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  • What is Nominal Yield?

    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, 

    1. Annual coupon payment is the fixed interest amount the bond pays you every year. 
    2. 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 

    FeatureNominal YieldCurrent Yield
    DefinitionThe bond’s fixed yearly interest based on face valueThe 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 sameYes, it moves as the bond’s market price changes
    Good for beginners?Absolutely. very simple to understandYes, but you need to know the bond’s market price
    Consider Market Price?NoYes

    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!
    1What Is Bowie Bond (Music Bonds)
    2Detailed Guide on Bond Investing
    3What Are Corporate Bonds?
    4CAT Bonds: An Easy Explainer
    5Electoral Bonds Explained

    Frequently Asked Questions(FAQs)

    1. 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.

    2. 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.

    3. 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.

    4. 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.

    5. Do zero-coupon bonds have a yield?

      No! They do not have a nominal yield because they don’t pay interest every year.

  • How to Calculate F&O Turnover for Trading?

    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 NumberProfit/LossCalculation (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 DetailsProfit/LossCalculation (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 DetailsProfit/LossCalculation (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 lessProfit is 6% or more (in digital transactions)No audit required
    ₹10 crore or lessProfit is 8% or more (in cash transactions)No audit required
    ₹10 crore or lessProfit is less than 6%/8% or there is continuous lossAudit is mandatory (Section 44AB applicable)
    Above ₹10 croreIrrespective of the profitAudit 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)

    1. What is F&O turnover in income tax?

      F&O turnover includes profit/loss of closed trades and sale value (premium) of options.

    2. 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).

    3. How to calculate F&O turnover for ITR?

      Turnover is calculated by adding premium received of options and profit/loss of closed trades.

    4. Which ITR form for F&O trading?

      ITR-3 is mandatory as F&O income is classified as non-speculative business income.

    5. Is F&O income a business income?

      Yes, it is considered as non-speculative business income.

  • What is an Underlying Asset?

    What is an Underlying Asset?

    You may have come across terms like options, futures, or exchange-traded funds (ETFs) while learning about investing and trading. In many of these discussions, you’ll often hear the phrase “underlying asset.” An underlying asset is the actual financial instrument that a derivative or product is based on. It could be a commodity like gold, a stock such as XYZ, or even a market index like the Nifty 50. 

    In this blog, we’ll explain what underlying assets are, why they matter, and the different types you’re likely to encounter as an investor or trader.

    Underlying Asset : An Overview

    An underlying asset is the financial instrument on which a derivative’s value is based. It might be a currency, an index like the Nifty 50, a stock, or even a commodity like gold. The price of a derivatives contract, such as a stock option or futures contract, is therefore determined by the value of the underlying asset.

    Example: Let us say you bought a call option of a stock named ABC Industries. The value of that option is derived from ABC’s actual stock. Thus, the underlying asset is the ABC’s shares. Your option increases in value if the stock price rises.

    Read Also: What is Derivatives?

    Why are Underlying Assets Important? 

    1. They Add Value to Financial Products

    Suppose the underlying asset is similar to an automobile’s engine. The entire structure is powered by it. An option on XYZ stock or a gold future only has value because it is tied to the stock or gold itself. Without the underlying, the derivative contracts are worthless.

    2. They Help You Understand Risks

    The behaviour of various assets varies. While some, like gold or bonds, move more slowly, others, like stocks, fluctuate a lot. By understanding the underlying asset, you can better gauge volatility, risk exposure, and whether the derivative product associated with it fits your comfort zone or not. 

    3. Used to Value Derivatives Contracts

    If you trade options or futures, this is a crucial one. The reason those derivatives contracts exist is because they are linked to the underlying, which is a real asset. That asset, whether it be a stock, index, wheat, or crude oil, is what gives the derivative contract its value.

    4. They Allow You to Hedge

    Underlying assets also make hedging possible. A farmer worried about wheat prices falling, or an investor concerned about a market downturn, can use futures or options contracts to lock in prices and reduce risk.

    Characteristics of the Underlying Assets

    1. Liquidity

    Essentially, liquidity refers to how simple it is to buy or sell something. Large-cap stocks are generally liquid. Usually, you can buy or sell in a matter of seconds. However, there might not be many buyers or sellers for lesser-known assets, so you might be compelled to wait or accept an unfavourable price.

    2. Volatility

    Volatility measures how much an asset’s price moves over time. High volatility means larger price swings, which create both higher risk and greater potential rewards. Low volatility signals more stable prices and slower, steadier growth. Understanding volatility is especially important when trading derivatives like options or futures, since their value is directly influenced by price fluctuations in the underlying asset.

    3. Transparency

    You want assets that provide transparency, where prices, trading volumes, and related news are easily accessible in real time. Stocks, gold, and major currency pairs are usually clear and easy to track. However, if you are dealing with less common instruments that trade in obscure or illiquid markets, it is best to be cautious.

    Types of Underlying Assets

    Now that we have a clear understanding of underlying assets and their significance, we will examine the various kinds that you will come across in everyday life. You may already be familiar with some of these; in fact, you may have invested in them without even knowing they act as underlying assets to their respective derivative contracts.

    1. Stocks

    Shares, also known as stocks, are undoubtedly the most common underlying asset available. When you buy stock options or trade stock futures, you are making a bet on the price movement of the underlying stocks.

    Example: If you buy a call option on XYZ stock, then XYZ stock is your underlying. Therefore, your option gains value if the stock price rises.

    2. Commodities

    These are tangible goods that are traded on exchanges, such as wheat, oil, or gold via derivative contracts. Futures contracts are frequently used by traders to buy or sell them at a fixed rate at a later date.

    For instance, gold is the underlying asset for gold futures & crude oil contracts fluctuate in line with the oil price movements.

    3. Currency

    In the forex market, the most common underlying assets are currency pairs such as USD/INR or EUR/USD. These are especially important for importers, exporters, and international investors who need to manage currency risk. 

    For example, the value of a USD/INR futures contract is determined by the exchange rate between the US dollar and the Indian rupee.

    4. Market Indices

    Instead of trading individual stocks, you can trade entire indices such as the Sensex or Nifty 50. This approach is useful if you want exposure to overall market trends without having to pick specific stocks. 

    For example, when you buy a Nifty 50 option, the index itself serves as the underlying asset.

    5. Bonds & Interest Rates

    Even government or corporate bonds and interest rates can be underlying assets. These are usually used in more technical products like interest rate swaps or bond futures.

    For instance – A 10-year government bond future gets its value from—you guessed it—the 10-year G-Sec.

    Underlying Asset vs Derivative Contracts

    FeatureUnderlying AssetDerivative
    What it isThe actual asset (stock, gold, etc.)A contract based on the underlying asset
    Value comes fromIts price in the market determined by buyers and sellersThe price of the underlying asset and buyers and sellers of derivative contract
    ExamplesStocks, gold, currencies, bondsFutures, options, swaps, forwards
    OwnershipYou own the real assetYou own a right/obligation, not the asset
    Risk levelDepends on asset typeUsually higher due to leverage and time constraints

    Risks Associated with Underlying Assets

    1. Price fluctuations

    Markets can be unpredictable. Prices of stocks, gold, oil, or even currencies can move up and down significantly for a number of reasons. Your investment returns may suffer if your underlying asset moves in the wrong direction.

    Consider the following scenario: You bought a call option anticipating a rise in XYZ stock, but the price of the stock falls instead. Your option may suddenly lose most or all of its value.

    2. Risk to the Market

    High volatility during recessions, wars, or global financial crises can bring everything down, even if your chosen investment is fundamentally sound. It is important to consider the larger picture rather than just your investment.

    3. Issues with Liquidity

    Some assets are more difficult to buy or sell quickly. It could be difficult to find a buyer quickly when you need to sell something that you own, which could mean accepting a price that is less than what you expected.

    For example, certain niche commodities or small-cap stocks may seem attractive at first, but when it comes time to sell, they can turn out to be highly illiquid and difficult to exit.

    Conclusion 

    Simply put, an underlying asset is the real asset that gives value to financial instruments such as futures, options, exchange-traded funds, and more. Knowing the characteristics of the asset that lies “underneath” your derivative contracts, such as a stock, commodity, or even an index, can help you make better investment and trading decisions.

    It can make a significant difference to know what you are betting on, including its expected movement, liquidity, and news sensitivity. The underlying asset determines the risks and rewards you are taking on, regardless of whether you are trading more actively or making long-term investments.

    Frequently Asked Questions (FAQs)

    1. Is the asset always a stock?

      No, underlying assets can be stocks, bonds, currencies, commodities, or even interest rates.

    2. Are all underlying assets bought and sold on stock exchanges?

      A lot of them are, but not all of them. Some underlying assets, like interest rates, cannot be traded directly.

    3. Is gold a real asset?

      Yes, gold is a great example. There are a lot of derivatives, ETFs, and even mutual funds that are based on it.

    4. Why do I need to consider the underlying asset before trading?

      Because the underlying asset determines the risk, volatility, and potential returns of your trade. Its price movements, liquidity, and behavior directly impact how your trading position will perform and whether it aligns with your expectations.

    5. How do I find the asset that an investment product is based on?

      The product details or fact sheet usually have these details. Always check before investing.

  • Collar Options Strategy – Meaning, Example & Benefits

    Collar Options Strategy – Meaning, Example & Benefits

    It is easy to feel good about your investments when the stock market is doing well. But what if you are worried about a sudden drop in the market but still want to stay invested? This is when the collar options strategy comes in. It is a smart and easy way to keep your profits safe without giving up all the upside.

    We will discuss the collar strategy, how it works, when to use it, and what its pros and cons are in this blog. If you know how to use a collar option strategy, you can lower your risk without missing out on opportunities, whether you are a conservative investor or a seasoned trader.

    Understanding the Collar Options Strategy 

    Applying a collar option strategy to your stock investment is like putting on a seatbelt. It protects your investment positions from big losses while still letting you make some gains, but not unlimited ones. This is how it works:

    If you already own 100 shares of a company, you do two things:

    • Buy an OTM put option; it is like insurance. It makes sure that you can sell your stock for a certain amount of money, even if the market crashes.
    • If you sell an OTM call option, you agree to sell your stock for a price above its current market price and get paid a premium for this.

    These two options positions basically “collar” your investment between a lower and upper limit. They protect you on the downside but limit your upside to some extent.

    Example of Collar Options Strategy

    Let us break down the Collar Strategy using an easy example. Suppose you currently own 100 shares of ABC, and the stock price is ₹1,500 per share. Although you have made decent gains, you are also a little anxious about the volatile market ahead.

    Even though you aren’t interested in selling, you also don’t want to take the chance of seeing your gains vanish in a flash. This is precisely where the collar options strategy is useful.

    Step 1: Buy a Put Option

    You buy a put option with a strike price ₹1,400 (OTM put), giving you the right to sell ABC at that price even if it falls below ₹1,400. It is similar to stating, “I will never sell this for less than ₹1,400.” Assume that each put option has a lot size of 100 shares and costs you ₹3,000.

    Step 2: Sell a Call Option

    You also sell a ₹1,600 strike price call option (OTM strike), so you will have to sell it at that price if ABC rises above ₹1,600. However, you receive ₹3,000 for selling the OTM call option.

    Therefore, the ₹3,000 you made from the call covers the ₹3,000 you spent on the put.

    Because you’ll receive protection from the downside without actually paying out of pocket, it’s frequently referred to as a “zero-cost collar.”

    What Could Happen, Then?

    When your options expire, let’s examine three simple scenarios:

    -ABC drops to 1,300

    Instead of losing more, you sell your shares at ₹1,400 as your put option expires ITM. You have minimised your downside.

    -ABC remains at about ₹1,500.

    Neither option is exercised. Nothing changes; you continue to hold your stock. 

    -Now, ABC surges to 1,650

    However, you will have to sell at ₹1,600 because you sold a ₹1,600 call. You lose on any gains over ₹1,600, but you still earn a fair ₹100 profit per share.

     The result is that using collar option strategy is given below:

    • Selling for ₹1,400 is your worst-case scenario.
    • The best price you can get is ₹1,600.
    • Additionally, you did not allocate any additional funds to protect yourself.

    In other words, you created a haven around your investment, which can be quite satisfying, particularly when the markets are volatile.

    Benefits of Collar Options Strategy

    Some of the benefits of using collar options strategy is given below:

    1. Your Downside Has a Floor

    The put you buy is like a policy that protects you. You know the lowest price you will get, no matter how bad the market gets. That’s real peace of mind.

    2. You do not have to sell your shares

    Are you worried but still believe in the company in the long run? A collar keeps you in the market instead of selling at the first sign of trouble.

    3. Sometimes protection is very cheap  

    The money you make from selling the call can help pay for the put or even pay for it all. So you might be able to protect yourself from losses without spending a lot of money.

    4. Helps you keep the money you’ve already made

    A collar helps you protect your profits if your stock has gone up a lot, but it also leaves some room for your call strike to go up.

    5. You set the range

    Choose the strikes that you feel comfortable with. If you want strong protection and are good with capping gains sooner? Pick strikes that are closer. Want more room for moving up? Go wider.

    Read Also: Options Trading Strategies

    Limitations of Collar Options Strategy

    Some of the limitations of using collar options strategy is given below:

    1. You may lose out on significant profits

    You will likely regret selling that call if your stock unexpectedly rises in value because you will ultimately have to sell it at that fixed price even if it continues to rise. Yes, the collar protects you, but it also limits your earnings.

    2. You Must Own the Stock for It to Work

    This is not an approach that you can use randomly. It is intended to protect what you already own, not a stock you plan to buy in the future, so you must already own the stock.

    3. You will have to Watch It

    Options have expiration dates, so you can’t ignore them entirely. You may need to make some changes or switch to new options if the market becomes volatile or the stock moves a lot.

    4. In an extremely bullish market, it is not the best course of action

    A collar may seem like a disappointment if you believe the stock is going to rise. You will lose out on profits after your call strike because your upside is capped. If you were correct about the rally, that can hurt so badly.

    5. There is a slight learning curve

    Learning how puts and calls operate, how to pick the best strikes, and when to start everything up may take some time if one is unfamiliar with options.

    Read Also: What is Options Trading?

    Conclusion 

    The collar strategy is like putting a helmet on your investment. It might not make your investment journey more fun, but it does make it safer. For investors who want to hold on to a stock they trust while reducing downside risk, it’s a practical choice.

    You can protect yourself from big drops, lock in some gains, and stay invested, all without spending much or even anything at all. Yes, your upside is limited, but for many investors, the peace of mind that comes with the collar options trading is worth it. The collar might be the best way to keep your risk under control, especially after the stock has had a good run recently.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
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    3What is Zero Days to Expiration (0DTE) Options and How Do They Work?
    4Types of Traders in the Stock Market: Styles, Strategies & Pros and Cons
    5Risk Management In Trading: Meaning, Uses, and Strategies

    Frequently Asked Questions (FAQs)

    1. Is it possible to lose money with a collar options strategy?

      Yes, but only down to the put strike price, so your losses are limited.

    2. What will happen if the stock goes up a lot?

      If it goes above your call strike, you will probably have to sell the stock at that price, which means you cannot earn any more money.

    3. When is the best time to put on a collar?

      When you have already made money on a stock and want to protect it during times of uncertainty.

    4. Can I use a collar on index options?

      You can do something similar with index futures or ETFs, but collars work best with stocks you own.

    5. Is this a good strategy for people who are just starting out?

      Yes, it is one of the easier option strategies and a great way to learn how options can help you control risk.

  • Historical Trend of Gold Rate – Gold Price History in India

    Historical Trend of Gold Rate – Gold Price History in India

    Gold has always held a significant place in Indian households, whether for weddings or investments. Over time, its prices have risen sharply due to factors like geopolitical events, economic changes, and growing demand. 

    In this blog, we will explore the historical trend of gold prices in India, along with the key factors affecting its prices and why the prices of gold have risen exponentially in the last few years.

    Evolution of Gold Prices in India

    The changes in gold prices in India reflect global events, economic policies, and evolving demand. Let’s explore how prices have moved from the 1960s to the present day.

    The Early Days (1960s-1970s)

    • In 1960, the price of gold was around ₹60-₹100 per 10 grams.
    • Unlike today, people generally didn’t own gold, and imports were restricted.
    • Around 1970, the gold prices saw a sharp jump because of rising global oil crises, inflation, and instability in global economic conditions.

    Liberalization Phase (1990s)

    • During the liberalization phase, restrictions on gold imports were lifted.
    • This increases the demand for gold. Hence, pushing the prices above 4000 INR per gram.

    Golden Era (2000-2010)

    • From 2000 to 2010, this period can be called the Golden Period of Gold.
    • The major financial crises, like the dot-com crash and the global financial crisis of 2008, increased the price of gold to around 18000 INR by the end of 2010.

    Covid Period (2019-2021)

    • In the year 2020, the COVID-19 pandemic hit the world and made gold a haven for investors. 
    • Due to COVID, the prices of gold touched around 50,000 INR per 10 grams.

    Current Scenario (2021-2025)

    • Since early 2021, gold has been volatile, fluctuating between ₹48,000 and ₹65,000 per 10 grams.
    • Various global events took place during this period, including the Russia-Ukraine war, rising interest rates, the Israel-Iran conflict, etc. 

    Historical Gold Rates in India

    The table below shows the historical gold rates in the country since 1964:

    YearPrice (₹ per 10g of 24K)
    196463.25
    196571.75
    196683.75
    1967102.50
    1968162.00
    1969176.00
    1970184.00
    1971193.00
    1972202.00
    1973278.50
    1974506.00
    1975540.00
    1976432.00
    1977486.00
    1978685.00
    1979937.00
    19801,330.00
    19811,670.00
    19821,645.00
    19831,800.00
    19841,970.00
    19852,130.00
    19862,140.00
    19872,570.00
    19883,130.00
    19893,140.00
    19903,200.00
    19913,466.00
    19924,334.00
    19934,140.00
    19944,598.00
    19954,680.00
    19965,160.00
    19974,725.00
    19984,045.00
    19994,234.00
    20004,400.00
    20014,300.00
    20024,990.00
    20035,600.00
    20045,850.00
    20057,000.00
    20068,490.00
    200710,800.00
    200812,500.00
    200914,500.00
    201018,500.00
    201126,400.00
    201231,050.00
    201329,600.00
    201428,006.50
    201526,343.50
    201628,623.50
    201729,667.50
    201831,438.00
    201935,220.00
    202048,651.00
    202148,720.00
    202252,670.00
    202365,330.00
    202477,913
    20251,01,660
    (Data as of 28 August, 2025)

    Factors Affecting Gold Rates in India

    The key factors affecting gold rates in India are as follows:

    1. Rising Interest Rate: With the rise in the interest rate, fixed-income securities became more attractive, and investors prefer to invest in fixed-income securities. Due to this, the demand for gold may drop, hence reducing the prices of gold.
    2. Demand: During the festive and wedding season, the demand for gold will increase, and because of limited supply, the price of gold will increase.
    3. Geopolitical Conditions: During geopolitical tensions, wars, trade disputes, or economic crises, gold is considered a safe haven, which increases demand and pushes up its price.
    4. Government Policies: Import duties implemented by the government on gold can directly affect the domestic gold prices. The higher the import duty, the higher the gold price.

    Why are Gold Prices Rising?

    The key factors why the prices of gold are rising are as follows:

    1. Global Tension: Geopolitical tension across the globe, such as the Israel-Iran conflict, the Russia-Ukraine War. The fear of economic slowdown led to an increase in gold prices.
    2. Weakening of Indian Currency: Over the past few months, the rupee has weakened against the dollar, and the import of gold has become more expensive.
    3. Central Bank Purchasing: The central banks of developing countries are purchasing gold in order to reduce their dependency on the US dollar, which increases the demand and price of gold.

    Conclusion

    On a concluding note, historically, gold has always found a way to shine. Indians have always considered gold not only as an investment option but also as a status symbol. In the short run, prices of gold might see some volatility; however, in the long run, the trend has been steadily upward. However, in the past year, because of geopolitical events, the prices of gold have increased exponentially. Therefore, it is advisable to consult your investment advisor before making any investment in gold.

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    5Top 10 Reasons to Invest in Gold

    Frequently Asked Questions (FAQs)

    1. What is the reason for the daily fluctuation in gold prices?

      Daily fluctuations in gold price are due to the following factors such as global economic conditions, movement in currency prices, geopolitical events, demand and supply of gold.

    2. Which is the purest form of gold?

      24K (carat) gold is considered the purest form of gold and is considered 99.99% pure, followed by 22K (carat) gold, which is generally 91% pure. The remaining 9% is a mixture of different other metals such as copper, silver, etc.

    3. Why are different countries’ central banks purchasing gold?

      The central banks of different countries purchase gold because they want to increase their gold reserves in order to reduce their dependence on the USD. 

    4. How to invest in digital gold?

      There are various modes through which one can invest in gold digitally; the options include Gold ETF, Gold Mutual Fund, SGBs, etc.

    5. How can Indian rupees affect the gold prices?

      When the Indian rupee weakens against the US dollar, imported gold becomes more expensive, driving up domestic gold prices even if global rates remain stable.


  • 10 Best Books on Commodity Trading

    10 Best Books on Commodity Trading

    Books have always been a timeless source of knowledge, offering guidance and insights across every field of life. The world of trading is no different, with countless books written on strategies and market behavior to help readers sharpen their skills and make better decisions.

    What many traders often overlook is that there are excellent books dedicated specifically to commodity trading. These resources explain how commodity markets work and provide strategies, risk management techniques, and analytical approaches that can be applied in real-world trading.

    In this guide, we will explore the 10 best books on commodity trading that every aspiring or seasoned trader should read to strengthen their understanding and approach.

    10 Best Commodity Trading Books in 2025

    Commodity trading books are guides that help readers understand how to buy and sell physical goods like oil, metals, agricultural produce, and more through exchanges. These books cover topics such as:

    • How commodity markets work
    • Futures and options trading
    • Risk management in commodities
    • Technical and fundamental analysis
    • Real-life trading examples and strategies

    These books are perfect for both beginners and seasoned traders who are looking to earn from the market. So, here are the best commodity trading books that you must consider. 

    1. Commodities Demystified: A Guide to Trading and The Global Supply Chain – Trafigura

    This book simplifies how global commodity trading really works. It is based on Trafigura’s experience in energy, metals, and minerals. It explains how goods are sourced, stored, blended, and delivered. 

    This book mainly focuses on logistics, risk management, and how traders add value across supply chains. This book helps connect the dots between trading desks and real-world supply networks.

    What the book covers:

    • How commodity trading firms operate
    • Sourcing, storage, and delivery of physical commodities
    • Risk management and arbitrage opportunities in commodity trading
    • Logistics and the global supply chain for commodities

    This book shows how critical commodity traders are to the global economy. It is ideal for beginners and professionals who want to understand trade and global markets.

    Commodities Demystified

    2. Commodity Trading Manual – Board of Trade Chicago 

    This manual is a go-to guide for anyone looking to understand how commodity and futures trading really works. It is published by the Chicago Board of Trade. It offers a detailed look at how futures markets are structured and how traders manage risk through hedging and speculation. 

    It covers everything from agricultural and energy markets to metals and financial futures. With insights on spreading strategies, options on futures, and electronic trading, the book is packed with practical knowledge.

    What the book covers:

    • Futures market structure and clearing
    • Hedging and speculation techniques
    • Major commodity market segments
    • Options and spread strategies
    • Evolution of trading systems

    This is a practical book that shares not only technical details but also strategies that are key to making the right trading decisions.

    Commodity Trading Manual

    3. A Trader’s First Book on Commodities: An Introduction to the World’s Fastest Growing Market – Carley Garner

    This book is beginner-friendly and one of the best books on commodity trading. It makes the world of commodity trading easy to understand. Carley Garner walks readers through the basics here. Right from choosing the right broker to managing margin calls and placing smart trades, everything is shared here.

    The author explains key concepts like order types, profit and loss calculations, and trading plans in a simple, practical way. The book also highlights the emotional side of trading. Also, it guides on how to stay disciplined.

    What the book covers:

    • Market basics and order types
    • Choosing brokers and platforms
    • Risk and margin management
    • Trading plans and discipline

    With real industry insights, it helps new and intermediate traders build a strong foundation. This is one of the reasons why it is called the first book on commodities.

    A Trader's First Book on Commodities

    4. Commodity Conversations: An Introduction to Trading in Agricultural Commodities – Jonathan Kingsman

    This book is a practical and engaging guide for anyone exploring agricultural markets. Jonathan Kingsman, with nearly 40 years of industry experience, explains how supply and demand, seasonal patterns, and global events shape commodity prices. 

    Author also covers risk management techniques like hedging and analysis tools to support smart trading decisions. 

    What the book covers:

    • Market drivers and price trends analysis
    • Risk management and hedging strategies to try
    • Trading strategies and analysis
    • Real-world insights from the field

    With real-life examples and a beginner-friendly style, it stands out as one of the best commodity trading books for understanding agri-commodities.

    Commodity Conversations

    5. The Professional Commodity Trader – Stanley Kroll

    This is a classic book that gives a firsthand look into the world of commodity trading. This book was written by Stanley Kroll who was a respected broker and trader. He shared real trade examples, strategies, and personal lessons learned over decades in the market. 

    Using his knowledge and experience, he shared topics like charting, timing, risk management, and others. He shared the trader psychology with honesty and clarity. Though the book was written quite early, it still shares the insights that will help you greatly.  

    What the book covers:

    • Trade timing and charting methods
    • Market psychology and discipline
    • Practical risk management
    • Real-world trading experiences

    This is a true classic among the best commodity trading books. It is a timeless read for anyone serious about trading.

    The Professional Commodity Trader

    6. The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources – Javier Blas and Jack Farchy

    This is one of the best commodity trading books in recent years. This book is quite engaging and shares the hidden details of the global market. It shares the factors that influence and operate the markets. This includes the bold and often controversial deals made by firms like Glencore and Trafigura.

    These are the trades that shaped geopolitics and built empires trading oil, metals, and minerals. The book dives into real events across war zones, collapsing economies, and emerging markets. This shows how traders operate behind the scenes.

    What the book covers:

    • Rise of trading giants like Glencore
    • Global impact of commodity deals
    • Trading in unstable regions
    • Real-world stories of power and profit

    It is a must-read as this book will help you understand how the global commodity market works. 

    The World for Sale

    7. Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market – Jim Rogers

    This book is a practical and insightful guide to investing directly in commodities. Jim Rogers explains why resources like sugar, corn, oil, and cotton are long-term wealth creators. This guide also highlights why commodities are key investment options, especially during inflationary periods. 

    He explores how supply and demand drive prices and why commodities move differently from stocks, offering real diversification. This is backed by historical trends and clear logic. Rogers makes the case for investing in raw materials over commodity-linked companies.

    What the book covers:

    • Commodity market cycles and trends
    • Supply and demand fundamentals
    • Direct and indirect investing
    • Strategies for long-term investors

    A solid read for anyone looking to understand real assets and commodities, this book is packed with insights that can help investors greatly.

    Hot Commodities

    8. Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading – Peter L. Brandt

    This book offers a rare and unfiltered look into the day-to-day life of a professional trader. Peter Brandt documents 21 weeks of real trades. It includes the complete details with charts, analysis, wins, and losses. 

    He shares his approach to trade selection, risk management, and emotional discipline. He also shows the realities of trading beyond the textbook theory. With over 40 years of experience, Brandt gives readers both practical lessons and a glimpse into the mindset of a seasoned trader.

    What the book covers:

    • Real-time trade journaling
    • Technical analysis and setups
    • Risk and money management
    • Trader psychology and discipline

    A grounded and honest guide for serious traders, this is a goldmine. The insights shared here and the detailed highlights can help you trade seamlessly. 

    Diary of a Professional Commodity Trader

    9. The Great Gold, Silver & Crypto Rush of the 21st Century – Michael Maloney

    In this insightful book, Michael Maloney explores how gold, silver, and cryptocurrencies are shaping financial markets. He shares how these assets are shaping the next big shift in global wealth. He shares his deep knowledge of monetary history and financial cycles.

    In the book, he explains why these assets may outperform in the coming decade. The book blends education with strategy. This helps readers understand where opportunities lie in this new economic era.

    What the book covers:

    • Economic cycles and wealth transfer
    • Reasons why gold and silver are safe haven
    • Cryptocurrencies and their role in markets
    • Understanding and developing long-term strategies

    This book is an essential read for those who want to invest in precious metals and digital assets. This helps you trade with clarity.

    The Great Gold, Silver & Crypto

    10. Commodity Crops: And The Merchants Who Trade Them – Jonathan Kingsman and Wouter Jacobs

    This is a detailed book that provides comprehensive insights into agricultural commodity trading. You can find all the information on agricultural commodity trading here. The author shares the trading history and market dynamics of nine essential crops in this book. This combines deep industry knowledge with interviews from top global traders. 

    He also addresses modern issues in this book. Some of these include decarbonising food supply chains and navigating global trade challenges. The book sheds light on pricing, logistics, and market forces. 

    What the book covers:

    • History and trading of key crops
    • Interviews with global commodity traders
    • Market drivers and pricing factors
    • Sustainability in agri-trading

    This is a valuable read for traders, investors, and agri-professionals who are looking for long-term results. 

    Commodity Crops

    Conclusion

    When it comes to trading, the commodity market is a bit complex. You need to understand various aspects to ensure that you are taking the right call. Lack of knowledge and insights can make it hard for you to trade. This is where you can seek help from the books shared here. These books help you understand markets, strategies, and risks. 

    The titles shared above are among the best commodity trading books. These are the perfect choices for all traders. Written by experienced professionals, they provide practical insights into markets, trading strategies, and trader psychology. 

    Ready to start trading smarter?

    Start your trading journey with Pocketful and get the tools and support you need to trade smarter.

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    Frequently Asked Questions (FAQs)

    1. Are commodity trading books suitable for beginners?

      Yes, many of these books are beginner-friendly. They explain key concepts like market structure, trading strategies, and risk management. These books share the hard terms in a simple and practical way. Titles like A Trader’s First Book on Commodities are perfect for starting out.

    2. What types of commodities do these books cover?

      Most books cover a wide range including agricultural products, energy resources like oil and gas, precious metals, and sometimes even cryptocurrency. Some focus on specific areas such as grains, gold, or crude oil.

    3. Do I need trading experience to understand these books?

      No prior experience is required for many of them. Several books are written for readers with zero background and use real-life examples to explain how commodity markets work.

    4. Can reading these books improve my trading decisions?

      Yes, these books provide valuable insights that can help you. These can guide you on how to analyze markets, manage risks, and develop strategies. These also guide you on how to control emotions. This knowledge can lead to more informed and confident trading.

    5. How can I start trading commodities after learning from these books?

      You can open a free account on Pocketful, where you’ll find easy access to commodity markets along with the tools and support to help you apply what you’ve learned.

  • Different Types of Derivatives in India

    Different Types of Derivatives in India

    When it comes to trading in the stock market, derivatives hold a prominent place. They are widely used for hedging risks, speculation, and managing portfolio exposure. Instead of directly owning an asset, derivatives allow traders to take positions based on the expected price movements of underlying instruments such as equities, commodities, currencies, or indices. But do you know that based on the needs, there are different types of derivatives that you can trade in?

    So, if you are willing to start trading in different types of derivatives, then this guide is for you. Know their basics, pros and cons to make the right trading decisions. So, let us get started.

    Understanding Derivatives

    Before we explore the types of financial derivatives, let us quickly understand the meaning of derivatives here. A derivative is a financial contract whose value is derived from the performance of an underlying asset such as equities, commodities, currencies, or market indices. In India, standardized derivatives like futures and options are traded on regulated exchanges such as the NSE and BSE.

    In derivatives trading, the trader does not own the asset directly but agrees to buy or sell it at a future date for a predetermined price. Derivatives are widely used for hedging risks, speculating on price movements, and enhancing portfolio strategies.

    Now, with that being said, let us explore the different types of derivatives here.

    Types of Derivatives

    Derivatives are very important in the Indian financial market. It allows traders to gain the benefit of hedging, speculation, and risk management. There are 4 different types of derivatives that you should be aware of as follows:

    1. Future Contract

    A futures contract is a standardized derivative agreement. Under this, the trader agrees to buy or sell an underlying asset at a fixed price on a future date. They are used for hedging against a volatile market or speculation about future trends. These are marked-to-market daily and gains and losses are settled at the end of each trading day.

    There is no physical delivery in most cases (except for some commodity contracts), but rather cash-settled positions. The use of leverage allows traders to control larger positions with a smaller margin amount. However, it also increases the risk of significant losses. 

    Futures contracts must be settled at expiry. These are best suited for experienced traders who are looking to gain from short-term price fluctuations. Trading discipline is key here.

    Pros of Futures Contracts

    • High liquidity and ease of trade
    • Transparent pricing and exchange regulation
    • Effective tool for price hedging
    • Enables both long and short positions
    • Lower capital requirement due to leverage

    Cons of Futures Contracts

    • Leverage can magnify losses
    • Requires margin maintenance and daily monitoring
    • Involves significant risk for inexperienced traders
    • No ownership of the underlying asset
    • Contracts are time-bound with fixed expiries

    2. Options Contract

    An options contract is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time period. Unlike futures contracts, the buyer is not compelled to execute the trade if market conditions are unfavorable. This flexibility makes options a versatile tool for both hedging and speculation.

    There are two types of options. A call option gives the right to buy. A put option gives the right to sell. The buyer pays a premium to gain this right. This limits the risk for the buyer to the premium paid. The seller here carries a higher level of risk. 

    Options are used for both hedging risks and speculating on price movements. There is no actual ownership of the asset, but the right to trade it.

    If you are looking for flexible strategies with controlled risk, these are the best. But you must evaluate the market and trends as well.

    Pros of Options Contracts

    • Limited loss for buyers (only the premium paid)
    • Useful for hedging and speculation
    • Lower capital requirement compared to futures
    • Can benefit from market volatility
    • No obligation to execute the trade

    Cons of Options Contracts

    • Difficult for beginners to understand
    • Time decay can erode value quickly
    • Unlimited risk exposure for sellers
    • Requires precise market predictions
    • Some contracts may have low liquidity

    3. Forward Contract

    A forward contract is a form of customized agreement. These are traded over-the-counter (OTC).  The agreement defines the price and a future date when the buy or sell transaction will happen. These are not traded on formal exchanges like NSE or BSE.

    In other words, these are private contracts. Hence, terms such as price, quantity, and settlement date are mutually decided by the buyer and the seller. Forwards are mostly used by businesses or financial institutions for hedging against future price fluctuations.

    There is no daily settlement or margin requirement. However, the absence of exchange regulation also increases counterparty risk. The lack of standardization makes them less accessible for retail traders.

    Forward contracts are suitable for parties with specific hedging needs. Traders who prefer tailor-made terms over exchange-based standard contracts, usually use these.

    Pros of Forward Contracts

    • Custom terms and flexible structure
    • Useful for hedging long-term exposure
    • No margin requirements
    • Can be tailored to match business needs
    • No exchange fees or formal listing costs

    Cons of Forward Contracts

    • Higher counterparty risk
    • Lack of liquidity and public pricing
    • No regulatory oversight
    • Difficult to exit or transfer before maturity
    • Not suitable for small or retail traders

    4. Swaps Contract

    A swaps contract is a private agreement. Under this, two parties exchange cash flows or financial instruments over a specific period. These contracts are traded over-the-counter (OTC). You cannot trade them on exchanges like NSE or BSE. 

    There are two types of swaps. These are interest rate swaps and currency swaps. 

    In an interest rate swap, two parties agree to exchange fixed interest payments. This is done against floating interest payments based on a notional principal amount. In a currency swap, they exchange cash flows in different currencies. It is often used to manage foreign exchange risk.

    Swaps are primarily used by large corporations and financial institutions. This is mainly for long-term risk management. There is no exchange of the underlying principal amount, but only the interest or currency payments agreed upon.

    Swaps require a high level of financial expertise and strong creditworthiness. So retailers usually do not trade in these.

    Pros of Swaps Contracts

    • Customizable terms based on specific needs
    • Helps manage interest rate or currency risks
    • Useful for long-term financial planning
    • No upfront cost in most cases
    • Flexible settlement structure

    Cons of Swaps Contracts

    • High counterparty risk
    • Lack of transparency and regulation
    • Not available for retail trading
    • Difficult to value and monitor
    • Requires deep financial knowledge

    Read Also: What is Swaps Derivatives?

    Key Participants in the Derivatives Market

    When it comes to derivatives, there are various people who trade in them. All of these people have different goals. This is why derivatives suit their portfolio. The most common participants in the derivatives market are as follows:

    1. Hedgers: They use derivatives for protection against price fluctuations. These are the traders who trade in variety of assets
    2. Speculators: These are the people who wish to gain from trades based on predictions. They perform price predictions based on trends. They accept higher risk in pursuit of higher returns.
    3. Arbitrageurs: The aim here is to take advantage of price differences in different markets. These people aim to earn risk-free profits through simultaneous buy and sell trades.
    4. Margin Traders: These use leverage to control large positions with small capital. While it boosts profit potential, it also increases risk.

    These participants keep the derivatives market efficient, balanced, and liquid. Also, each of these are playing a crucial role in price discovery and risk management.

    Read Also: Index Derivatives in India

    How to Trade in Derivatives

    When you are planning to trade in derivatives, there are certain steps to follow. The first thing is to have an account with the SEBI registered broker. Once you have that, here are the steps to know.

    1. Open an Account

    Register with a stockbroker who offers access to the derivatives segment. Ensure your account is enabled for F&O trading.

    2. Understand Margin Requirements

    Derivatives require you to maintain a margin. This is a percentage of the total contract value that must be paid upfront.

    3. Choose a Derivative Instrument

    Select between futures or options. It should be based on your risk appetite and strategy. If needed, seek expert guidance from your financial advisor.

    4. Analyse the Market

    Use technical analysis to predict price movements and manage risks effectively.

    5. Place Your Order

    Execute your trade through your broker’s trading platform. Monitor it closely and exit before or on expiry.

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

    Conclusion

    Derivatives are among the most effective instruments for traders looking to manage risk, capitalize on short-term price movements, and build advanced trading strategies. Success in derivatives trading depends on clearly defining your trading objectives, choosing the right contract type, and maintaining strict risk management. Staying disciplined, analyzing market trends, and adjusting positions in real time are crucial for consistent performance. It is advised to consult a financial advisor before trading in derivatives.

    Once you are ready, you can start your journey with Pocketful. It is a reliable and user-friendly platform that can help you while trading. So sign up today and get started.

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    Frequently Asked Questions (FAQs)

    1. What is the main purpose of trading in derivatives?

      The primary purpose is to hedge against price fluctuations and manage financial risk. It also helps to speculate on future price movements to earn profits without owning the underlying asset.

    2. Are derivatives suitable for all traders?

      No. Beginners should approach derivatives cautiously, ideally after gaining sufficient market knowledge or under expert guidance.

    3. What are the most common types of derivatives in India?

      The most common types include futures and options. These are traded on exchanges like NSE and BSE. Then there are forwards and swaps that are traded over-the-counter.

    4. How is profit or loss settled in derivatives?

      In exchange-traded derivatives, gains and losses are settled daily through a process called mark-to-market. Final settlement occurs at expiry if the position is held.

    5. Do I need a special account to trade in derivatives?

      Yes, you need a trading and demat account activated for the derivatives segment with a SEBI-registered broker to start trading in futures and options.

  • How AI and Machine Learning Are Changing Investment Strategies

    How AI and Machine Learning Are Changing Investment Strategies

    Making informed decisions based on available information has always been at the core of investing. Traditionally, investors relied on charts, financial statements, and intuition to guide their choices. However, with advancements in artificial intelligence (AI) and machine learning (ML), investors now have tools that can process massive volumes of data, uncover hidden patterns, and support faster, more precise decision-making.

    AI is no longer a distant concept. From robo-advisors that build personalized portfolios to algorithms capable of forecasting market trends in real time, these technologies are already transforming how both institutions and individual investors approach the market.

    In this blog, we will take a closer look at how AI and ML are reshaping investment strategies and examine whether these technologies have the potential to outperform human judgment.

    AI & Machine Learning in Finance – An Overview 

    In finance, artificial intelligence (AI) refers to computers that have the ability to “think” just like people. AI is faster than humans at analyzing huge volumes of financial data, and identifying patterns that humans might overlook.

    Machine learning (ML) is a key subset of AI. It is the mechanism through which these systems learn and improve. By evaluating historical data, machine learning (ML) teaches computers to get more accurate on their own without needing to stick to strict guidelines. Their ability to make predictions and provide useful insight improves with the amount of data they see.

    Example 

    • Robo-advisors that make investment portfolio recommendations according to your objectives.
    • Smart algorithms that try to predict changes in stock prices.
    • Systems that identify fraudulent activity on your account.

    Read Also: How AI and Machine Learning Are Transforming Trading Strategies?

    How AI Changes Investment Strategies 

    Investing has changed over time. The majority of strategies were based largely on human judgment, hours of research, and a little intuition. AI has emerged as a powerful assistant in the modern era, helping investors make quicker, wiser, and more sensible choices.

    This is how it is having an impact:

    1. Using Big Data for Better Understanding

    These days, markets are more than just numbers. AI is able to identify signals that humans might miss by filtering through content such as news headlines, social media buzz, and even satellite photos. It is comparable to having a super-analyst who is constantly alert.

    2. High-frequency trading

    Trades can be completed in a matter of seconds because of AI-driven algorithms that can identify patterns and respond immediately. Real-time, automated processes that once required whole teams of analysts are now possible.

    3. Tailored Portfolios

    AI is now able to create an investment plan that truly fits your objectives, risk tolerance, and time horizon by using robo-advisors. What is the best part? Without you having to do anything, it continuously adjusts and rebalances.

    4. Intelligent Risk Control

    Although markets can be unpredictable, artificial intelligence (AI) can help by identifying early indicators of volatility or unusual activity. This allows investors more time to respond and safeguard their capital.

    5. Removing Emotion from Investing

    As we all know, emotions can cause us to follow the herd, panic sell, or chase after short-term gains. AI is emotionless. Analyzing investor behavior keeps strategies grounded and logical.

    Identifying market trends before they become evident is one of the most intriguing ways that AI is transforming investing. AI is capable of looking into huge amounts of data, making connections, and pointing out potential directions rather than merely examining charts and historical performance.

    This is how it operates:

    1. Examining Past Information: AI examines years, even decades, of changes in interest rates, prices, and business performance. It can make predictions about how markets might act in similar scenarios by identifying trends.
    2. Evaluation of the Market’s Attitude: To determine investor sentiment, AI tools look at analyst reports, news headlines, and even posts on social media. AI is able to detect excessive optimism or fear before it manifests itself in stock prices.
    3. Identifying Unobserved Signals: Stock charts sometimes miss the most crucial signals. This “alternative data” is gathered by AI, which then uses it to make predictions.
    4. Adjustments in Real Time: Like markets, AI is subject to sudden shifts. AI can adapt in real time, responding immediately to fresh data, in contrast to traditional models that may update monthly or quarterly.

    Why Human Oversight Still Matters 

    Although AI is intelligent, it is not perfect. No machine is capable of accurately capturing the human, emotional, and unforeseen factors that drive markets. This explains why investing still largely depends on human expertise.

    We cannot yet give everything to the machines for the following reasons:

    1. AI Is Not Always Correct: Predictions will not be accurate if the incoming data isn’t. Humans can help by verifying, challenging, and adding common sense in this situation.
    2. Markets Are More Than Just Data: Numbers do matter. However, events like sudden political decisions, international conflicts, or even a change in public sentiment can influence markets in ways that artificial intelligence may not be able to comprehend. Investors with experience are able to see beyond what is apparent.
    3. Morality Is Important: AI follows patterns without considering accountability. Human oversight ensures decisions remain not only profitable but also ethical and compliant with regulations.
    4. Experience Is Worth It: Although AI is faster than humans at scanning data, it does not have an idea about human sense and life lessons from previous market ups and downs. It is difficult to replace the human standpoint.

    Read Also: How AI is Transforming Stock Market Predictions

    The Future of AI in Investments 

    Although AI has already begun to alter how we invest, the most captivating part is yet to come. The technology will become more involved into daily financial decisions as it becomes advanced and widely available.

    Here is a glance at what the future may hold,

    1. Portfolios that are genuinely personal: No more formulaic approaches. AI has the potential to build portfolios that feel customized, taking into account not only your objectives and income but also your spending patterns and risk tolerance.
    2. Constant Financial Planning: AI could instantly modify your investments in response to market movements, removing the need for a quarterly review. Consider it a dynamic plan that changes in real time to fit into the surroundings.
    3. Smart Ethical Investing: AI may be able to analyse vast datasets, such as labour practices or climate reports, to assist investors in businesses that align with their values and have positive social impacts.
    4. Consultants powered by AI: Giving financial advisors superpowers is the goal, not replacing them. Advisors can spend more time advising and establishing human connections with clients while AI handles the data processing.
    5. AI That Goes Beyond Analysis: Beyond just crunching numbers, generative AI may be able to write readable reports, run “what-if” scenarios, and even make simple strategy recommendations.

    Conclusion 

    While AI and machine learning cannot guarantee flawless results, they provide powerful tools that enhance the speed, depth, and intelligence of investment decisions. The key lies in finding the right balance, i.e. leveraging AI’s ability to process vast datasets while still relying on human judgment, experience, and strategic thinking.

    Looking ahead, the future of investing will likely be defined by collaboration between machine intelligence and human insight. For investors who are open to adapting, this synergy has the potential to unlock new opportunities and shape more resilient strategies.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1How to Use AI for Smarter Investing in India
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    3Stock Market Prediction Using Machine Learning
    4Top 10 AI Tools for Stock Market Analysis
    5Can AI Predict the Stock Market?
    6Best AI-Based Trading Strategies Explained

    Frequently Asked Questions (FAQs)

    1. Is it possible for AI to correctly predict the stock market?

      Nobody can do it perfectly. However, AI can identify patterns and trends more quickly than humans.

    2. What distinguishes machine learning from artificial intelligence in the financial industry?

      While machine learning (ML) is the process by which machines “learn” from data to get better over time, artificial intelligence (AI) is the general concept of machines acting logically.

    3. Is it safe to use robo-advisors?

      Yes, the majority are subject to strict regulations. However, it is a good idea to look into their fees and history.

    4. Will AI take the place of human financial advisors?

      Not completely. While AI manages the data, humans continue to contribute their expertise, knowledge, and compassion.

    5. How does AI lower the risk of investments?

      Investors can take less time by using it to identify early indicators of fraud, volatility, or unusual market activity.

  • What is Derivatives?

    What is Derivatives?

    Most people are familiar with investing in stocks, but the world of finance offers many other options, such as mutual funds, commodities, ETFs, and derivatives. Among these, derivatives often remain a mystery for many investors and traders.

    In simple terms, a derivative is a financial contract and its value is based on an underlying asset. This asset could be a stock, currency, commodity, interest rate, or even an index. Because of this link to other assets, derivatives are considered a powerful trading instrument.

    But if you are planning to trade in derivatives, it is important to understand them properly. In this guide, we’ll take a closer look at derivatives and explain everything you need to know.

    What are Derivatives?

    Derivatives are financial instruments whose value is derived from another asset. This underlying asset can be a stock, bond, commodity, currency, interest rate, or even a market index.

    To understand this, here is a simple example. 

    Suppose you believe the price of crude oil will rise in the next month. Instead of purchasing crude oil physically, you can invest in a derivative contract linked to crude oil prices. This way, you’re speculating on market trends and potentially profiting from the price movement without owning the actual commodity.

    Derivatives allow investors to gain exposure to underlying assets at a lower upfront cost. Because of this, they are commonly used by both institutional and retail investors as part of advanced trading and hedging strategies.

    Features of Derivatives

    Derivatives offer various features that make them unique and profitable to use. These include:

    1. Value Based on Underlying Asset

    A derivative does not have value on its own. Its price is directly linked to the value of another asset. This makes derivatives dependent instruments. This means they fluctuate only when the price of the underlying asset changes.

    2. Future Settlement Date

    Derivatives are contracts that involve a future date for execution. When you enter a derivative trade, you agree on a price today, but the actual transaction happens later. This allows investors to speculate on future price movements or lock in prices in advance.

    3. No Ownership of Asset

    In derivative trading, you do not own the actual underlying asset. You are only agreeing to buy or sell it in the future or profit from its price changes. This makes it easier to access markets. Also, you do not need the full capital for the asset itself.

    4. Leverage

    Derivatives offer the advantage of leverage. This allows you to control large market positions with even smaller investments. This increases the potential for return, but the risk is also high. This is because even small movements can impact your position.

    5. Risk Management and Hedging

    This is one of the primary features of the derivatives. It helps you hedge against the potential losses by safeguarding your position. If you lock the prices today and then there is a fluctuation, the profits from the future price fluctuations stay safe.

    6. High Market Liquidity

    Many derivatives enjoy high liquidity. This means they can be easily bought or sold in the market. This allows the investors to enter or exit positions quickly without significant price impact.

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

    Types of Derivatives

    Derivatives meaning in finance is simple. These are the financial tools that help you earn with hedging and speculation. Based on structure, here are the types to know.

    1. Forward Contracts

    A forward contract is a private agreement. It is drafted between two parties to buy or sell an asset at a fixed price on a specific future date. These contracts are customized. You can trade them over-the-counter only. These are not traded on formal exchanges. These types of contracts offer flexibility. But they do carry a higher risk due to the lack of regulation and standardization.

    2. Futures Contracts

    Futures are similar to forwards. The main difference is that these are standardized and traded on recognized exchanges. They involve an obligation to buy or sell. This means the underlying asset is traded at a predetermined price on a set future date. This makes them more transparent and less risky in nature.

    3. Options Contracts

    Options provide the holder with the right. In these, there is no obligation to perform the underlying act at a specific price within a defined time frame. There are two types of contracts here, which are:

    • Call option – to buy
    • Put option – to sell

    These are widely used for hedging and speculative purposes. The options offer more flexibility than forwards or futures.

    4. Swaps

    Swaps are contracts. Under these, the two parties exchange financial obligations or cash flows. Common types include interest rate swaps and currency swaps. For instance, a company might swap a fixed interest rate for a floating one to better manage its loan repayments. Swaps are customized contracts and are typically used by institutions.

    How to Trade Derivatives

    Getting started with derivatives involves a few key steps. While the instruments might sound complicated to you, investing in them is not. So here are the steps to follow:

    1. Open a Trading and Demat Account

    Choose a SEBI-registered broker that offers derivatives. You’ll need both a trading and a Demat account to begin.

    2. Complete KYC and Enable Derivatives Segment

    Submit your KYC documents and request activation for the derivatives segment. Some brokers may assess your income or experience before approval.

    3. Understand Margin Requirements

    Derivatives need only a margin payment, which is a fraction of the full contract value. Check the margin terms with your broker before placing trades.

    4. Select Your Contract

    Pick a futures or options contract based on the asset you want to trade. It can be stocks, indices, or commodities. Once done, choose your expiry.

    5. Place and Monitor Your Trade

    Use your broker’s platform to place buy or sell orders. Keep track of your position and exit before expiry, or let it settle automatically.

    Read Also: Index Derivatives in India

    Pros and Cons of Derivatives

    Derivatives are a great option, but these do have their own pros and cons. Knowing them will help you make the right investment decision without delay. So, here are the ones to know:

    Pros of Derivatives

    1. Risk Management

    Every investor looks for an option that can reduce risk. This is where derivatives are great. They help with hedging and help manage risks better. This is mainly because of the flexible nature. 

    2. Leverage

    You can take large positions with a smaller amount of capital, thanks to margin trading. This makes derivatives cost-effective. This is impactful for traders seeking higher exposure.

    3. Portfolio Diversification

    Derivatives allow you to gain access to assets or markets. These are the ones that might be difficult to invest in directly. These help you spread your investment risks.

    4. Price Discovery

    The prices are based on the future value expectations. This helps in finding the fair market value as well. This improves transparency and helps in determining fair market value.

    Cons of Derivatives

    1. High Risk

    Even small price movements can impact your profit and losses greatly. This means the leverage that offers benefits can be risky, too. Hence, managing it accurately is very crucial.

    2. Complexity

    Derivatives are not beginner-friendly. These come with complex terms and a pricing mechanism. This is why you would need better strategies to invest in them. Hence, if market understanding is lacking, your investment will be impacted.

    3. Time-Bound Contracts

    Most derivatives have an expiry date. If the market doesn’t move in your favor within that time, you may lose your entire investment.

    4. Counterparty Risk

    In over-the-counter derivatives like forwards or swaps, there’s always a chance the other party may default on their agreement, especially in volatile market conditions.

    Read Also: What is Swaps Derivatives?

    Conclusion

    For many investors, derivatives may seem complex and intimidating. Their very nature often creates uncertainty. However, with the right knowledge, careful evaluation, and proper strategy, derivatives can be a valuable way to generate positive returns.

    At the same time, it is essential to align every trade with your financial goals. Doing so ensures that your investments serve a clear purpose and work toward the results you seek. So, are you ready to explore derivative trading with the right platform and advanced technical features?

    Start your journey on Pocketful, a platform designed to make trading smarter, simpler, and more accessible.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1What Is the National Commodity and Derivatives Exchange (NCDEX)?
    2MCX Trading: What is it? MCX Meaning, Features & More
    3Top Tips for Successful Margin Trading in India
    4What is Commodity Market in India?
    5What is Intraday Trading? 

    Frequently Asked Questions (FAQs)

    1. What makes derivatives riskier than regular stocks?

      Derivatives are time-bound and often involve leverage. Even small price changes can cause large losses, unlike stocks, which you can hold indefinitely. Timing and margin requirements make them more volatile and complex.

    2. Can I trade derivatives without prior experience?

      Technically, yes, but it’s not advised. Derivatives require a deeper understanding of markets, pricing, and risk. Beginners should first learn through demo accounts or low-risk strategies. Once done, you can go ahead with the real money.

    3. Are derivatives only for short-term trading?

      Mostly yes. Since they come with expiry dates, derivatives are best suited for short- to medium-term strategies. Long-term investors typically prefer cash market instruments like stocks or mutual funds.

    4. How do I know if I’m eligible for derivative trading?

      You must complete full KYC and request activation of the derivatives segment with your broker. Some platforms may also check your income, trading experience, or risk profile before enabling access.

    5. Can derivatives be used during volatile markets?

      Yes, and that’s where they shine. Derivatives are often used during volatility to hedge risks or take advantage of sharp price movements. However, higher volatility also increases the chances of loss if not managed carefully.

  • Best Multibagger PSU Stocks in India for 2025

    Best Multibagger PSU Stocks in India for 2025

    Historically, PSU stocks, or shares of government-owned companies, were largely overlooked by investors due to slow growth, political interference, and modest returns. However, these stocks have made remarkable comebacks in recent times. Several multibagger PSU stocks even delivered returns exceeding 200%, restoring the confidence of long-term investors.

    In this article, we will highlight 10 such PSU stocks that have generated impressive profits and are expected to continue performing well in the coming years.

    What Makes a PSU Stock a Multibagger ?

    A PSU stock qualifies as a multibagger when its robust financial fundamentals, consistent profitability, and strategic market opportunities result in its stock price appreciating several times over the initial investment. Such growth is typically influenced by factors like strong earnings growth, government support, sectoral tailwinds, and operational efficiency. Lets look at these factors in detail.

    • Government reforms and policies : The government is now providing professional management to private-like PSUs. Disinvestment, delisting and better governance are increasing the growth and profitability of companies.
    • Sector support : There is huge government spending in sectors like defense, railways, energy and infrastructure. Stocks like HAL, BEL, IRFC are benefiting from this.
    • Strong balance sheet and high dividend : Most PSU companies are debt-free and give large dividends as returns – like Coal India or NTPC. This gives investors a double benefit in returns.
    • Growth hidden in valuations : Many PSU stocks are available at cheap valuations due to being ignored for a long time. As soon as the company shows improvement, investors’ confidence returns and the share price rises rapidly.
    • Long-term perspective : It takes time to become a multibagger. Investors who have been patient have earned multifold returns even in PSUs.

    10 Multibagger PSU Stocks Based on Market Capitalisation

    CompanyCurrent Market Price (in ₹)Market Capitalisation (in ₹ crore)52-Week High (in ₹)52-Week Low (in ₹)
    Hindustan Aeronautics Ltd (HAL)4,4092,94,8635,1663,046
    Bharat Electronics Ltd (BEL)3672,68,013436240
    Coal India Ltd3752,31,287542349
    Indian Railway Finance Corp (IRFC)1221,59,893183108
    Power Finance Corporation (PFC)3931,29,562566357
    Mazagon Dock Shipbuilders2,7101,09,3343,7781,918
    NHPC Ltd79.980,22010071
    BEML Ltd3,88416,1734,8752,346
    Engineers India Ltd (EIL)19510,949255142
    Shipping Corporation of India2129,882277138
    (Data as of 26th August, 2025)

    Read Also: Multibagger Penny Stocks

    Overview of the 10 Multibagger PSU Stocks in India 

    A brief overview of the Multibagger PSU Stocks in India is given below:

    1. Hindustan Aeronautics Ltd (HAL)

    Hindustan Aeronautics Ltd i.e. HAL is the name of India’s air power which has been the backbone of our fighter planes and helicopters for decades. This company not only manufactures modern fighter jets like Tejas, but also specializes in aircraft maintenance, upgrades and support systems. HAL’s network is spread across the country and it is also continuously promoting defense exports. Under ‘Make in India’, HAL has emphasized on indigenous aircrafts and technologies, which has strengthened both India’s strategic power and self-reliance.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -8.26287.18647.52
    (Data as of 26th August, 2025)

    2.  Bharat Electronics Ltd (BEL)

    Bharat Electronics Ltd i.e. BEL is a strong name in the country’s defense technology. This company manufactures radar systems, missile guidance, and communication devices for the army. The special thing is that BEL is no longer limited to just the defense sector – it is also working on civil projects such as smart city solutions, medical devices and election systems (such as EVM). The company is constantly researching new technologies and strengthening ‘Make in India’. Today BEL has become an important link in the direction of India’s technological self-reliance.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    19.54259.95883.1
    (Data as of 26th August, 2025)

    3. Coal India

    Coal India is not just a company, it is the backbone of the country’s energy needs. This is the same name that has been continuously supplying coal to thermal power plants and large industries in India for years. It has many units spread across the country which handle work from mining to transportation. Today, when the country talks about energy security, Coal India is at the forefront. The company has improved mining methods in the last few years, has also taken care of the environment and has made the work better by adopting technology.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -30.1763.4164.73
    (Data as of 26th August, 2025)

    4. Indian Railway Finance Corporation (IRFC)

    IRFC is the financial backbone of Indian Railways. This company works to raise and manage funds for railway projects. Whether it is the purchase of new trains, expansion of infrastructure or financing of mega projects IRFC is engaged in strengthening the railways silently. It comes under the Ministry of Railways and is a fully government-owned company. In 2025, when the modernization of railways is gaining momentum, the role of IRFC has become even more important as it is making this growth possible economically.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -32.45475.53392.15
    (Data as of 26th August, 2025)

    5. Power Finance Corporation (PFC)

    Power Finance Corporation is an important financing company for India’s power sector. This company provides long-term loans and financial assistance to power projects, increasing the capacity of power distribution and generation across the country. PFC is playing an active role in turning the government’s ’24×7 electricity’ mission into ground reality. The company’s network is spread across the country and it has access to large power developers. By 2025, PFC is also increasing investment in areas like green energy, renewable sources and grid upgrades.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -23.6307.23396.34
    (Data as of 26th August, 2025)

    6. Mazagon Dock Shipbuilders

    Mazagon Dock Shipbuilders is India’s leading government shipbuilding company, which builds warships and submarines especially for the Navy. Many state-of-the-art ships are built in this yard located in Mumbai, which increases the strength of the Indian Navy. Mazagon Dock is not limited to just construction, but is also fully capable of design, testing and maintenance. In recent years, the company has focused on indigenous technology and self-reliant defense projects. By 2025, Mazagon Dock has established itself as a strategic and futuristic PSU.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    25.731,430.983,030.64
    (Data as of 26th August, 2025)

    7.  NHPC Ltd

    NHPC i.e. National Hydroelectric Power Corporation is India’s largest hydro power company. This company is running large hydroelectric projects in the hilly and river-dominated areas of the country. NHPC’s work is not limited to power generation only, but it also focuses on sustainable use of water sources and environmental balance. In 2025, NHPC has emerged as a leading PSU in clean energy and environment-sensitive power generation, a strong partner towards making India energy self-reliant.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -16.87125.77260.72
    (Data as of 26th August, 2025)

    8. BEML Ltd

    BEML i.e. Bharat Earth Movers Limited, is a multi-sector PSU that manufactures heavy machinery for defense, mining and railway sectors. From tanks to railway coaches and metros BEML’s products are being used in every corner of the country. The company is headquartered in Bengaluru and focuses on indigenous manufacturing and technological self-reliance. In 2025, BEML has proven itself as a fast-growing PSU with new contracts and export orders in the defense and infrastructure sectors.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -0.84165.53595.42
    (Data as of 26th August, 2025)

    9. Engineers India Ltd (EIL)

    Engineers India Ltd is a government company that provides engineering, design and consultancy services for oil-gas and infrastructure projects. Be it a refinery or a petrochemical plant, a pipeline project or a city gas network — EIL’s expertise is visible everywhere. The company is taking up projects not only domestically but also internationally. By 2025, EIL has also started working on green energy and climate-sensitive projects, further strengthening its identity as a modern, responsible and technology-enabled PSU.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -8.92186.98178.57
    (Data as of 27th August, 2025)

    10. Shipping Corporation of India (SCI)

    Shipping Corporation of India i.e. SCI is India’s leading merchant navy company providing marine freight, tanker service and offshore support services. Its services are spread across the country as well as internationally. SCI is playing an important role in increasing India’s maritime trade capacity. In recent years, the company has upgraded its fleet and adopted digital technology. By 2025, SCI is taking itself in a new direction by moving from public to private transition and better management.

    Know the Returns: 

    1Y Return (%)3Y Return (%)5Y Return (%)
    -22.6583.42237.95
    (Data as of 27th August, 2025)

    Key Performance Indicators (KPIs)

    The key performance metrics of Multibagger PSU Stocks are mentioned below:

    CompanyOperating Margin (%)Net Profit Margin (%)ROE (%)ROCE (%)Debt to Equity
    Hindustan Aeronautics Ltd (HAL)34.9526.8623.9117.410.00
    Bharat Electronics Ltd (BEL)29.9022.2426.6433.720.00
    Coal India Ltd33.0524.3035.6724.240.09
    Indian Railway Finance Corp (IRFC)99.4223.9412.3449.987.83
    Power Finance Corporation (PFC)96.9928.6519.5265.868.25
    Mazagon Dock Shipbuilders26.8219.9230.3934.50.00
    NHPC Ltd54.6832.847.576.210.99
    BEML Ltd11.387.2710.1311.430.08
    Engineers India Ltd (EIL)20.4915.2821.7223.440.00
    Shipping Corporation of India17.9714.5010.1410.000.23
    (Data as of March, 2025)

    Read Also: List Of Best PSU Stocks in India

    Factors to be Considered Before Investing in PSU stocks

    The opportunity to invest in Multibagger PSU stocks is definitely big, but every opportunity also comes with some risk and requires prudence. Paying attention to the points given below is the mark of a smart investor:

    • Understand the role of the company and the situation of the sector : Every PSU works in a different sector – like energy, defense, infrastructure or finance. Before investing, it is important to understand what is the policy support of that sector and what is the growth potential in it in the coming years.
    • Do not take a decision just by looking at past returns : PSU stocks have performed well in recent years, but investing just by looking at old charts can be wrong. It is important that you see whether the company has a solid basis to move forward or not – like new order book, project pipeline and policy support.
    • Government involvement and disinvestment policy : PSU companies have a government stake, which can sometimes lead to political decisions rather than commercial ones. While the disinvestment policy has proved beneficial for many companies — it is important to be clear about its timing and impact.
    • Check valuations properly : PSU stocks may look cheap, but their valuations may also be down due to poor business outlook or fundamentals. Invest keeping in mind the PE ratio, book value and future earnings.
    • Policy and regulatory risks : Public companies are often affected quickly by policy changes — such as tax policies, licensing or environmental regulations. Therefore, it is important that you also evaluate the company’s business model from the perspective of these risks.
    • Understand the dividend and return structure : PSU stocks often pay high dividends, which is good for long-term income. But sometimes companies only pay dividend-based income and growth is low. Understand this balance of returns before investing.
    • Have a long-term perspective : Multibagger PSU stocks are not created overnight. They take time — sometimes up to 2–4 years. So if you are expecting quick returns, this strategy is not for you. Only patience and understanding can yield true profits.

    Read Also: Top 5 PSU Penny Stocks List in India

    Conclusion

    Investing in PSU stocks can be rewarding if approached with thorough research and a disciplined, long-term strategy. Public sector companies are becoming increasingly attractive due to strong order books, improved corporate governance, and government policy support. However, each stock should be evaluated carefully based on its sector performance, valuation metrics, and growth potential. For investors with a long-term perspective, PSU stocks have the potential to generate substantial returns. It is advised to consult a financial advisor before investing.

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    Frequently Asked Questions (FAQs)

    1. What are multibagger PSU stocks?

      These are the stocks of government companies that have the potential to give multifold returns over time.

    2. Are PSU stocks safe for beginners?

      Yes, but it is important to understand the company’s position and sector well before investing.

    3. How long should I hold a multibagger PSU stock?

      It is better to have a 3 to 5 year perspective in such stocks.

    4. Do PSU stocks give good dividends?

      Yes, most PSU companies pay regular and high dividends.

    5. What risks are involved in PSU stock investment?

      Risks may include policy changes, political interference and disinvestment.

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