself as a reliable borrower. Understanding how credit scores are evaluated and their influencing factors is vital for your financial well-being.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Non-Convertible Debenture (NCD) vs Fixed Deposit (FD): Meaning, Features, and Differences Explained
2	Sectoral Funds Decoded: Riding the Investment Roller-Coaster
3	NISM Certifications: An Easy Explainer
4	The Art of Value Investing: Meaning and Strategies
5	A Guide To Investing In Gold In India
6	Best Car Loan Banks in India
7	Best Education Loan in India

Frequently Asked Questions (FAQs)

What is a credit score?
A credit score is a numerical figure reflecting how likely you are to repay a loan on time based on your credit history.
What affects my credit score?
Multiple factors affect credit score, like payment history, credit card balances, credit mix, and length of credit history.
Who uses credit scores?
Lenders use credit scores to decide on loan approvals and interest rates.
Can I get a free credit report?
Yes, the major credit bureaus/CICs provide free credit reports.
What is a good credit score?
Generally, a CIBIL score above 750 is considered good in India.

May 31, 2024

Blog

Meaning Of Bonus Issue

How Does a Bonus Issue Work?

Purpose of Bonus Issues

Process of Issuing Bonus Shares

Implications for Shareholders

Key Dates

Impact on the Stock Market

Indian Case Studies of Bonus Issues

How can I track Bonus Issues?

Conclusion

Frequently Asked Questions (FAQs)

Why do companies issue bonus shares?

How does a bonus issue affect the share price?

Are bonus shares taxable in India?

How does a bonus issue impact a company’s reserves?

Can a bonus issue improve a company’s market perception?

What are the Synthetic Futures?

Risks associated with Synthetic Futures

Benefits of Synthetic Futures

Example

Let us consider a few expiry scenarios:

Conclusion

FAQs

What is a Synthetic Futures?

Can I create Synthetic Futures apart from Options?

What are the advantages of Synthetic Futures?

What is one of the limitations of Synthetic Futures?

Is Counterparty Risk involved in Synthetic Futures?

Meaning Of Dividend

Dividend Key Dates

Declaration Date

Ex-Dividend Date

Record Date

Payment Date

Example of Dividends

Types of Dividends

Cash Dividends

Stock Dividends

Property Dividends

Special Dividends

Preferred Dividends

How can I track Dividends?

Conclusion

Frequently Asked Questions (FAQs)

What are Dividends?

Is it mandatory for companies to continue paying dividends?

Why Are Dividends Important to Investors?

Would I receive a dividend if I purchased the share after the ex-dividend date?

How are dividends taxed?

What is CAGR?

Mathematical formula

Calculation

CAGR Limitations

Can CAGR be improved?

What is XIRR?

What is the difference between CAGR & XIRR

Suitable Metric to Calculate Mutual Fund Returns

Conclusion

Frequently Asked Questions (FAQs)

What is CAGR?

What is XIRR?

Which calculation method is better, CAGR or XIRR?

Which method should one use to calculate mutual fund returns?

Can CAGR be negative?

Stock Splits Meaning

Reason for Stock Splits

Types of Stock Splits

Psychological Impact of Stock Split

Calculations of a Stock Split

Pros and Cons of Stock Splits

Pros

Cons

How can I track Stock Splits?

Conclusion

Frequently Asked Questions (FAQs)

Is it mandatory for the listed companies to declare a stock split or reverse stock split once the share price reaches a certain point?

What is the key difference between Forward Stock Split and Reverse Stock Split?

Is there any impact on liquidity by stock split?

Who announces the stock split?