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What is Forward Marketing?

Asset prices fluctuate constantly, which often makes investments uncertain and risky. To reduce this risk, investors use the forward market, where the price and terms of a future purchase or sale are agreed upon in advance. This helps protect against price volatility and provides more stability in planning investments.

In this blog, we explain what a forward market is, how it works, its key features, and its advantages and disadvantages.

Forward Market : An Overview

The forward market allows parties to lock in prices today for transactions in the future, mitigating the risk of price volatility in currencies, commodities, or securities. This market is usually over-the-counter (OTC), that is, it does not trade on any exchange but works as a direct deal between two parties (buyers and sellers).

Understand Forward Market Meaning

Suppose a company has to make a payment in a foreign currency after 3 months. There is a risk of fluctuations in the price of the currency. In such a situation, the company can lock that rate today through a forward contract. This method is adopted in the forward market so that risk from future price fluctuations can be avoided.

Commonly Traded Assets

Contracts are made for a variety of assets in the forward market:

Currencies like USD/INR
Commodities like gold, oil, wheat
Interest Rates to fix future borrowing cost

How Forward Contracts Work?

In the forward market, the deal is for the future, but its terms are decided today itself. Let us understand this with a simple example:

Example : A wheat exporter has to send 1,000 tonnes of wheat abroad after 6 months. But he fears that the price of wheat may fall by then. In such a situation, he decided to enter into a forward contract with a foreign buyer today that he will sell 1,000 tonnes of wheat after 6 months at the rate of ₹2,200 per tonne. In this way, whether the price in the market decreases or increases, he will get the fixed rate.

Step-by-Step Process:

Finalizing the Agreement : Both parties (buyer and seller) make an agreement today regarding the price, quantity and delivery date.
There is no immediate payment : In this contract, there is no transaction of actual money or goods. In some cases margin or premium can be taken.
Settlement takes place on maturity : When the due date arrives, the asset (such as wheat, currency etc.) is delivered and payment is made as per the contract.

Such contracts in the forward market help investors and traders to avoid price swings and do financial planning in advance.

Types of Forward Contracts

There are four major types of contracts in the forward market, which are based on the structure of the deal and settlement terms. Each type has its own features, which are chosen according to different trading needs:

1. Closed Outright Forward

In this, the buyer and seller fix the exchange rate today for a fixed date. This rate is determined by adding the spot price and the premium/discount on it. Settlement takes place only on maturity.

2. Flexible Forward

There is some freedom in this contract. The parties can make payment and delivery even before the fixed date. This is beneficial for those whose cash flow needs keep changing.

3. Long-Dated Forward

When the maturity of a contract is 1 year or more, it is called long-dated forward. These contracts are often used by large companies or financial institutions to hedge long-term risks.

4. Non-Deliverable Forward (NDF)

There is no delivery of actual currency in this. Only the difference between the forward rate and the spot rate of that day is settled in cash. This type is for currencies of countries where there are capital controls, like INR or CNY.

Key Features of the Forward Market

Over-the-Counter (OTC) market : The forward market does not run on the exchange, but it is an OTC (over-the-counter) market, where deals are made directly between two parties. This means that every contract can be fully customized.
The contract is completely customizable : In forward contracts, parties can decide things like amount, delivery date, and asset type according to their needs. There is no fixed format in it, which makes it flexible.
There is counterparty risk : Since these contracts are OTC, there is a risk of default by one party. No clearing house guarantees.
Settlement happens at the time of delivery : In forward contracts there is no daily price adjustment, settlement happens only on the maturity date i.e. when the contract expires.

Forward Market vs Futures Market

Feature	Forward Market	Futures Market
Trading Style	Over-the-counter (directly between two parties)	Traded on an exchange (like NSE, BSE)
Nature of contract	Fully Customised	Standardized Contracts
Regulation	Unregulated	Regulated (by bodies like SEBI)
Settlement process	Payment and Delivery on Maturity	Daily mark-to-market settlement
Counterparty Risk	Higher risk (probability of default)	Low risk (through clearinghouse)
Liquidity	Low Liquidity	More liquidity, easy exit possible
User	Companies and exporters in general	Retail and Professional Traders

Importance and Benefits of Forward Markets

Forward markets are an important risk management tool in the financial world. They are especially beneficial for businesses that are involved in international trade, commodities or currencies.

Risk management tool : Forward contracts protect companies from fluctuations in price, foreign exchange and interest rates. This reduces uncertainty and maintains financial stability.
Clarity in budget and cost : When a company fixes future prices with a forward contract, it is easier to plan better about input costs and revenue.
Customized contracts : Forward contracts are flexible and can be tailored to meet specific requirements such as amount, duration, and delivery terms. This flexibility is not available in futures markets.
Choice of large institutions : Corporates, banks, exporters and even governments use forward markets extensively, especially to manage currency exposure.
Helpful in long-term planning : These markets promote long-term financial planning rather than short-term speculation.

Risks and Limitations of Forward Markets

Counterparty Risk : The biggest risk in forward contracts is that of the counterparty. Because it is an over-the-counter (OTC) deal, no central authority guarantees it. If the other party (such as buyer or seller) refuses to make payment or delivery on time, there can be huge financial losses.
Lack of liquidity : The facility of liquidity i.e. cash is limited in the forward market. Most deals are customized and it is difficult to easily transfer them to a third party. For this reason, it is difficult to exit prematurely.
Valuation Challenge : Since forward contracts are not standard, it is difficult to determine their current market value. This creates problems in accounting, reporting and risk management, especially when there is volatility in the market.
Lack of regulation : The monitoring of government or regulatory bodies on the forward market is limited. This increases the possibility of fraud, misrepresentation and unethical behavior, which can be risky for investors.
Misuse of speculation : Some institutions or traders use forward contracts for speculation rather than hedging. This increases both risk and market volatility, especially when the predictions prove to be wrong.
Effect of market volatility : If the forward contract is for a long period and during that period there is a huge change in the prices of currency or commodity, then unexpected losses may occur. This risk is difficult to estimate.

Conclusion

The forward market plays an important role in managing uncertainty by enabling buyers and sellers to fix future prices in advance. At the core of this market are forward contracts, which can be complex but are highly effective in reducing risk when understood and applied correctly. Forward contracts provide flexibility because they can be customized according to specific needs, while futures contracts, which are traded on exchanges, offer greater transparency and security. Before entering into such agreements, it is necessary to carefully assess investment objectives, time horizon and risk appetite. With the right approach, forward contracts can serve both as a hedge against volatility and as a tool for generating profit.

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6	What is Future Trading and How Does It Work?

Frequently Asked Questions (FAQs)

What is a Forward Market?
A forward market is a market where a price is fixed today for delivery in the future.
What kind of contracts are traded in the Forward Market?
Forward contracts are traded in the forward market, which are settled between the buyer and the seller at maturity of the contract.
Is Forward Market regulated like a stock exchange?
No, the forward market is mostly unregulated and operates OTC (Over the Counter).
Who uses the Forward Market the most?
Exporters, importers and large companies mostly use the forward market.
What is the main benefit of Forward Market?
It helps to hedge against price risk, especially in currency or commodity markets.
Is there any risk in trading forward contracts?
Yes, there is counterparty risk as these contracts are private.

September 5, 2025

GST 2.0 Reform: Key Changes & Market Impact

In the GST Council meeting held on 3 September 2025, the government made a historic change in the GST tax structure. The earlier four slabs (5%, 12%, 18%, 28%) have been reduced to just two main slabs 5% and 18%, while a new high slab of 40% has been fixed for luxury and “sin” goods.

These changes will come into effect from 22 September 2025, which will make everyday items (such as soap, cheese, life and health insurance, etc.) more affordable, while luxury and tobacco items will become expensive.

Overview of the GST 2.0 Reform

The Government of India has taken a big step towards making the tax structure simpler and consumer-friendly under the GST 2.0 reform or Next-Generation GST reforms. These changes will not only make everyday necessities cheaper, but will also give new impetus to the insurance and consumer durable sector. Let us see in detail what changes have been made.

1. Slab structure simplified

Till now there were four different slabs in the GST framework, which made the calculation of tax and consumer prices complicated. After the reform, the tax system has now become simpler.

The earlier four rates (5%, 12%, 18%, 28%) have been reduced to just two major slabs (5% and 18%).
Also, a new high slab of 0% on essential goods and 40% on luxury and sin goods will be applicable.

2. Everyday essentials

This change will primarily benefit ordinary consumers, making essential items more affordable and reducing the impact of inflation on daily expenses.

Milk, curd, medicines and other essential items will now attract 0% GST.
This will have a direct impact on the monthly expenses of every family.

3. FMCG products

Fast moving consumer goods (FMCG) will now be more easily accessible to every household. Tax cuts on these are also an opportunity for companies to increase demand.

Items like toothpaste, soap, shampoo, chocolate and personal care, which earlier used to come under 18%, will now be available at 5% GST.
This will have a direct impact on the pockets of consumers and will increase sales.

4. Automobile and durables

The auto and home appliances sector has also got a big relief. Due to the reduction in tax, their prices will come down and revenues will increase.

Products like small cars, air conditioners, TVs and cement will now come under 18% GST instead of 28%.
There is a possibility of an increase in their sales during the festive season.

5. Insurance services

The exemption given to the insurance sector in the reforms is a relief especially for the middle class. This will reduce the cost of premium and increase the trend of buying insurance policies.

Life and health insurance services have now been completely exempted from GST.
This will directly benefit both consumers and insurance companies.

6. Luxury and sin goods

The government has decided to provide relief on essential commodities while increasing taxes on luxury and unhealthy items.

Tobacco, cigarettes, aerated drinks, high-end cars and premium events like IPL will be subject to 40% GST.
This will increase the prices of these products and services further.

7. Agriculture and rural economy

Reducing tax rates on agricultural inputs such as seeds, fertilizers and agricultural equipment will reduce the cost of farmers. Also, rural consumption is expected to increase as everyday products used in rural areas will become cheaper. This change is a positive sign for the agricultural industry and agri-based companies.

8. Date of implementation

These changes are not limited to the announcement only, but are going to be implemented very soon.

The new tax rates will be applicable across the country from 22 September 2025.
The government aims to give immediate relief to consumers and industries by implementing it before a big festival like Navratri.

Read Also: GST on Gold Purchase in India

GST 2.0: Before vs After Comparison

Category	Earlier GST Rate	New GST Rate (from 22 Sept 2025)	Impact
Everyday items (Chapati, medicines, Chocolates)	5% / 12%	0% – 5%	Affordable for consumers
FMCG (Soap, Shampoo, Toothpaste, Chocolate)	18%	5%	Lower prices, higher demand
Small Cars, TV, AC, Cement	28%	18%	Price will decrease, sales may increase during festive season
Life and health insurance	18%	0%	Affordable insurance policy
Luxury Cars, Tobacco, Cigarettes, Aerated Drinks	28%	40%	will become expensive, demand will decrease
Agricultural inputs (seeds, fertilizers, equipment)	5% / 12%	0% – 5%	Farmers’ costs will decrease, rural consumption will increase

Economic Impact of GST Changes

Increase in consumption and momentum in the festive season : Consumer spending is likely to increase due to the reduction in taxes on everyday goods, FMCG and small vehicles. Experts believe that the demand graph will go up in the coming festive season, which will accelerate both the sales and production of companies.
Reduction in inflation : GST 2.0 will have a direct impact on inflation. Analysts estimate that this could reduce inflation by about 20 to 30 basis points, which is a relief for both consumers and the market.
Balance of government revenue : Even though the tax cut will cause a revenue loss of about ₹48,000 crore to the government, the ministry hopes that this loss will be balanced by increased consumption and better tax collection.
Relief to business and industry : The simplification of the GST structure will make compliance easier for the industry and small and medium businesses (SMEs). This will improve their working capital situation and also increase transparency in business.
Impact on the financial position of the states : The new GST structure may put pressure on the revenue share of the states. However, the Center has assured that a separate arrangement will be considered to compensate the state governments. This issue may impact policy making in the coming months.

Conclusion

This GST 2.0 reform is a historic step in India’s tax system. By simplifying the slabs, the government has created a framework that can boost consumption and support economic growth. Everyday essentials will become cheaper, while luxury and tobacco products will become more expensive. From an investor’s perspective, it is time to re-evaluate strategies and focus on sectors where consumption and growth are most likely.

Frequently Asked Questions (FAQs)

What is GST 2.0 and when will it be implemented?
GST 2.0 is the new tax structure with simplified slabs. It will be implemented from 22 September 2025.
How many GST slabs are there after the reform?
Now there are only two main slabs (5% and 18%), with 0% tax on essential goods and 40% tax on luxury and sin items.
Which items will become cheaper under GST 2.0?
Soap, shampoo, toothpaste, small cars, TVs, ACs and life/health insurance will become cheaper.
Which products will get costlier?
Luxury cars, tobacco, cigarettes, aerated drinks and tickets for premium events like IPL will become costlier.
How will GST 2.0 impact investors?
Investors may find good opportunities in FMCG, auto and insurance sectors, while one needs to be cautious of companies manufacturing luxury and sin goods. Consult a financial advisor before investing.

September 4, 2025

Best Brokers for Low Latency Trading in India 2025

In today’s stock market, every millisecond matters, and this is what decides whether your trading positions are profitable or loss-making. In such a situation, it is important to choose the broker with the lowest latency in India, which will deliver your order to the exchange at the fastest speed.

In this blog, we will know which brokers are considered the fastest in India, what factors determine latency and which is the right choice for different trading styles.

What is Latency in Stock Market Trading?

Latency is the time delay between when a trader places an order and when it reaches the exchange for execution. If this time is very less, then your order will be fulfilled immediately and at the desired price. The higher the latency, the greater the chance of slippage (price difference).

Order Journey

Every trade order follows a sequence of steps before it gets executed:

Trader’s system or Mobile App, on which a person places an order.
Broker’s OMS and RMS systems, where security, margin and risk checks are done
Stock exchange receives the validated order and order gets executed
Exchange sends the confirmation which is sent to the trader via broker.

Each step takes a few milliseconds. These may sound very small, but in a fast market these moments can decide profits and losses.

Low Latency vs High Latency Brokers

Low Latency Brokers: Brokers whose servers and network infrastructures are placed near the exchange. These brokers use the latest technology, which allows the order to be executed almost instantly.

High Latency Brokers: Their systems are slow to respond, due to which orders get executed after a delay during which the prices may change.

Effect of Latency

The effect of latency is clearly visible in a fast-changing market. Suppose you have decided to buy shares at ₹ 100. If your order reaches the exchange 1–2 seconds late, the price can go up to ₹ 100.20 or even above, resulting in a higher buying price. The effect of latency is far more significant in options trading which are volatile financial instruments.

Top 5 Best Lowest Latency Brokers in India

S.No	Broker	Broker Response Time (ms)
1	Pocketful	Lower than 50 ms
2	Zerodha	65 ms to 75 ms
3	Upstox	55 ms to 65 ms
4	Fyers	60 ms to 70 ms
5	Angel One	75 ms to 85 ms

Note: All these are approximate numbers and may vary across devices, internet speeds, and market conditions.

Read Also: Best Trading Apps in India

Overview of Lowest Latency Brokers in India

An overview of the lowest latency brokers in India is given below:

1. Pocketful

Pocketful provides institutional-grade trading speed of under 50 ms, making it one of the fastest brokers for both retail and algo traders. APIs like Order API, Market Data API, Portfolio API, and Funds API give you easy and fast access to real-time order placement, market data, portfolio information, and fund status. The best part is that Pocketful offers Trading APIs for free. OAuth2-based login process, Python SDKs, and other supporting API documentations make the development of algorithmic trading processes simple and scalable.

2. Zerodha

Zerodha’s Kite Connect APIs are widely used by algo traders, but the benefit of low latency execution also helps retail traders who prefer manual trading. It allows you to easily place orders, access live market data and historical charts, as well as portfolio and position management. Supporting both REST and WebSocket, Zerodha ensures stable and fast connectivity for traders of all levels.

3. Upstox

Upstox offers trading APIs built for speed and reliability, making it appealing to both retail and algorithmic traders who value low latency. It supports REST and WebSocket connections, enabling access to order placement, live market data, market depth, option chains, and portfolio management. The latest version of the API continues to add features that enhance flexibility and overall trading experience.

4. FYERS

FYERS offers a reliable and scalable platform suitable for both retail and algorithmic traders. It provides a scalable, REST and WebSocket based platform where you can find APIS related to order placement, market data, funds, etc. Retail traders benefit from quick order fulfillment, while algo traders can handle up to 1 lakh requests/day, making it ideal for advanced strategies.

5. Angel One

Angel One provides a reliable trading platform with low latency, making it suitable for both retail and algorithmic traders. Its SmartAPI includes Market Feeds, Historical Data, Publisher API, and Trading API, all integrated into one system. Supporting both REST and WebSocket, it enables tick-by-tick data, faster order placement, and efficient backtesting. SmartAPI is also available in multiple SDKs such as Python, NodeJS, and Java, supported by an active developer community.

Read Also: Top 10 Demat Account in India

Why Latency Matters for Traders?

Latency is important for traders due to the following reasons:

Importance of every tick for scalpers : Scalping traders make profits from very small price movements. Here it is very important to have the broker with lowest latency because even a delay of one second can turn their profits into losses.
Fast speed for options traders : The options market is very volatile especially at the time of expiry and news events. If your broker is slow,you may not be able to get entry or exit at the right price. This is why choosing the fastest stock broker is important for options traders.
Success in Algo trading : The success of Algo trading strategies is completely dependent on speed. If the latency is high, the entire model can give wrong signals and the profits may turn into losses.
Reduces Slippage Costs: Latency has a direct effect on the price at which your order gets executed. For retail traders and investors, even small delays can mean paying more when buying or receiving less when selling. For example, if your order is filled in 40 milliseconds you might get the stock at ₹100.00, but a delay of 100 milliseconds might get the same order filled at ₹100.20 or more if the stock is in an uptrend.

Key Factors Affecting Broker Latency

Some of the key factors that affect the latency of a brokers are given below:

1. Speed of OMS and RMS systems

Each brokerage has its own Order Management System (OMS) and Risk Management System (RMS). The order undergoes risk checks and verification before it reaches the exchange. If these systems are fast and efficient, latency is low. On the other hand, brokers operating on outdated technology may experience slower order processing, causing delays in execution.

2. Server location

Where the broker’s servers are located has a direct impact on latency. For brokers whose servers are located in a co-location facility of NSE or BSE, the order travels a very short distance. The result: order processing time is reduced significantly.

3. Trading API and platform design

The design of trading APIs also makes a difference.

WebSocket APIs provide live data streams and require fast updates.
REST APIs can be a little slower as every request is a new call.

A good broker balances both and provides data with minimal latency.

4. Network infrastructure and load handling

Order volume increases suddenly at market opening (9:15 am) and on expiry days. At such times, how strong the broker’s network and trading infrastructure is matters a lot. If the infrastructure is scalable, it will handle the load and will remain stable. However, brokers with outdated systems may experience sudden spikes in latency during periods of high market volatility.

Conclusion

In a fast-changing market, every second is precious. In such a situation, the right broker is the one that fulfills your order without delay and with reliability. If you do scalping, options or algo trading, then it is important for you to choose the broker with lowest latency. A stable, high-speed platform not only helps secure better prices but also ensures your trading strategies work as intended.

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Frequently Asked Questions (FAQs)

What is latency in stock trading?
Latency is the time delay between when a trader places an order and when it reaches the exchange for execution.
Which broker has the lowest latency in India?
Pocketful is recognized as one of the brokers in India with the lowest latency, making it highly reliable for fast trade execution.
Does every trader need a low latency broker?
Yes. While low latency is critical for scalpers, options traders, and algorithmic strategies, even long-term retail investors benefit from faster execution. A low latency broker helps secure better prices, reduces the risk of slippage, and ensures reliability during volatile market conditions
What factors affect broker latency?
Broker’s server location, technology, OMS/RMS efficiency, internet speed, and market volatility directly impact latency and execution speed.
Do all brokers disclose their latency?
No, most brokers don’t publish exact latency figures. Traders usually rely on independent tests or personal trading experience.

September 4, 2025

What is Trading on Equity?

What if you want to buy a house and it costs Rs.50 Lakh, but you only have Rs.10 Lakhs in savings and you really want to buy it. What would you do, you walk into a bank, use your Rs.10 lakh as a down payment; this is your ‘equity’, and you take a loan for the remaining Rs.40 lakh.

Now, after a year and half, the value of your house rises up by 10% to Rs.55 lakh, giving you Rs.5 lakh profit. But look, you only invested Rs.10 lakh of your own money. So, on your personal investment, you’ve made a good 50% return (Rs.5 lakh profit/Rs.10 lakh investment). This magnifying effect is the superpower of using borrowed money also known as leverage in the stock market.

The big companies that you invest in also use the exact same, when a company uses borrowed money to boost profits for its owners (the shareholders, like you), it’s called trading on equity.

What is Trading on Equity?

Trading on Equity is a financial strategy where a company uses borrowed funds, like loans from banks or money raised by issuing debentures to investors, to buy assets or fund new projects.

The goal here is simple to earn a higher rate of return from these new investments than the interest rate it has to pay on the borrowed money. Any extra profit made goes directly to the shareholders, increasing their earnings. This method is also famously known as ‘financial leverage’.

It doesn’t mean the company is trading its own shares. Instead, it means the company is using its existing equity, the money invested by the owners acting as a strong base or foundation to get these loans. Lenders are more willing to give money to a company that has a solid financial hold, which comes from its equity.

How does Trading on Equity work?

Harjyot Textiles is doing well and wants to open a new factory to expand its business. It needs Rs.20 lakh for this. The company’s owners (shareholders) have already put in Rs.10 lakh, which is its current equity capital (10,000 shares worth Rs.100 each).

The company expects the new factory to earn a profit of Rs. 4 lakh every year before paying interest and taxes (this is called EBIT). The tax rate is 30% now, the management has two main options to raise the extra Rs.10 lakh.

Option 1 : Use Only Equity, the company can ask its existing owners or new investors for fulfillment of Rs.10 lakh by issuing 10,000 new shares.

Option 2 : Use Debt (Trading on Equity), the company can borrow the entire Rs.10 lakh from a bank at a 10% interest rate.

Let’s see how your earnings as a shareholder change in both scenarios. We will look at a key metric called Earnings Per Share (EPS), which tells you how much profit the company makes for each share.

Particulars	All Equity	All Debt
Earnings Before Interest & Tax (EBIT)	₹4,00,000	₹4,00,000
Interest on Loan	₹0	₹1,00,000 (10% of ₹10 lakh)
Earnings Before Tax (EBT)	₹4,00,000	₹3,00,000
Tax @ 30%	₹1,20,000	₹90,000
Earnings for Shareholders	₹2,80,000	₹2,10,000
Number of Shares	20,000 (10k old + 10k new)	10,000 (Only old shares)
Earnings Per Share (EPS)	₹14.00 (2,80,000/20,000)	₹21.00 (2,10,000/10,000)

Even though the total profit for shareholders was lower in Option 2 (because of the interest payment), your earning per share jumped from Rs.14 to Rs.21. This happened because the profit was shared among fewer shares. This is trading on equity working its magic.

But remember, this is a double-edged sword. What if the new factory doesn’t do well and only makes an EBIT of Rs.50,000, then

Particulars	All Equity	All Debt
Earnings Before Interest & Tax (EBIT)	₹50,000	₹50,000
Less: Interest on Loan	₹0	₹1,00,000 (10% of ₹10 lakh)
Earnings Before Tax (EBT)	₹50,000	– ₹50,000 (Loss)
Less: Tax @ 30%	₹15,000	₹0 (No Tax on losses)
Earnings for Shareholders	₹35,000	– ₹50,000 (Loss)
Number of Shares	20,000	10,000
Earnings Per Share (EPS)	₹1.75	– ₹5.00

When things went bad, the debt magnified the losses. Your EPS crashed to a loss of Rs.5, while with the all-equity option, you still made a small profit. This is the risk that comes with this strategy.

Types of Trading on equity

Companies can decide how much risk they want to take. This choice leads to two different styles or types of trading on equity.

1. Trading on Thin Equity

This is the high-risk, high-reward approach. A company is said to be trading on thin equity when its borrowed money (debt) is much higher than its own money (equity).

Imagine a company that has Rs.20 crore of its own equity but has taken loans worth Rs.80 crore. This company is heavily reliant on debt.
This is common for companies that need a lot of money to expand, like infrastructure or new-age technology companies. They are betting big on future growth.

2. Trading on Thick Equity

This is the safe, conservative approach. A company is trading on thick equity when it uses more of its own funds and has a relatively small amount of debt.

A company with Rs.80 crore of its own equity and only Rs.20 crore in loans is trading on thick equity.
This is often seen in stable, mature companies that value financial strength and have predictable earnings. They are not chasing instant growth but prefer stability.

Advantages and Disadvantages of Trading on Equity

Advantages of Trading on Equity

Higher Returns : As the above mentioned example showed, when a company succeeds, this strategy can significantly boost the Earnings Per Share (EPS). This makes your shares more profitable and can lead to a higher share price.
Saves Tax : The interest paid by a company on its loans is considered a business expense. This means it can be deducted from the earnings before tax is calculated. This lowers the company’s tax bill, leaving more money for growth.
Owners Control : When a company raises money by taking a loan, it doesn’t have to issue new shares. This means the existing owners don’t see their ownership percentage get smaller and they keep full control of the company.
Faster Growth : This strategy gives companies access to large amounts of money to fund big projects, buy other companies, or expand much faster than they could using only their own funds.
Increase Share Price : A company that uses debt wisely to grow its profits and EPS is often rewarded by the stock market. A higher EPS can lead to a higher share price, increasing the value of your investment.

Disadvantages of Trading on Equity

Bigger Losses : Just as profits are high, losses are too. If an investment fails, the company still has to pay back the entire loan with interest, which can wipe out shareholder profits.
Fixed Interest Payments : A loan’s interest payment is a fixed cost. It must be paid every month or year, whether the company is making profits or not. During a bad year, this can put a huge strain on the company’s finances.
Risk of Bankruptcy : If a company is unable to make its interest payments for too long, the lenders can take legal action and force the company into bankruptcy. In this case, shareholders are last in line to get paid and can lose their entire investment.
Unpredictable Earnings : A company with high debt is more vulnerable to economic shocks. A small dip in sales can cause a huge drop in profits and the share price, making the stock much riskier and more volatile.
Future Loans : A company that is already loaded with debt (trading on thin equity) might find it very difficult to get more loans in the future. Banks may see it as too risky, limiting the company’s ability to raise funds when it needs them.

Difference between Trading on Equity and Equity trading

This is a very common point of confusion, so let’s make it crystal clear. The two terms sound almost the same, but they are completely different worlds.

Trading on Equity is a strategic decision made inside a company’s boardroom, where the company’s management uses borrowed money (like loans) to fund projects, aiming to earn more than the interest on the loan and thereby boost profits for its shareholders.

On the other hand, Equity Trading is simply the act of buying and selling shares of companies in the stock market, with the goal of making a profit from the changes in the stock’s price.

One is a corporate financing strategy, while the other is a market investment activity.

Conclusion

As an investor, it’s important to assess whether a company is using trading on equity and how aggressively it is doing so. This insight is a crucial part of your research, as it reveals the real risks behind your investment. A company with high debt isn’t necessarily a bad choice, just as one with low debt isn’t automatically safe. What truly matters is the company’s ability to remain financially stable and generate sufficient profits to comfortably meet its obligations.

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1	Types of Traders in the Stock Market: Styles, Strategies & Pros and Cons
2	How to Start Stock Market Trading With Low or Limited Capital
3	Different Types of Trading in the Stock Market
4	Margin Against Shares: How Does it Work?
5	What Is Day Trading and How to Start With It?

Frequently Asked Questions (FAQs)

What is trading on equity?
Trading on equity is when a company uses borrowed money to invest in its business, hoping to earn more profit from the investment than the interest it pays on the loan.
How does trading on equity affect a company’s stock price?
It increases the company’s Earnings Per Share (EPS), which often makes the stock more attractive to investors and can drive the price up. If it fails, it can lead to heavy losses, reduce investor confidence, and cause the stock price to fall.
Why is high debt of a company considered as a bad investment?
Not necessarily. A company might have high debt because it is investing heavily in future growth (trading on thin equity). The key is whether its earnings are stable and large enough to easily cover its interest payments. The high debt might lead to higher returns for you.
What is the difference between ‘thin’ and ‘thick’ equity?
‘Thin’ equity means a company has a lot more debt than its own capital, which is a high-risk, high-reward strategy. ‘Thick’ equity means the company has more of its own capital and less debt, which is a safer, more conservative approach.
Is trading on equity the same as a Leveraged Buyout (LBO)?
They are related but not the same. Trading on equity is a general strategy any company can use for growth. A Leveraged Buyout (LBO) is a specific event where a company (often a private equity firm) uses a massive amount of debt to buy another entire company. An LBO is an extreme form of trading on equity.

September 4, 2025

Kalyan Jewellers Case Study: Business Model, Marketing Strategy & SWOT

This Kalyan Jewellers case study is an inspiring success story of the Indian jewellery industry where a regional brand started in Kerala in 1993 and today has expanded its network to international level. In this blog, we will explore the business model, marketing strategy, latest financials and detailed SWOT analysis of Kalyan Jewellers. This journey shows how a brand can make a strong reputation in the market with the help of innovation and right strategy.

Kalyan Jewellers Company Overview

Kalyan Jewellers was started in the year 1993, headquartered in Thrissur, Kerala. Initially it was a local jewellery store, which focused on selling gold jewellery in South India. At that time its business was based on trust and quality, which created a strong relationship with the customers.

Gradually the company expanded its operations and stepped out of Kerala in states like Tamil Nadu, Karnataka and Andhra Pradesh. After this, Kalyan Jewellers made its presence felt all over India and today it is one of the leading jewellery brands in the country. The brand identity is not limited to the purity of gold, but is also based on transparency and emotional connection with customers. Kalyan Jewellers is trusted for weddings, festivals, and special occasions, making it the preferred choice of millions of families.

Market Details of Kalyan Jewellers

Kalyan Jewellers Current Market Price	₹513
Market Capitalization (In INR Crores)	52,967
52 Week High	₹795
52 Week Low	₹399
P/E Ratio (x)	66.11

(Data as of 3 September 2025)

Kalyan Jewellers Business Model

Kalyan Jewellers is one of India’s largest jewellery retail chains, whose business model is based on customer trust, product quality and wide distribution network. The company has designed its operations in a way to serve every segment of the customer. Its business model is mainly based on the following points .

Multi-format retail stores : Kalyan operates multi-format retail stores, with premium outlets in major cities and mid-segment stores in smaller towns, ensuring it serves customers across all budget ranges.
Diverse product range : Offers collections in gold, diamond, platinum, polki, and silver jewellery, catering to both traditional and modern customers.
Region-specific product design : Collections are designed keeping in mind the local culture and design preferences in each region, which strengthens the connection with the customer.
Purity and transparency : Customer trust is enhanced by providing BIS hallmarking, transparent billing and clear weight-rate information.
Brand Ambassadors : Brand association with regional and national celebrities to strengthen brand recognition across states.
Value-Added Services : Gold exchange, resale of old jewellery, installment schemes and festive offers to enhance customer retention.
Omni-Channel Presence : Online platform with physical stores allowing customers to browse and purchase the collection from the comfort of their homes.
Gold Saving Schemes : To build a long-term relationship, customers are offered Gold Saving Plans to ensure repeat purchases.

Marketing Strategy of Kalyan Jewellers

Kalyan Jewellers has adopted a multi-pronged and thoughtful marketing strategy to strengthen its presence in the Indian jewellery market, bringing the brand credibility and closeness to consumers on a national level.

Celebrity Endorsements : The company has collaborated with national icons such as Amitabh Bachchan and Katrina Kaif as brand ambassadors, thereby creating an image of trust and prestige. Also, regional film stars have been associated with the brand from different states to strengthen the connection with local culture.
Muhurat Campaigns : The “Muhurat” series runs special campaigns during the wedding and festive seasons, connecting consumers to important moments in life through emotional stories.
Emotional Storytelling : The ads emphasise the importance of relationships and traditions, not just the product, thereby connecting the brand on an emotional level.
Digital Transformation : Kalyan Jewellers has adopted digital initiatives such as social media, influencer marketing and virtual catalogues to reach out to new and tech-savvy consumers.
Regional Targeting : Targeted ads are created for different states keeping in mind the local language, culture and design.
Brand Positioning : The company positions itself as a symbol of “Trust and Transparency” where the pricing policy is transparent and competitive.
Premium but Approachable : Design and quality are at a premium level but the prices are such that even the mid-tier customers can afford it.

Financial Data of Kalyan Jewellers

Income Statement

Particulars	FY 2025	FY 2024	FY 2023
Total Income	25,189	18,621	14,109
Total Expenses	23,870	17,509	13,235
EBIT	1,319	1,112	874
Net Profit	714	596	431

(The figures mentioned above are in INR crores unless mentioned otherwise)

Balance Sheet

Particulars	FY 2025	FY 2024	FY 2023
Reserves & Surplus	3,772	3,159	2,604
Current Liabilities	8,810	7,582	6,368
Current Assets	11,399	9,949	8,515
Fixed Assets	2,848	2,342	1,918

(The figures mentioned above are in INR crores unless mentioned otherwise)

Cash Flow Statement

Particulars	FY 2025	FY 2024	FY 2023
Cash Flow from Operating Activities	1,209	1,321	1,013
Cash Flow from Investing Activities	-176	-136	-383
Cash Flow from Financing Activities	-840	-1,148	-637

(The figures mentioned above are in INR crores unless mentioned otherwise)

Key Performance Indicators

Particulars	FY 2025	FY 2024	FY 2023
Operating Profit Margin (%)	5.26	5.99	6.44
Net Profit Margin (%)	2.85	3.21	3.06
ROE (%)	14.88	14.25	11.91
ROCE (%)	20.88	21.24	20.88
Debt to Equity (x)	0.69	0.79	0.97

Read Also: Best Gold Stocks in India

SWOT Analysis of Kalyan Jewellers

Strengths

Strong brand identity : Kalyan Jewellers is a trusted name in India and abroad. It has a strong presence especially in South India as it has maintained a special place in the hearts of people for decades.
Wide store network : They have stores in almost every big and small city of India, as well as in countries like the Middle East. This makes it easy to reach every type of customer.
Diverse design collection : From traditional to modern and bridal jewellery for weddings, every type of jewellery is available here which attracts people of different age groups and tastes.
Celebrity endorsement: By associating with big names like Amitabh Bachchan, Aishwarya Rai, Nagarjuna, the brand has increased both its credibility and popularity.

Weaknesses

High cost : It costs a lot to run such large stores and get celebrity endorsements, which can affect the company’s profits.
Premium price tag : Many times middle-income customers find Kalyan’s prices a bit high, due to which they hesitate to buy.
Weak online presence : More effort is needed on digital marketing and e-commerce platforms, especially keeping the youth in mind.

Opportunities

Expansion of online market : Due to increasing online shopping, there is an opportunity for the company to increase customers on a large scale.
Keeping the young generation in mind : Bringing new and cool designs for millennials and generation Z can increase the company’s sales.
Expansion in foreign markets : Strengthening its hold especially among the NRIs is a golden opportunity.

Threats

Tough competition : Competition from big names like Tanishq, Malabar Gold and local jewelers is always challenging.
Fluctuation in gold prices : When the price of gold increases or decreases too much, the customer’s purchase is affected.
Competition from counterfeit and unbranded jewellery : The presence of fake and copy products in the market can harm the credibility of the brand.

Conclusion

The story of Kalyan Jewellers shows how a brand can make a place in the hearts of people with constant hard work and smart business decisions. Their strength lies in understanding the changing trends and customer expectations with time. Like every business, they too had to face many difficulties, but they did not give up. This journey shows how with patience and right decisions a company can make its name in the industry.

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2	Reliance Power Case Study
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4	Zepto Case Study
5	Meesho Case Study

Frequently Asked Questions (FAQs)

What is the business model of Kalyan Jewellers?
The company has many stores across the country and the world and is known for its honesty and quality.
How does Kalyan Jewellers market itself?
It makes extensive use of big stars and social media so that more people can know about it.
What is the biggest strength of Kalyan Jewellers?
Strong name, more stores and a good collection of different designs.
What are the weaknesses of Kalyan Jewellers?
Expenses are high and it is a little behind in terms of online shopping.
What are the good opportunities for the company?
Increasing online sales and attracting the new generation youth.

September 4, 2025

Best Oil Marketing Companies (OMCs) in India

India is a developing economy and is also known as a consumption-oriented country. To fulfil the rising energy demand, OMCs play a vital role. They ensure the availability of fuel for both urban and rural sectors. Investment in OMCs provides you with an opportunity to participate in the country’s growth.

In this blog, we will give you an overview of the best OMC companies in India, along with the benefits of investing in this sector.

What are Oil Marketing Companies?

Oil Marketing Companies (OMCs) are companies that are primarily engaged in the refining, distribution, and marketing of petroleum products such as petrol, diesel, kerosene, LPG (cooking gas), aviation turbine fuel (ATF), lubricants, and other petroleum derivatives.

Their key activities include:

Refining crude oil into usable fuels and products.
Storing and transporting petroleum products across the country through pipelines, depots, and terminals.
Retail distribution via petrol pumps, LPG cylinders, aviation fuel stations, and bulk sales to industries.
Marketing and branding petroleum products to end consumers.

In India, OMCs are a critical link between crude oil imports/refining and the final consumer. They ensure the availability of fuel for households, vehicles, industries, and airlines.

S.No.	Best Oil Marketing Companies in India
1	Bharat Petroleum Corporation Limited
2	Hindustan Petroleum Corporation Limited
3	Indian Oil Corporation Limited
4	Reliance Industries Limited

Market Information of Oil Marketing Companies

Company	Current Market Price (in ₹)	Market Capitalisation (in ₹ crore)	52-Week High (in ₹)	52-Week Low (in ₹)
Reliance Industries Limited	1,368	18,51,106	1,551	1,115
Indian Oil Corporation Limited	141	1,98,686	184	111
Bharat Petroleum Corporation Limited	318	1,37,813	376	234
Hindustan Petroleum Corporation Limited	387	82,411	457	288

(As of 3 September 2025)

Best Oil Marketing Companies in India – An Overview

An overview of the best oil marketing companies in India is given below:

1. Bharat Petroleum Corporation Limited

BPCL was founded in 1952 as a joint venture between the Indian government and Burmah Shell. In 1976, the Indian government acquired Burmah Shell, converting BPCL into a fully owned government company. The company explores, refines, distributes, markets, and retails petroleum and petroleum-related products. The Ministry of Petroleum and Natural Gas of the Indian government is overseeing it. The headquarters of the company are situated in Mumbai.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
-11.34%	97.98%	53.25%

(As of 3 September 2025)

2. Hindustan Petroleum Corporation Limited

HPCL was established in 1974 as a result of the merger of Esso Standard and Lube India Limited. The company became the first public sector enterprise to list on the Bombay Stock Exchange in 1992. The company achieved its profit of 10644 crore, and earned the title of Maharatna status. It operates through a network of more than 17,000 petrol pumps in India, out of which 40% are in urban areas and the remaining are located on highways and in rural areas. The company has its headquarters situated in Mumbai.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
-9.62%	143.93%	187.26%

(As of 3 September 2025)

3. Indian Oil Corporation Limited

The Indian Oil Company was incorporated in 1959 in order to market petroleum products. Later in 1964, it merged with Indian Regiments Limited and formed Indian Oil Corporation Limited. During the 1970s and 80s, it was considered the largest refinery and marketing company in India. Later, the company diversified its business into petrochemicals, pipelines and started its overseas operations. It works under the Ministry of Petroleum and Natural Gas, and it was awarded the status of Maharatna Company. The company has its headquarters situated in New Delhi.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
-21.16%	96.92%	146.44%

(As of 3 September 2025)

4. Reliance Industries Limited

Mr. Dhirubhai Ambani founded the company in 1966, and it became a publicly listed company in 1977. It began its expansion into the petrochemical industry later in 1980. After the death of founder Dhirubhai Ambani in 2002, Reliance was divided between his two sons. Mukesh Ambani continues to lead Reliance Industries Limited, which remains focused on petrochemicals, refining, retail, and telecom. However, the company’s core business is petrochemicals. The company is also making significant investments in the renewable energy sector. The company has its headquarters situated in Mumbai.

Know the Returns:

1Y Return (%)	3Y Return (%)	5Y Return (%)
-10.17%	8.06%	28.51%

(As of 3 September 2025)

Key Performance Indicators (KPIs)

Company	Operating Profit Margin (%)	Net Profit Margin (%)	ROE (%)	ROCE (%)	Debt to Equity
Reliance Industries Limited	13.50	8.37	8.25	8.70	0.41
Indian Oil Corporation Limited	2.99	1.58	7.29	8.22	0.76
Bharat Petroleum Corporation Limited	4.73	2.72	16.38	16.30	0.63
Hindustan Petroleum Corporation Limited	2.87	1.57	13.16	12.67	1.30

(As of March 2025)

Read Also: Indian Oil Case Study

Benefits of Investing in Oil Marketing Companies

The significant benefits of investing in oil marketing companies are as follows:

Consistent Demand: OMCs deal with important fuels such as petrol, diesel, etc., which are always in demand, no matter what the condition of the economy. Regular earning is made possible due to constant demand.
Government Incentives: OMC companies receive financial and policy support from the government, due to which their operational risk is reduced.
Dividend: Public sector oil marketing companies generally distribute their profit in the form of dividends, which can be a regular source of income for a conservative investor.

Factors to be considered before investing in Oil Marketing Companies

The following are the factors which need to be considered before investing in oil marketing companies:

Volatility in Crude Oil Price: The raw material for OMCs is crude oil prices of which fluctuate due to various factors, including global economic factors, etc. A sudden rise in crude oil prices may impact the profit margin of these companies.
Exchange Rate: Crude Oil is imported from different countries, the prices of which are to be paid in USD. A weak rupee can increase the input cost and reduce the profit margin of the company.
Geopolitical Risk: The conflict among the countries of the Middle East and the decision by OPEC can affect the demand and supply of crude oil globally.

Future of Oil Marketing Companies in India

The government of India is importing more oil and gas to meet the country’s expanding energy needs. Due to the industry’s dependence on imports, a number of companies were looking into possibilities for investment. Since the demand for petroleum products has increased by 6.1% year over year, the demand for natural gas has increased by 6.4%. The government aims to raise the refining capacity to 450 million metric tonnes annually (MMTPA) by 2030. Therefore, India’s oil and gas industry has a bright future.

Conclusion

Investing in oil and gas companies offers an opportunity to participate in India’s economic growth, as energy demand continues to rise. However, the increasing adoption of electric vehicles worldwide presents a long-term challenge to the sector. To adapt, many OMCs are expanding into EV charging infrastructure and renewable energy. At the same time, investors should remain mindful of risks such as crude oil price volatility, currency fluctuations, and policy changes. Hence, it is always advisable to consult a qualified financial advisor before making any investment decision.

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1	List Of Best Healthcare Stocks in India
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3	List Of Best Footwear Stocks in India
4	List Of Best Logistics Stocks in India
5	List of Best Liquor Stocks in India

Frequently Asked Questions (FAQs)

What are some OMC stocks listed in the Indian stock market?
The companies like Reliance Industries Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited, and Indian Oil Corporation Limited are engaged in the distribution and sale of oil and related products.
What does the OMC sector refer to in the Stock Market?
OMC or Oil Marketing Companies are known as those companies which are involved in refining, distributing, and marketing of petroleum products such as petrol, diesel, etc.
What are the key risks included while investing in OMCs?
The key risks while investing in OMCs are volatility in the crude oil price, exchange rate fluctuations, government policy changes, and shift toward electric vehicles.Q4. Does the government of India own all
Does the government of India own all OMCs?
Yes, except for Reliance Industries Limited, all the other OMCs, such as BPCL, HPCL, and IOCL, are owned by the government of India.
Do public sector OMCs pay dividends?
Yes, public sector OMCs like BPCL, IOC, and HPCL pay regular dividends to their investors. Hence, they are suitable for investors who are looking for regular income.

September 3, 2025

How to Buy NCDs in India?

Investors in India are now looking for options that offer fixed returns, are safe and give better income than FDs and this is where NCDs or Non-Convertible Debentures have emerged as a strong option. Amidst rising interest rates and market volatility in 2025, NCDs are becoming a popular option among investors for a stable and reliable income.

If you want to know what NCDs are, how they work, and how you can buy them online, then this guide is for you.

What are NCDs?

NCDs, or Non-Convertible Debentures, are debt instruments in which you lend money to a company for a fixed period in return for a fixed interest rate. This is a fixed income investment like a bank’s fixed deposit (FD), but the returns may be slightly higher.

NCDs are called “non-convertible” because they cannot be converted into company shares in the future. That is, it is completely a loan which the company takes from you and returns the principal amount along with interest to you on the fixed date.

Which companies issue NCDs?

In India, NCDs are usually issued by large corporate companies and NBFCs (Non-Banking Financial Companies). When these entities need capital for business, they raise funds from common investors through NCDs instead of taking a loan from a bank. These issues are regulated by SEBI, which ensures transparency and fair process. However, repayment of interest and principal depends entirely on the issuing company. Every public NCD issue is preceded by an official document called a prospectus, which contains complete details of how much the company is borrowing, for how many years, at what interest rate and on what terms.

How many types of NCDs are there?

There are mainly two types of NCDs: Secured NCDs and Unsecured NCDs.

Secured NCDs : Secured NCDs are such debentures in which the company assures the investors that if it fails to pay the interest or principal on time, then the investors’ money will be paid by selling its assets. To understand it in simple language, there is some asset or guarantee of the company behind these NCDs.

Unsecured NCDs : In unsecured NCDs, the company does not give any guarantee that if it fails to pay the money, how will your money be safe. That is, there is no asset backup behind these debentures.

If the company defaults on such NCDs, it may be difficult for investors to get the money. For this reason, the interest rate on these is often high so that the attractiveness remains in return for the risk.

Why is a credit rating important?

Every NCD is given a rating by a credit rating agency (like CRISIL, ICRA, CARE) which indicates how reliable the company is. A AAA rating is considered the safest, while BBB or lower ratings indicate higher risk. So, before investing in any NCD, make sure to check its rating – this will determine your returns and safety.

Why Consider Buying NCDs?

In an environment where the market is volatile and the interest rates of traditional investments like FDs have become limited, NCDs are becoming a stable and reliable source of income. If you want regular income and want to invest by keeping a little distance from risk, then NCD can be a better option. Know its features below:

Reliable income with fixed interest rate : NCDs give you a pre-determined interest rate, due to which the investment return is clear from day one and the return on investment is not affected by market volatility.
Better returns than FDs : Today many companies are offering interest up to 8% – 10%, which is much higher than the normal bank FD especially on long-term investments.
Regulatory security and transparency : Being regulated by SEBI, the process of NCDs is clear and secure, which gives additional confidence to investors.
Flexible interest payment options : You can choose to take interest every month, quarterly or lump sum on maturity as per your need.
Easy buying and selling on the exchange : If you have invested in a listed NCD, you can sell it on NSE or BSE if required thus ensuring liquidity.

How to Buy NCD in India: Step-by-Step Process

If you want to invest in NCDs, then read the easy steps given below carefully.

Step 1: It is necessary to have an active demat account

NCDs are credited to your demat account just like shares. If you do not have a demat account, you can easily open an account with a trusted platform like Pocketful. The entire process is digital and is completed in a few minutes.

Step 2: Keep an eye on upcoming NCD issues

Every month some companies issue new NCDs. You can see their information in the “Upcoming NCDs” section on NSE India, BSE India, SEBI website. From here you get the issue date, interest rate, and other important information in advance.

Step 3: Analyze the NCD Issue

Before investing in NCD, definitely see what is the credit rating of that company, what is the interest rate, for how many years, and what will be the method of interest payment. Be careful if an issue is offering unusually high interest but has a low rating.

Step 4: Apply during public issue

When a new NCD issue opens, you can apply online. All you have to do is login to the app or website and apply in the relevant issue. You can make the payment through UPI or net banking. Usually the minimum investment amount is ₹10,000.

Step 5: You can also buy from the secondary market

If an issue is already listed, you can also buy it in the secondary market from NSE or BSE. For this, search by entering the name or ISIN of the relevant NCD. From here you can also see its last traded price, yield-to-maturity (YTM) and liquidity.

Important Factors to Check Before You Buy NCDs

Before investing in NCDs, it is very important to understand some important things, because investing only by looking at the high interest rate can cause loss in the future. By keeping in mind the points mentioned below, you can take a better and safer decision.

Credit rating : The most important aspect of any NCD is its credit rating. This rating is given by agencies like CRISIL, ICRA, or CARE and it tells whether the company will be able to return the interest and principal on time or not. AAA rating is considered the safest, while A or BBB rating has some risk attached. It is wise to stay away from issues with a lower rating than this.
Coupon rate vs inflation : Whatever be the interest of NCD, the real benefit from it is only when it is above inflation. If the coupon rate of NCD is 9% but inflation is running at 6%, then your real return will be considered only 3%. Therefore, along with the interest rate, definitely look at the inflation trend.
Tenure and liquidity : Every NCD has a fixed maturity period some are 1 year and some are 5–10 years. Pay attention to whether the NCD is listed on the exchange (NSE/BSE), and what its trading volume is. Because if you need, will you be able to sell it before time?
Call and put option : Some NCDs have a call option, through which the company can return the money before the stipulated time. At the same time, the put option also gives the investor the right to get the money redeemed from the company at the stipulated time. So before applying, check whether there is any early redemption clause.
Secured or unsecured : If the NCD is secured, then your money is protected by the company’s assets. But if the NCD is unsecured, then it may be difficult to get the money if the company defaults. So understand the structure of the NCD and if needed, give preference to secured NCDs.

Where to Track Your NCD Investments?

After investing in NCDs, it is important to keep monitoring your portfolio. This will ensure you get accurate information about interest payments, maturity date and holding value. You can easily track your investments through the following means:

Demat account and broker platform : If you have invested through a platform like Pocketful, you can track your investment live by going to the holdings section of the app or website.
Consolidated Statement of CDSL/NSDL : Every month, CDSL or NSDL sends a consolidated account statement (CAS) containing complete details of all your demat investments be it shares or NCDs. You can download it via email or portal.
Interest statement for tax : At the end of the year, the details of interest received on NCDs are sent to you by your broker firm or company. This interest statement is very useful to you at the time of tax filing, because interest income is added to your income.

Tax Implications of NCDs in India

Interest from NCDs is included in your other income and is taxed as per your income tax slab whether you are in the 5%, 20% or 30% tax bracket. There is no indexation or exemption for it in FY 2024–25

TDS mechanism – who deducts, when and how much?

If the aggregate of NCD interest paid by a company in a financial year exceeds ₹10,000, the company applies 10% TDS under Section 193 or 194A. This rate can go up to 20% if you do not provide PAN. But if your total taxable income is below the minimum limit, TDS can be avoided by filing Form 15G/15H.

Capital Gain Tax – When you sell NCDs

If you sell a listed NCD before 12 months, it is called Short‑Term Capital Gain (STCG) and will be taxed as per your income slab.
If you sell after 12 months, it becomes Long‑Term Capital Gain (LTCG), which is taxed at 12.5% (without indexation) in FY 2024–25. Note that indexation benefit is not available on NCDs.

TDS exemption – special facility for senior citizens

As per Budget 2025, TDS exemption on interest income for senior citizens (60+) has been increased to ₹1,00,000 This improves their cash flow and reduces their tax burden.

Pros and Cons of Buying NCDs

Pros

Higher returns than FDs : NCDs often offer higher interest rates than Fixed Deposits such as 9%-11%, which can improve your returns.
Regular and fixed income : These debentures pay interest at a fixed interval monthly, quarterly or annually. This gives you a predictable cash flow.
Variety of investment options : In NCDs, you can choose the option according to your needs such as secured vs unsecured, or short-term vs long-term.
Trading possible due to listing on the exchange : You can buy/sell listed NCDs in the secondary market, which also provides some liquidity.

Cons

Risk of default : If the company gets into a financial crisis, there may be a default in returning the interest or principal. Unsecured NCDs have higher risk.
Premature withdrawal is not possible : NCDs have a lock-in period and unlike FDs, you cannot break it in the middle. Yes, you can sell it in the secondary market once it is listed, but that is also not easy.
Low liquidity : Not every NCD finds a buyer in the secondary market, due to which liquidity risk remains.
Market risk and rating downgrade : If the company’s credit rating goes down, then both the value and demand of your NCD can fall.

Conclusion

NCDs have become a sensible investment option in today’s times for those who want stable earnings but prefer to stay away from the volatility of the stock market. If you invest after carefully understanding the rating of the company, interest rate and tenure, then it can be a reliable investment for the long term. But it is most important to gather information before every investment and take a wise decision.

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Frequently Asked Questions (FAQs)

What is an NCD?
NCD is a fixed return investment, which is issued by a company.
How to buy NCD online in India?
You can buy NCDs online from platforms like Pocketful, only a Demat account is required.
Are NCDs safe?
High-rated secured NCDs are considered relatively safe, but there is some risk.
What is the current NCD interest rate in 2025?
The rate of NCDs in FY2025 is around 8% to 10.5%.
Can I exit NCDs before maturity?
Yes, you can sell listed NCDs before maturity.

September 3, 2025

What is Volatility Arbitrage?

Stock prices do not always move upward or downward consistently. Instead, they often experience volatility, meaning frequent fluctuations. Some traders use this volatility as an opportunity through a strategy known as volatility arbitrage. Unlike traditional trading methods that rely on price direction, this strategy focuses on profiting from the market’s unpredictable behavior.

In this blog, we will understand what a volatility arbitrage strategy is, how it works and why it is becoming increasingly popular among traders.

Basic understanding of Volatility

Volatility is a statistical measure of the degree of variation in the price of a financial instrument over time. In simple terms, it reflects how much and how quickly prices move. When the price of a stock or index fluctuates very rapidly, it is called “high volatility”. Whereas when the movement is less, it is called “low volatility”. But volatility is not just the movement of prices, but it is also an indication of risk and uncertainty.

Implied Volatility vs Historical Volatility

Implied Volatility (IV): This is an estimate of the volatility that is already linked to the price of the option. That is, it gives us an idea about what traders think about how volatile the prices can be in the future.
Historical Volatility (HV): This is based on the movement of a stock in the past days, that is, how much fluctuation happened earlier.
Realized Volatility (RV): Actual volatility observed after the trade or over the chosen holding period.

It is very important to understand the difference between them, because the base of volatility arbitrage rests on this difference.

Role of volatility in option pricing

Volatility directly affects the price of an option. High volatility = expensive options, and low volatility = cheap options. Therefore, understanding volatility in option trading is as important as understanding price trends.

Tools to measure volatility

VIX Index (India VIX): Estimate volatility coming from Nifty options
IV Chart: To track the implied volatility of a stock or index
Option Chain Analysis: IV and premium comparison

Sometimes the stock price remains stable, but volatility increases. For example the week before the results. The stock is not moving much, but investors are feeling uncertainty, which increases IV.

To understand the volatility arbitrage definition properly, it is first necessary to understand the behavior of this volatility. This is the first step to moving towards strategies like volatility arbitrage.

What is Volatility Arbitrage?

Volatility arbitrage is a trading strategy that focuses more on the uncertainty of a stock or index rather than its price movement. In this strategy, traders compare the volatility estimates hidden in the price of options with the fluctuations in the real market. When there is a difference between the two, that is where the trading opportunity arises.

This strategy is considered special because in this, no bets are placed on whether the price will go up or down. In this, traders focus on how much the market will move, i.e. how much volatility it will have. For this reason, it is also called a market-neutral strategy, which provides protection from directional risk to a great extent.

In which instruments is this strategy used?

Volatility arbitrage is used in many different markets, such as:

Equity options : based on a single stock (e.g. HDFC, TCS)
Index options : based on broader markets (e.g. NIFTY, BANKNIFTY)
Commodity options : like gold or crude oil
Currency options : like USD-INR

Most professional traders in India apply it to index options as they have both high liquidity and volatility.

How does Volatility Arbitrage work?

Identification: First, options are found in which the volatility estimate (IV) is higher or lower than the reality.
Creating a position: An option trade setup is created that is delta-neutral, i.e., does not have much impact on the directional move.
Hedging: The option trade is hedged by taking a position in the underlying asset.
Realization: As time passes, the actual volatility in the market is revealed. If it matches your estimate, you make a profit.
Understand with a simple example : Suppose the option price of a stock is indicating that there can be a huge movement in the next month (IV is high), but you think that the movement will be less by looking at the past data and the current environment. In such a situation, you can sell that option. If the stock actually remains stable, then the value of the option falls and you make a profit.

How Volatility Arbitrage Strategy Works – Step-by-Step Guide

To understand the volatility arbitrage strategy, it is important to look at it in stages. It is not a simple trading, but every step is a well-thought-out risk and mathematical planning. The complete process of its working is given below in detail:

Step 1: Identify mispricing in volatility

Identify mispricing in volatility by checking where Implied Volatility (IV) is much higher or lower than Historical Volatility (HV). Later, during the trade, compare IV against Realized Volatility (RV) to see if your forecast was correct.

Step 2: Create a Delta-Neutral position

Once you have found the opportunity, the next step is to create a delta-neutral setup. In this, an option structure is chosen in which the effect of directional movement is minimal. For example:

Long straddle
Short strangle

The idea is that the price moves up or down, and profits are based solely on volatility.

Step 3: Hedge the Underlying

Maintaining a delta-neutral position requires that you buy/sell the underlying asset in the correct amount. This neutralizes directional risk to a large extent and you are actually betting only on volatility.

Step 4: Monitor Implied vs Realized Volatility

It is important to constantly analyze the changes in IV and RV during the trade. If you have taken a long volatility position, you want RV to increase. And if you have a short volatility position, you want RV to remain stable or low.

Step 5: Exit at the right time

As soon as the volatility in the market changes as per your expectations, or the mispricing of the option ends, that is when you should close the trade. Delaying can reduce profits or increase the risk of going in the wrong direction.

Common Volatility Arbitrage Strategies

Volatility arbitrage strategy can be adopted in many forms according to different trading conditions. Here we will understand some common strategies popular in India and used by professionals, which help in earning profit from the difference between implied and realized volatility.

1. Long Volatility Arbitrage

When the Implied Volatility (IV) of an option is very low and you feel that there will be a sudden big movement in the market (e.g. earnings, budget, RBI policy), then you use Long Vol Arbitrage. In this, ATM or OTM call and put options are bought, such as Long Straddle or Strangle.

Objective: To earn profit in option premium due to increase in volatility.

2. Short Volatility Arbitrage

When IV is very high but the actual volatility in the market is likely to remain stable, then this strategy is adopted. In this, the trader sells options — such as Short Strangle or Iron Condor. This is beneficial when the market remains sideways or less volatile.

Objective: Earn money from the fall in option premium due to decrease in volatility.

3. Volatility Spread Arbitrage (Statistical Arbitrage)

It involves taking trades by looking at the volatility spreads between two related stocks or indices. For example, in NIFTY and BANKNIFTY, if the IV of one has increased sharply and the other has not, then a statistical arbitrage setup can be created by going long one and shorting the other.

Example: IV spike in BANKNIFTY and stability in NIFTY – benefit of volatility spread here.

Option Spreads for Volatility Arbitrage : Some traders use calendar spreads (buy/sell at different expiry) or ratio spreads (multiple contracts) to profit from volatility while reducing directional risk.
Calendar Spread: When near-month IV is low and far-month IV is high
Ratio Spread: When expected move is limited and IV is likely to fall

Tools and Indicators Used by Arbitrage Traders

A strategy like volatility arbitrage is based not just on concepts but on accurate tools and real-time data. Today, there are platforms available that provide traders with all the tools they need to make volatility-based decisions. Below, we discuss the core indicators and features that make this strategy professional and practical.

Implied Volatility (IV) Analysis : Implied volatility is the predictions that the market makes about the future price movement of an asset. A good IV Scanner provides strike-wise and expiry-wise breakdowns to detect hidden mispricings within options which is crucial for volatility arbitrage.
Option Greeks Panel : Greeks like Delta, Vega, and Gamma help manage volatility arbitrage, especially Vega, which shows the sensitivity of the option to changes in IV. A smart Greeks panel keeps your positions balanced and risk-neutral by showing real-time exposure.
Volatility Surface Visualization : The IV Surface is like a 3D map that shows volatility behavior at different expiries and strikes. This makes it easy to spot unusual distortions and arbitrage-worthy gaps which are difficult to detect manually.
Strategy Builder with Backtesting : Multi-leg strategies are common in volatility arbitrage. An intuitive strategy builder allows creating complex structures such as calendar spreads, straddles or Vega-neutral setups without coding knowledge. Backtesting on real market data gives confidence before execution.
Real-Time Volatility Tracker : The market moves fast and volatility-based signals do not last long. A centralized dashboard that live tracks IV changes, option spreads and unusual activity making arbitrage decisions fast, data-backed and confident.

Challenges & Risks in Volatility Arbitrage

Volatility arbitrage is a well-known strategy, but it is extremely difficult to execute correctly. Here are some of the challenges that often impact traders in the live market:

Market Liquidity and Wide Spread Impact : Options contracts do not have equal liquidity at every strike. Sometimes you have to trade at such a wide bid-ask spread that losses start as soon as you take a position. This makes short-term arbitrage opportunities practically ineffective.
Execution Speed and Platform Reliability : This strategy demands ultra-fast execution without delay. If your terminal is slow or there is lag in order flow, the edge is completely lost. Hence, a system that can provide stable execution in real-time is a must.
Error in Volatility Forecast and Vega Risk : This strategy relies on the estimation of implied volatility. If the future movement of volatility is misread or Vega exposure is high, the entire position is at risk. Hence, it is important to constantly monitor the Greeks.
Difference between Realized and Implied Volatility : Sometimes the volatility you expect while entering a trade does not come in the market later. Due to this mismatch, the strategy can give losses even though it looks neutral.
Breaking News and Sudden Volatility : Events like earnings, RBI announcements or global tension can suddenly increase or decrease volatility. In such a situation, if hedge or risk controls are not set, capital can be eroded quickly.
Constant Monitoring and Active Management : This strategy is not something to be set up and left. It requires constant monitoring – Greeks, exposure, volatility shift and PnL tracking. In such a situation, a good terminal like Pocketful’s trading dashboard helps a lot, which provides real-time volatility tracking, live Greeks analysis and scalping tools.

Volatility arbitrage seems simple on paper, but is equally demanding in the live market. This is not just a strategy, it is a full-time active process in which execution, analytics and speed all contribute equally.

Conclusion

Volatility arbitrage is a thoughtful and advanced strategy that monitors the movement within the market, not just the direction of the price. It is effective only for those traders who understand the data deeply and use the right tools. But entering it without preparation or understanding can be harmful. Therefore, it is important to approach this strategy with good study, proper risk management and discipline before adopting it.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Arbitrage Mutual Funds – What are Arbitrage Funds India \| Basics, Taxation & Benefits
2	Arbitrage Trading in India – How Does it Work and Strategies
3	Reverse Cash and Carry Arbitrage Explained
4	Commodity Trading Regulations in India: SEBI Guidelines & Impact
5	Top Algorithmic Trading Strategies

Frequently Asked Questions (FAQs)

What is volatility arbitrage in simple terms?
When a trader tries to make a profit by predicting the volatility of the market, it is called volatility arbitrage.
Is volatility arbitrage risky?
Yes, if the prediction is wrong or the data is not correct, then this strategy can be harmful.
Do I need advanced tools for this strategy?
Yes, real-time data and fast execution tools are very important for this strategy.
Can beginners use volatility arbitrage?
Beginners should first learn basic strategies, then gradually adopt such advanced strategies.
Is volatility arbitrage legal in India?
Yes, it is legal as per SEBI rules, as long as you follow fair practices.

September 3, 2025

What is Nominal Yield?

If you’ve ever explored the bond market, you’ve likely come across the term nominal yield. While it might sound technical at first, the concept is actually quite straightforward.

In this blog, we’ll break down what nominal yield means, how to calculate it step by step, when it’s useful, etc. Whether you’re new to bonds or simply refreshing your knowledge, this guide will help you understand nominal yield with ease.

Understand the Nominal Yield

The interest amount a bond pays you annually expressed as a percentage of its face value is known as the nominal yield, or coupon yield. It is calculated by dividing the annual coupon payment by the bond’s face value. Nominal yield does not take into account the bond’s market price, purchase price, or holding period.

Some Points to Remember:

The nominal yield remains constant regardless of the bond’s market price.
Buying the bond for more or less than its face value has nothing to do with your nominal yield.
Additionally, you should consider factors like the yield to maturity (YTM) and current yield if you want a better idea of your actual earnings.

Nominal Yield Formula

Nominal Yield = (Annual Coupon Payment / Face Value of the bond) * 100

where,

Annual coupon payment is the fixed interest amount the bond pays you every year.
Face Value is the original value of the bond

Step-by-Step Calculation

Suppose you have a bond that is worth ₹1,000 and every year it pays you ₹80 as interest or coupon payments, which is called the annual coupon.

Step 1: Find out the annual coupon payment

This is the interest amount the bond pays you every year. In this case, it’s ₹80.

Step 2: Find out bond’s face value

The face value (also called par value) is the original value of the bond, i.e., the amount the issuer agrees to repay the bondholder at maturity. In most cases, bonds are issued with a face value of ₹1,000 (sometimes ₹100 for smaller bonds). In this example, it is ₹1,000.

Step 3: Apply the Formula

So here:

Nominal Yield = (80 /1000) × 100 = 8%

Step 4: What does that mean?

It means that your bond will pay you 8% of its face value of ₹1,000 each year. As long as you keep the bond, you will receive ₹80 every year.

Uses of Nominal Yield

1. Immediate Bond Comparisons

Are you having trouble choosing between several bonds? You can quickly figure out which one pays higher interest based on face value by looking at nominal yield.

For instance, you already know that Bond B pays you more annually, without using a calculator if Bond A has a nominal yield of 7% and Bond B has 9%.

2. A Simple Method to View Your Interest Income

Simply put, nominal yield indicates how much money you will receive annually from the bond. It is helpful when all you want to know is, “How much will I earn?

3. Effective, If the Bond Is Up to Par

Nominal yield actually provides you with a fairly accurate picture of your return if the bond is selling for the same price as its face value.

4. Ideal for New Investors

Nominal yield is a simple way for beginners to understand bond returns. It shows the fixed annual interest as a percentage of the bond’s face value, without involving complex calculations or market price fluctuations.

5. Useful for Financial Planning

Nominal yield makes financial planning easier if you are looking for a steady income by estimating how much you will receive annually.

Read Also: What are Bond Yields?

Difference between Nominal Yield & Current Yield

Feature	Nominal Yield	Current Yield
Definition	The bond’s fixed yearly interest based on face value	The return you’re getting right now based on the market price of the bond
Formula	(Annual Coupon ÷ Face Value) × 100	(Annual Coupon ÷ Market Price) × 100
What’s it based on?	The original value of the bond (face value)	The actual market price of the bond
Does it change?	No, it stays the same	Yes, it moves as the bond’s market price changes
Good for beginners?	Absolutely. very simple to understand	Yes, but you need to know the bond’s market price
Consider Market Price?	No	Yes

Limitations of Nominal Yield

1. It overlooks the true cost you incurred

Nominal yield doesn’t consider the bond’s purchase price; it only considers its initial (face) value. Therefore, the return on investment isn’t as high or low as it might appear if you purchase a bond for more or less than its face value.

2. Ignores the Bond’s Remaining Time

The nominal yield remains constant whether a bond matures in two years or twenty.

3. Ignores the Wider Picture

Nominal yield solely considers the annual interest you receive. It doesn’t account for things like;

Variations in the market value of the bond
If you decide to reinvest the interest
Any increase or decrease in capital
Or even inflation

4. It is Not Very Helpful If the Bond Isn’t Real

Particularly in the secondary market, most bonds are not traded at their exact face value. The nominal yield may provide a completely inaccurate picture of the true return if a bond is being sold at a premium or discount.

5. It is Not the Best Option for Long-Term Planning

It is not the most reliable figure if you plan on investing long-term because it leaves out a lot of information, such as future interest rate changes or how long you will hold the bond.

Read Also: What is Coupon Bond?

Conclusion

If you want to quickly gauge how much interest a bond pays annually, nominal yield is good. It is simple, easy to understand, and ideal for situations in which a bond is trading at face value.

But remember, it just gives you an overview. The expected total return, the number of years you will hold the bond, and the actual price you paid are not considered. For a more complete picture, you should also consider other metrics like yield to maturity (YTM) and current yield.

The bottom line? Nominal yield is a useful starting point, but it should not be the only factor in your decision-making. Think of it as the starting point for smarter, more informed bond investing.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	What Is Bowie Bond (Music Bonds)
2	Detailed Guide on Bond Investing
3	What Are Corporate Bonds?
4	CAT Bonds: An Easy Explainer
5	Electoral Bonds Explained

Frequently Asked Questions(FAQs)

Is the nominal yield just another word for the interest rate?
Yes! The coupon rate is also known as the rate the bond promises to pay each year.
Is it possible for nominal yield to change over time?
No! Even if the market price goes up or down, it stays the same for the life of the bond.
What sets apart current yield from nominal yield?
Current yield is based on the bond’s current market price, which is generally more accurate than nominal yield, and is based on the bond’s face value.
Is nominal yield useful if I did not pay full price for the bond?
Not really. If you bought the bond for less or more than its face value, the nominal yield does not reflect how much money you actually made.
Do zero-coupon bonds have a yield?
No! They do not have a nominal yield because they don’t pay interest every year.

September 2, 2025

How to Calculate F&O Turnover for Trading?

If you trade in F&O i.e. futures and options, then it is very important for you to understand the F&O turnover calculation. It is not only necessary for income tax filing, but it also determines whether you have to get a tax audit done or not. Often people get confused about how to calculate F&O turnover, or whether premium should be included in option turnover calculation or not.

In this blog, we will explain to you in simple language how the turnover is calculated for intraday trading and F&O trading, and how it can be calculated correctly.

What is F&O Turnover in Trading ?

F&O turnover means the total absolute value of profit and loss in futures and options trading, that is, the figure obtained by adding the profits and losses in all the trades done in the whole year without any plus or minus. From the point of view of income tax, F&O trading is considered non-speculative business income, so knowing its turnover is important for many tax related matters – such as the need for tax audit, choosing the right ITR form and taking advantage of the presumptive scheme under section 44AD.

For example, suppose you made two deals in futures trading – the first one resulted in a profit of ₹30,000 and the second one resulted in a loss of ₹20,000. In such a case, the turnover will be considered as ₹50,000 (₹30,000 + ₹20,000). Here only the absolute value is taken, that is, the loss is also added by adding plus.

If we talk about option trading, then along with the absolute value of profit and loss, the premium of the option sold is also added to the turnover. For example, if you sold an option at a premium of ₹ 50 and incurred a loss of ₹ 1,500, then the total turnover will be considered as ₹ 1,550. However, many brokers already add the premium to the P&L in their reports, so it is important to read the report carefully before adding it again.

Segment-wise calculation for F&O turnover?

Calculating turnover is an important process in F&O or Futures & Options trading, especially when you have to decide whether you need to get a tax audit done or not. The method of calculating turnover is different for each segment Futures, Options, and Intraday. Its complete information is given below:

How to Calculate Turnover in Futures Trading?

To calculate turnover in the Futures segment, all the profits and losses of the year have to be added to the absolute value. That is, whether it is profit or loss, both are considered positive and added.

Formula : Futures Turnover = Absolute Profit of all trades + Absolute Loss

Example: If there is a profit of ₹ 40,000 in one trade and a loss of ₹ 25,000 in the other, then the turnover will be ₹ 65,000.

Trade Number	Profit/Loss	Calculation (Absolute Value)
Trade 1	₹40,000 Profit (+)	₹40,000
Trade 2	₹25,000 loss (-)	₹25,000
Total Futures Turnover		₹65,000

How to calculate turnover in options trading?

While calculating turnover in options, two things are added:

Absolute value of all profits and losses
Premium received from option sale (writing)

Formula : Options Turnover = Premium received on sale + Absolute profit/loss from trades

Example: If you sold an option at a premium of ₹120,000 and Trade 1 : ₹10,000 profit Trade 2 : ₹5,000 loss, then the total turnover will be ₹135,000.

Trade Details	Profit/Loss	Calculation (Absolute Value)
Premium received on sale	₹1,20,000	₹1,20,000 (premium received on option sold)
Trade 1	₹10,000 Profit (+)	₹10,000
Trade 2	₹5,000 Loss (-)	₹5,000
Total Options Turnover		₹135,000

Calculation of F&O turnover in intraday trading

If you have bought and sold Futures or Options in a single day (Intraday), then it is considered a speculative trade. In such a situation, while calculating turnover, the profit and loss of all trades have to be added to the absolute value.

Example: ₹6,000 profit and ₹3,000 loss – turnover will be ₹9,000.

How to calculate turnover in intraday trading?

Intraday trading, i.e. when you buy and sell shares on the same day (do not take delivery), the method of calculating turnover is slightly different. Here also, not net profit/loss but absolute value is added.

Intraday Turnover = Absolute Profit + Absolute Loss of all trades

Trade Details	Profit/Loss	Calculation (Absolute Value)
Trade 1	₹5,000 Profit (+)	₹5,000
Trade 2	₹3,000 Loss (-)	₹3,000
Trade 3	₹2,000 Profit(+)	₹2,000
Total Turnover		₹10,000

F&O Turnover calculation for Income Tax Filing

F&O or Futures & Options trading is considered non-speculative business income. This means that if you make a profit or loss in F&O, then it has to be shown as business income in the income tax return for this, ITR-3 form is usually filled.

When is a Tax Audit necessary?

Turnover (annual turnover)	What is your declared profit?	Is audit necessary or not?
₹10 crore or less	Profit is 6% or more (in digital transactions)	No audit required
₹10 crore or less	Profit is 8% or more (in cash transactions)	No audit required
₹10 crore or less	Profit is less than 6%/8% or there is continuous loss	Audit is mandatory (Section 44AB applicable)
Above ₹10 crore	Irrespective of the profit	Audit is necessary in all circumstances

“F&O turnover is below ₹2 crore, and you declare profits of at least 6% or more of turnover under Section 44AD.

If Turnover is between ₹2 Crore and ₹10 Crore and more than 95% of transactions are digital, a tax audit is not necessary, regardless of profit or loss (Section 44AB).

– In these two cases audit is not required”

Common Mistakes in F&O Turnover Calculation

While calculating F&O turnover, many traders make some important mistakes, which can later create problems in income tax filing. Due to lack of correct calculation, there is not only the risk of filling the wrong ITR form, but an audit may also be required.

Considering contract value as turnover: Many people assume that the entire contract value of futures or options is their turnover. Whereas in reality, only profit or loss (which has actually occurred) is added for turnover calculation.
Ignoring option premium: It is necessary to include the premium received on options sold in the option turnover calculation. Just taking the difference of buy/sell price is not enough.
Excluding loss transactions from calculation: Traders often focus only on profit and ignore losses. Whereas in F&O turnover calculation, both profit and loss have to be added in the absolute value.
Choosing the wrong ITR form: Due to incorrect calculation of turnover, many times traders choose the wrong ITR form, like filling ITR-2 or ITR-4 instead of ITR-3, which may later lead to a notice.

Real-Life Scenarios: How Traders Handle Turnover Calculation

Every trader has a different trading strategy, some trade less frequently, some trade high volumes daily. These habits determine the calculation of turnover and the requirement for a tax audit. Below are some real-life cases that will help you understand turnover.

Case 1: Low Volume F&O Trading

If a few F&O trades are made on a monthly basis and the total turnover is less than ₹10 lakh and the profit is also below the basic exemption limit, then a tax audit is not required. The return can be filed easily through ITR-3 form.

Case 2: High Volume Intraday + F&O

If intraday or option trading is done on a daily basis and the turnover reaches ₹2 crore or more, then tax audit becomes mandatory irrespective of how low the profit is as the turnover threshold has been crossed.

Case 3: High Premium Income from Selling Options

If option selling is done on a regular basis, and a premium of lakhs of rupees is generated from it, then that entire premium is counted in the turnover. Due to this, the turnover limit can be exceeded quickly, and in such a case also it becomes necessary to get an audit done, irrespective of the actual profit or loss.

Conclusion

A correct understanding of F&O turnover is not only important while filing taxes but is also crucial for transparency and long-term compliance of your trading activities. Whether you are doing intraday trading or dealing in options, ignoring turnover calculations can prove costly. Hopefully this guide has given you clear and updated information so that you can do tax planning with confidence and avoid mistakes while filing income tax returns. Correct calculation is the first step towards correct taxes and a strong financial plan.

Frequently Asked Questions (FAQs)

What is F&O turnover in income tax?
F&O turnover includes profit/loss of closed trades and sale value (premium) of options.
Is audit required for F&O turnover?
Yes, if annual turnover exceeds ₹10 crore or if profit is less than 6%/8% of turnover (depending on digital transaction percentage).
How to calculate F&O turnover for ITR?
Turnover is calculated by adding premium received of options and profit/loss of closed trades.
Which ITR form for F&O trading?
ITR-3 is mandatory as F&O income is classified as non-speculative business income.
Is F&O income a business income?
Yes, it is considered as non-speculative business income.

September 2, 2025

Blog

What is Forward Marketing?

Forward Market : An Overview

Understand Forward Market Meaning

Commonly Traded Assets

How Forward Contracts Work?

Step-by-Step Process:

Types of Forward Contracts

1. Closed Outright Forward

2. Flexible Forward

3. Long-Dated Forward

4. Non-Deliverable Forward (NDF)

Key Features of the Forward Market

Forward Market vs Futures Market

Importance and Benefits of Forward Markets

Risks and Limitations of Forward Markets

Conclusion

Frequently Asked Questions (FAQs)

What is a Forward Market?

What kind of contracts are traded in the Forward Market?

Is Forward Market regulated like a stock exchange?

Who uses the Forward Market the most?

What is the main benefit of Forward Market?

Is there any risk in trading forward contracts?

GST 2.0 Reform: Key Changes & Market Impact

Overview of the GST 2.0 Reform

1. Slab structure simplified

2. Everyday essentials

3. FMCG products

4. Automobile and durables

5. Insurance services

6. Luxury and sin goods

7. Agriculture and rural economy

8. Date of implementation

GST 2.0: Before vs After Comparison

Economic Impact of GST Changes

Conclusion

Frequently Asked Questions (FAQs)

What is GST 2.0 and when will it be implemented?

How many GST slabs are there after the reform?

Which items will become cheaper under GST 2.0?

Which products will get costlier?

How will GST 2.0 impact investors?

Best Brokers for Low Latency Trading in India 2025

What is Latency in Stock Market Trading?

Order Journey

Low Latency vs High Latency Brokers

Effect of Latency

Top 5 Best Lowest Latency Brokers in India

Overview of Lowest Latency Brokers in India

1. Pocketful

2. Zerodha

3. Upstox

4. FYERS

5. Angel One

Why Latency Matters for Traders?

Key Factors Affecting Broker Latency

1. Speed ​​of OMS and RMS systems

2. Server location

3. Trading API and platform design

4. Network infrastructure and load handling

Conclusion

Frequently Asked Questions (FAQs)

What is latency in stock trading?

Which broker has the lowest latency in India?

Does every trader need a low latency broker?

What factors affect broker latency?

Do all brokers disclose their latency?

What is Trading on Equity?

What is Trading on Equity?

How does Trading on Equity work?

Types of Trading on equity

1. Trading on Thin Equity

2. Trading on Thick Equity

Advantages and Disadvantages of Trading on Equity

Advantages of Trading on Equity

Disadvantages of Trading on Equity

Difference between Trading on Equity and Equity trading

Conclusion

Frequently Asked Questions (FAQs)

1. Speed of OMS and RMS systems