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Aadhar Housing Finance: IPO And Key Insights

If you want to buy a house but don’t have enough money, you’ll go to a bank and ask for a loan. But what if they say no? Is there another way to secure a loan and buy the house of your dreams? Indeed, some businesses offer housing loans to individuals and are governed by the Reserve Bank of India.

In this blog, we will introduce you to Aadhar Housing Finance, a company that plans to go public this May 2024.

Company Overview

India’s largest housing finance company is Aadhar Housing Finance Limited, founded in 2010 by the Dewan Housing Finance Corporation Limited (DHFL). The company targets consumers with monthly incomes of INR 5,000 to INR 50,000 and higher. Its primary goal is to provide inexpensive solutions to the lower and middle classes. It offers house loans for various purposes, including home improvements, purchases, and extensions.

The company joined forces with DHFL Vysya in 2017, and on 4 December 2017, the combined entity was rebranded as Aadhar Housing Finance. This merger expanded the company’s reach throughout India.

A prominent investment business with an AUM of $991 billion, Blackstone, also known as BCP Topco VII Pte. Ltd., promotes Adhar Housing Finance Limited. They own around 98.72% of the company’s stock, and ICICI Bank holds 1.18%.

Aadhar Housing in Numbers (As per Prospectus)

Total loan disbursement by the company is nearly INR 5,903 crores, with a total AUM of INR 17,233 crores.
The company is present across 20 states and union territories and has more than 479 offices and branches.
It has more than 2,33,000 active loan accounts.
The company has 4700+ channel partners and 11600+ Aadhar Mitras, to whom they offer referral fees for sourcing customers.
As of September 2023, the company had 3,695 employees, and its subsidiary, Aadhar Sales and Services Private Limited (ASSPL), had 1,851 employees.

Details of IPO

An initial public offering (IPO) of Aadhar Housing Finance will comprise an INR 2,000 crore offer for sale and an INR 1,000 crore new issue. The IPO price range is INR 300 to 315 per share, with a minimum lot size of 47 shares. The proceeds from the IPO issue will be used for general corporate purposes, lending, and future capital requirements.

Key Details

Face Value of Share	INR 10
Price Band	INR 300 to INR 315 per share
Employee Discount	INR 23 per share
Market Lot	47 Shares
Total Fresh Issue Size (INR)	1,000 crores
Total offer for sale (INR)	2,000 crores

Timeline

IPO Open Date	8th May 2024
IPO Close Date	10th May 2024
Finalization of Allotment	13th May 2024
Refund and credit of shares	14th May 2024
Listing Date	15th May 2024

Reservation

Investor Category	Shares Offered
QIB Shares Offered	Not more than 50% of the issue
NII Shares	Not less than 15% of the issue
Retail Shares Offered	Not less than 35% of the issue
Total Shares Offered	95,238,095

Financial Highlights

Let’s have a look at the financials of the company:

Balance Sheet (INR crore)

Particulars	31st March 2023	31st March 2022	31st March 2021
Fixed Asset	122.2	116.76	130.66
Current Asset	16,495.67	14,259.05	13,499.67
Total Asset	16,617.87	14,375.81	13,630.33
Share Capital	3,697.66	3,146.69	2,692.82
Current Liability	12,872.42	11,180.79	10,890.64

The above chart shows that while the company’s current liabilities are increasing at a rate of 15% on a year-over-year basis, its current assets are expanding. They were INR 14,259 crores in FY 2022 and climbed to INR 16,495 crores in FY 2023.

Income Statement (INR crore)

Particulars	31st March 2023	31st March 2022	31st March 2021
Total Income	2,043.52	1,728.56	1,575.55
Total Expenses	1,322.70	1,161.20	1,143.04
Profit before tax	695.82	567.36	432.51
Profit after tax	544.76	444.85	340.13

Income Statement of Aadhar Housing Finance

The company’s overall income went from INR 1,728 crores in FY 2022 to INR 2,043 crores in FY 2023. In contrast, the company’s profit after taxes climbed at an average rate of 22% in FY 2023 and 30% in FY 2022 relative to their prior years.

Cash Flow Statement (INR crore)

Particulars	31st March 2023	31st March 2022	31st March 2021
Net Cash flow from operating activities	-1,155.69	-906.75	-1,202.29
Cash flow from investing activities	-476.53	822.57	-480.48
Cash flow from financing activities	1,463.19	274.85	701.39

Cash flow Statement of Aadhar Housing Finance

Strength and Weakness of the Company

Strength

The company has a solid and comprehensive process to track the underwriting, collections, and asset quality.
A vast network of branches and sales channels also helps the company increase its loan growth rate.
The company’s profit after tax has been increasing for the last three years, which indicates that the company has been performing well.

Weakness

Any unfavourable change in interest rates by the regulator, i.e., RBI, can significantly impact their profit margin.
If the company fails to effectively mitigate the risks associated with the loans it extends to the public, non-performing assets will rise, thus compromising the quality of its loan portfolio.
The company has had negative cash flow from operating activities for the past three years. However, remember that most companies operating in the lending business have a negative operating cash flow because lending is the operational activity of such companies.

Awards and Recognitions

The company has been awarded “Pradhan Mantri Awas Yojana – Empowering India 2022” for its significant contribution towards housing for all initiatives.
It has also won the “Best Data Transformation” award by Elets Technomedia for being a data-driven organization.
The Economic Times recognized Aadhar Housing Finance as one of the best brands of 2022.
Synex Group awarded the company “Resilient Organisation of the Year” at the India Credit Risk Management Summit 2023.

Conclusion

Aadhar Housing Finance, one of India’s biggest housing finance companies, is coming with an IPO. Along with its income, the company’s profitability is rising yearly, even though its net interest margin decreased in FY 2023 compared to FY 2022. If you are planning to apply for the IPO of this company, then you must go through all the risk factors and consult your investment advisor before making any investment decision.

Frequently Asked Questions (FAQs)

When will the Aadhar Housing Finance IPO open?
Aadhar Housing Finance IPO will open from May 8th, 2024, to May 10th, 2024, and an investor within these three days can apply for it.
When was Aadhar Housing Finance established?
The company was founded in 2010 by the Dewan Housing Finance Corporation Limited (DHFL).
Is Aadhar Housing Finance a profit-making company?
Indeed, the company has reported a profit for the previous three years. In FY 2023, it reported a profit of INR 544.76 crores, a 22% YoY increase.
What is the minimum lot size that retail investors can subscribe to?
A retail investor is required to subscribe to a minimum of 1 lot of 47 shares amounting to INR 14,805.
What is the tagline of Aadhar Housing Finance?
The tagline of the company is “Ghar Banega, Toh Desh Banega”.

May 7, 2024

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

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

What are T-bills?

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

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

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

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

Issuers of T-bills

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

Did you know?

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

How do T-bills work?

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

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

Benefits of Investing in T-bills

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

Risks associated with T-bills

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

Investing in T-bills

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

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

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

Conclusion

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

Frequently Asked Questions (FAQs)

What is the minimum investment amount for T-Bills?
The minimum investment amount for T-Bills depends on the country and the specific auction. In India, it is INR 10,000 and multiples of INR 10,000 thereafter.
Are T-bills adjusted for inflation?
No, T-Bills are not inflation-adjusted securities. The interest earned on T-Bills is fixed and does not change with inflation.
Can the investors reinvest the proceeds from T-Bills automatically after maturity?
Some platforms or financial institutions offer automatic reinvestment options for matured T-bills, which allow investors to reinvest the amount in new T-bills without manual intervention.
Are T-bills and T-bonds different?
T-Bills are short-term securities with maturity periods of up to one year or less, while T-Bonds and T-Notes refer to longer-term securities with maturity periods ranging from 2 to 30 years.
How does a change in credit rating affect returns on T-bills?
T-Bills are backed by the government’s creditworthiness, making them less sensitive to credit rating changes than corporate bonds or other debt securities. However, significant changes in a country’s economic or fiscal health may impact investor confidence and T-Bill prices.

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

May 6, 2024

Cost Inflation Index (CII) For FY 2023-24: Index Table, Meaning, Calculation

In India, we have to pay the capital gains tax when you sell something you have had for a while and make a profit from it. But what if inflation has totally eaten away your profit? This is where the Cost Inflation Index, or CII acts like a saviour for Indian investors and makes sure that you are only paying tax on actual gains after adjusting for inflation.

In this blog, we will delve deeper into the world of CII, explaining its role in capital gains calculations, and how it benefits investors.

What is Cost Inflation Index

The CII is a tool used in India to account for inflation while calculating capital gains tax on the sale of long-term assets where inflation is defined as a rise in the prices of goods and services over time. This indicates that the same amount of money will buy you fewer items over time.

In India, the Central Government makes the final decision on the Cost of Inflation Index. The Central Board of Direct Taxes (CBDT), which reports to the Ministry of Finance, is usually involved in the process.

The CBDT is responsible for formulating and administering direct tax policies in India. They most likely evaluate data and economic trends before recommending CII levels to the government. The final notice of the CII for each fiscal year is subsequently issued in the official gazette.

Let us understand why CII is essential with an easy example:

Suppose you bought a property in 1990 for INR 1 lakh and sold it in 2023 for INR 50 lakh. On paper, you made a profit of INR 49 lakh. However, due to inflation, the actual purchasing power of INR 50 lakh is much lower than INR 1 lakh in 1990.

CIIs help address this difference by taking inflation into account and providing a fairer picture of your actual capital gain (profit adjusted for inflation).

The Base Year Concept

The concept of base year likely originated around the 18th or 19th century, coinciding with the development of economic theories.

The absence of a fixed reference point leads to less accurate comparisons in earlier times. The evolution of economic data collection resulted in a growing need for a standardized reference point.

Opting for a specific year as the foundational benchmark enabled the facilitation of comparisons pertaining to several economic indicators such as prices, production, etc.

In the 21st century, the importance of using a ‘normal’ year, free from major economic disruptions, as the base year became more recognized.

Now, many countries, including India, choose to revise their base year periodically, usually every 5-10 years. This allows them to take into account changes in the economy and enhance the accuracy of comparisons.

In this context, India’s base year was changed from 1981 to 2001 because of the following reasons:

Difficulty in valuing older Asset
By 2017, assets bought before 1981, the original base year, had probably been held for many decades. Thus, it became harder to find accurate data to determine the fair market value (FMV) of assets as of April 1, 1981, which eventually resulted in disagreements between taxpayers and tax authorities.
Efficiency and Accuracy
Using a more recent base year (2001) made it easier for taxpayers to use current data to assess the value of their assets—this simplified and improved the capital gains calculations.

Additionally, the change was implemented in the Finance Act of 2017, and taxpayers can calculate the cost price using either the actual cost or the higher fair market value as of April 1, 2001.

Cost Inflation Index Calculation

When calculating capital gains tax, you can use the CII to inflate the original buy price of the asset to its present value.

This reduces your taxable capital gain and lowers your tax burden.

The Indian Government publishes a CII table every year, which shows an index value for each year, with 100 as the base year. Let us have a quick overview of formula for CII:

Cost of Inflation Index = (Current year index / Base year Index) * 100

For example, an individual bought a piece of land in the year 2000 for INR 2 lakhs and sold it in 2024 for INR 10 lakhs. Here, the capital gain is INR 8 lakhs.

Now suppose, the CII for the year 2000 is 150, and for the year 2024 is 348.

Using the CII values, the adjusted buy price will be: (348/150) * 2 = INR 4.64 lakhs.

Eventually, your capital gain would be INR 10 lakhs (selling price) – INR 4.64 lakhs (adjusted cost) = INR 5.36 lakhs, which was 8 lakhs earlier.

Benefits of CII for Investors

The absence of the CII could distort an investor’s earnings as a result of inflation. Imagine selling an asset you bought decades ago for a seemingly high price. Nevertheless, owing to the impact of inflation, the adequate purchasing power of the money could be significantly lower. CII ensures your profit reflects the real increase in value and not just inflation-driven price hikes.
CII helps investors reduce their taxable capital gains since it lowers the difference between the selling price and the inflation-adjusted cost price by adjusting the original purchase price for inflation. This translates to a lower capital gain and lower tax liability.
CII can encourage businesses to focus on long-term growth and sustainability rather than short-term gains. By aligning investor incentives with long-term success, the economy may experience more sustainable and balanced growth.
CII serves as a safeguard for investors, ensuring equality in the tax system, and improving long-term investment results.

Conclusion

The CII is vital for India’s tax system. It promotes fairness and encourages long-term investment by combating the distorting effects of inflation on capital gains tax calculations. Whether you are a seasoned investor or just starting your investment journey, it is crucial to have a grasp of the CII and how it influences the taxation of your investments. Additionally, being aware of the CII can help you make better decisions to optimize your tax planning.

Frequently Asked Questions (FAQs)

What is CII?
The Cost of Inflation Index is a tool used in India to adjust the buy price of assets when calculating capital gains tax.
Why is CII important?
It helps in paying your tax on your actual profit, not just inflation-driven price.
Who decides the CII?
CII’s final decision rests with the Central Government based on the CBDT recommendation.
Is CII is applicable to all the assets?
CII generally applies to long-term capital gains tax on assets like property or stocks.
Can I use the actual purchase price instead of CII?
Yes, you can choose the actual purchase price or the FMV as of 1 April 2001 (whichever is higher) for calculating the cost price.

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

May 6, 2024

Strategies To Boost Your IPO Allotment Chances

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

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

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

Objectives of IPO

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

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

Read Also: What is the IPO Allotment Process?

What is Quota in an IPO?

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

Retail Individual Investors

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

Non-Institutional Investors (NIIs)

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

Qualified Institutional Investors (QIBs)

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

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

Procedure of Allotment

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

Application

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

Allotment

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

Post Allotment Notification

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

How to increase the chances of Allotment?

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

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

Conclusion

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

Frequently Asked Questions (FAQs)

What is ASBA?
ASBA stands for Application Supported by Blocked Amount. It is an initiative of the SEBI, where the bank blocks an investor’s amount for subscribing to an IPO instead of upfront debit.
Is getting shares in an IPO guaranteed?
No, the allotment of shares entirely depends on application volume and quota systems.
How can I improve my chances of allotment?
Apply early and consider applying through multiple eligible accounts.
What happens after the application window closes?
The company and registrar analyse the subscriptions received, and allotment is done accordingly.
Can I sell IPO shares before they are listed on the stock exchange?
No, you can only sell shares once the IPO is listed on the stock exchange.

May 6, 2024

What Is Contract Note and Its Significance

In the finance and the stock market, trust and security are very important for investors and traders. One such document that plays a paramount role in financial transactions is the Contract Note. This blog will help you understand the contract’s note definition, importance, and purpose.

Understanding contract note is of utmost importance to all market participants, whether a newcomer or an experienced professional, as it prevents fraud and acts as a legal record for future purpose.

What is a Contract Note?

It is a legal document that records all the successful transactions the broker executes. It is provided by the broker whenever a trade has been executed. All types of transactions are recorded in a contract note, including equity and derivatives (instruments whose value depends on an underlying asset such as equity, commodity, currency, etc.). A contract note was first introduced by the regulator, i.e., SEBI in India.

The SEBI also has prespecified the format of a contract note and the time by which it should be delivered by the broker that is within 24 hours of executing the trade.

The contract note includes transactions executed with timings, profit / loss summary, charges, taxes, and many more important details.

Example

Sahil is an intraday trader. On December 10, 2023, he bought shares of a steel company worth INR 12,000 and 9,000 in a textile company. Within 24 hours of executing the trades, preferably by next morning, he will receive an email with a note attached that contains details of the trade executed – the number of shares bought, at what price, charges, taxes, etc.

Read Also: Cost of Carry in Futures Contract

Purpose of a Contract Note

It provides all the necessary details about trades executed and allows traders and investors to monitor various trades executed throughout the day.
It helps the traders get a summary of the trades and facilitates record keeping for both the parties (investors and brokers). A contract note can be presented if any fraud or dispute arises. Generally, complaints can be registered up to 6 months after the transaction date.
It explains the differential amount in gross gain / loss and net gain / loss (gross proceeds received before any deductions of brokerages, taxes, and charges).
Contract notes are mandatory to ensure compliance with the regulatory authorities.

Format of a Contract Note

The name of the trading member (Stock Broker) along with its address and SEBI registration number, is mentioned at the top of the contract note.
The left side of the contract note includes:

Contract Note Number
Trade Date
Name of the client
Address of the client
PAN of the client
Unique Client Code (UCC) of client and many more details

Information regarding the exchange on which transactions took place is shown on the right side of the contract note, including the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) or Multi Commodity Exchange (MCX).
Settlement Number and Settlement Date under the respective exchange heads are also shown on the right side.
The main content of the contract note is shown after the above part on the right side. The content includes:

Order Number – A unique number is created and assigned for each trade executed. This number will be different for each of the orders executed on the platform.
Order Time – Shows the exact time the order was placed.
Trade Time – This indicates the exact time when the order was executed on the exchange. Order time and trade time may be different due to the market momentum, exchange response time, etc.
Security or Contract Description – It mentions the name of the stock, futures, and options traded.
Buy (B)/ Sell (S) – Indicates the type of trade. It shows “B” for a buy side trade and “S” for a sell trade.
Quantity – This shows the number of shares or lots (in case of options and futures) bought or sold. It shows a positive number when share / lots are bought and a negative number when shares / lots are sold.
Gross Rate – It represents the market price of the stock at which the order was executed.
Brokerage per unit – Accounts for the brokerage charged for each stock / lot.
Net Rate per unit – Similar to gross rate/unit but there is a slight difference. The net rate per unit accounts for the actual price at which the trade occurred, excluding any brokerage fees.
Closing Rate/Unit – This represents the closing price of the derivatives contract traded for mark to market settlement. The Mark to market settlement is daily settlement of profit and losses arising due to the change in the security’s market value.
Net total before levies – Calculates the total amount liable to pay or receive after executing the trades. It excludes the fees like brokerage and taxes.

The second half of the contract note covers all the monetary aspects, including net payable/receivable, taxes, brokerage, and STT.

Net payable/receivable – The last row indicates the net amount payable/receivable after all the levies and taxes. Note that Depository Participant (CDSL and NSDL) charges, call and trade charges are available in the ledger report and not specified in the contract note.
Taxes and Charges – Taxes and charges are calculated based on the transaction value. It includes securities transaction tax, goods and services tax, stamp duty, exchange transaction charges, and SEBI turnover fees.
Brokerage – Commissions or fees charged by the broker for executing trades on behalf of the client.
STT – Stands for Securities Transaction Tax. It is levied on all transactions made on the stock exchanges by the Government. The STT rates differ based on the product segment.

Pay in / Pay out Obligation: This amount represents the debit and credit transactions. If a debit transaction occurs, it is denoted with a negative sign or vice versa.
Terms and Conditions: Contract notes may contain additional terms and conditions agreed upon by the parties involved in the transaction..

A Contract Note does not contain the following details:

DP Charges – It means Depository Participant charges, which are levied compulsorily by the depositories (CDSL or NSDL) when shares are sold from a demat account. The DP charges are not presented on the contract note but are shown in fund statements.
Payment Gateway Charges – Charges levied for authorizing credit card or direct payment processing by the banks.
Call and Trade Charges – Call and Trade is a service offered by many brokers that offers their clients to call a specific number and place an order to buy or sell shares. The charges depend on the broker and type of brokerage plan selected.
Margin Details – Margin refers to the loan taken from the brokers to trade. The contract note doesn’t represent the margin details of the trades executed.
Others – Outstanding positions of a client, details about past trades, etc.

Read Also: What is Contrarian Investing?

Conclusion

The Contract Notes are paramount to investors and traders by providing documentation and keeping records of all transactions. Understanding and utilizing the components of a contract note effectively helps investors to safeguard their interests in financial markets. It helps the investors to understand the brokerage charges and accurately assess the cost of transactions. The guidelines and format specified ensure transparency and compliance with regulatory authorities that assist investors in making informed decisions.

Frequently Asked Questions (FAQs)

Can a contract note be issued in an electronic form?
Yes, a contract note can be issued in an electronic format called an E-Contract Note (ECN) or a Digital Contract Note.
What time should the contract note be delivered?
As mandated by SEBI, a Stock Broker should issue a contract note within 24 hours of executing the trades.
Can I get a contract note for the purchase of shares?
Yes, a contract note from a stock broker should be received whenever a transaction takes place.
Is the contract note provided free of charge?
E-contract Note is provided by the broker via email for free of charges. Most brokers charge a fee for physical contract notes sent via courier.
Are margin details available in the contract note?
No, the contract note does not contain the margin details; instead, the margin statement is a separate document containing this information.

May 4, 2024

What Is Bowie Bond (Music Bonds) : History, Features, Advantages & Disadvantages

Have you ever heard of an investment that lets you earn money from your favorite songs? Buckle up, music lovers, because that is exactly what Music bonds are all about.

In this blog, we will delve into the fascinating history of Music bonds, from their birth with Bowie’s ingenious move in the 90s to their recent comeback fueled by the streaming revolution.

Bowie Bond Overview

Music Bonds, also known as Celebrity Bonds or Bowie Bonds, are a financial instrument linked to the music industry.

Investors purchase bonds that are backed by the future royalty earnings of an artist’s catalogue. Artists can access a lump sum money upfront by selling these bonds, without giving ownership of their music.

Royalty income, in the context of music bonds, is the stream of payments an artist earns when their music is used in several ways. Different sources of Royalty income are as follows:

Mechanical Royalty – This is paid whenever a physical or digital copy of a song is reproduced, such as CD sales, downloads, or streaming services.
Performance Royalty – Whenever a song is publicly performed whether in live concerts or through broadcasts (radio, TV), performance royalties are generated.
Synchronization Royalty – This is paid when a song is used in combination with visual media such as movies, TV shows, commercials, or video games.
Print Music Royalty – If sheet music or printed lyric books are created for the song, these royalties are triggered by their sale.

Investors get a return on their investment in the form of interest payments derived from the royalties generated by the artist’s music.

Essentially, it is a way for musicians to turn their music into a tradable asset and for investors to profit from the songs with a proven track record.

Furthermore, when you invest in a music bond, you are essentially buying a share of the future income stream generated by the royalties that we discussed above.

History of Music Bonds

Their history is not quite as old as you might think.

The concept of Music Bonds is relatively new, with David Bowie being credited as a frontrunner in the late 1990s. In 1997, Bowie sold bonds tied to his extensive music catalogue, raising $55 million. This act brought the idea of music bonds into the spotlight.

After the Bowie bonds proved successful, David Pullman, a boutique investment bank, established comparable bonds based on the potential earnings stream of artists including James Brown, Ashford & Simpson, the Isley Brothers, and Holland-Dozier-Holland books.

The use of music bonds seems to have gained traction again in recent years. This might be because of factors like the rise of streaming services which provide a more predictable stream of royalty income.
The rise of streaming services like Spotify and Apple Music has transformed the music industry. Streaming provides a more predictable and higher stream of royalty income compared to traditional album sales. This renewed viability has sparked a resurgence in music bonds.

The mid-2000s saw a sharp decline in music sales, impacting the revenues generated by the music bonds. This, coupled with the complex financial structuring of these bonds, led to a period of decreased popularity. The original Bowie Bonds were even downgraded to ‘junk status’ due to declining income.

Features of Music Bonds

The continuous success of the artist and their music is crucial to the investment’s success. A decline in popularity may result in fewer royalties and lesser profits.
Unlike traditional bonds, Bowie Bonds were not transferable. This limited the liquidity for investors who might have wanted to sell their bonds before maturity.
These bonds are often not accessible to retail investors due to high minimum investment amounts.
Music bonds fall outside traditional asset classes like stocks and bonds. They are considered higher-risk and higher-reward investment options.
Music Bonds are backed by the future royalty earnings of the artist’s music catalogue. These royalties come from several sources like streaming services, radio play, and merchandise sales.
Some music bonds offer fixed interest payments, while others may have variable payouts depending on the royalty income.
Music Bonds function like debt instruments, but instead of relying on a company’s performance, their success depends on the artist’s ability to maintain a steady stream of royalty income over the bond’s life.

Advantages of Music Bonds

Upfront Capital – For artists, it provides a lump sum of cash without selling the ownership of the music catalogue, which can be useful for funding their recordings or other ventures.
Monetization – It allows artists to capitalize on the value of their existing music, especially established artists with a strong back catalogue.
Hedge against Inflation – Royalty payments tend to rise with inflation, offering some protection against its effects.

Disadvantages of Music Bonds

Availability – Music bonds are not widely offered to the public and may require high minimum investments.
Complexity – These bonds can involve complex financial structures and may be challenging for beginners to understand.
Suitability – They might be suitable for accredited investors with a high-risk tolerance but are not for everyone

Future Outlook

The future of music bonds remains uncertain as fluctuating royalty rates pose challenges.

New technologies like blockchain and Decentralized Finance (DeFi) offer exciting possibilities. The tokenisation of music catalogues could allow for more artist-driven and transparent investment models.

Read Also: What are Bond Yields?

Conclusion

The evolution of music bonds is a testament to the ever-changing music industry. From David Bowie’s groundbreaking deal to blockchain technology, this financial instrument has continuously adapted to find its place.

As the music industry evolves, it will be fascinating to see how music bonds transform alongside it. Will they become a mainstream investment option? Only time will tell, but the world of music bonds is an exciting space to watch.

Frequently Asked Questions (FAQs)

What are music bonds?
An investment option backed by future royalty earnings of an artist’s music catalogue. Artists get money upfront; investors get a return based on the song’s performance.
Are music bonds a good investment?
It depends; streaming makes income more predictable, but success relies on the artist’s popularity and platform dominance.
Are music bonds risky?
Yes, music bonds are considered riskier than traditional investment options,s as the success depends on the artist’s continued popularity and streaming trends.
Where can I learn more about music bonds?
You can research about the music industry news and financial websites for in-depth insights.
Who introduced Music Bonds?
David Bowie is the founder of Music Bonds.

May 3, 2024

Intrinsic Value vs Book Value

Have you ever wondered if a company is worth more or less than its price tag?

Book value gives a snapshot of a company’s financial health based on accounting records, but it does not tell the whole story. That is where intrinsic value comes in. It is like looking into a crystal ball, trying to estimate a company’s true worth based on its future potential.

In this blog, we will deep dive into book value and intrinsic value, uncovering the key differences, and why they are important for investors.

Intrinsic Value

The term intrinsic value gets thrown around a lot in finance, especially when talking about stocks and businesses. It refers to an asset’s inherent worth, independent of what the market is currently willing to pay for it.

There are two primary approaches to understand the intrinsic value.

1. Present Value of Future Cash Flows

This is a common approach for stocks. The idea is that a company’s true value is based on the amount of cash it is expected to generate in the future, discounted back to the present day.

The most common method for stocks is the discounted cash flow (DCF) analysis. This approach involves estimating a company’s future cash flows, and then discounting them back to their present value. The idea is that a company’s intrinsic value is essentially the sum of all its future cash flows.

The DCF approach can be summarized as follows:

Estimating future cash flows by analysing the company’s financial statements, and industry trends to forecast its future earnings and cash flow generation.
Choose a discount rate that reflects the time value of money and the riskiness of the investment. A higher-risk company would require a higher discount rate.
Discount each year’s cash flows to present value using the chosen discount rate.
The sum of the discounted cash flows represents the company’s intrinsic value.

2. Underlying Value of the asset

This is more general and can apply to anything you own, not just stocks. It is the value of the parts that make up the whole.

Furthermore, the market price of an asset can deviate significantly from its intrinsic value due to factors like market sentiment, psychology, and short-term fluctuations.

Also, the significance of intrinsic value was underscored by legendary investor, Warren Buffet in his investment strategy. To buy companies at a discount and hold them for the long run, he looks to invest in businesses that, in his opinion, are trading below their fundamental value.

Book Value

Book value refers to the accounting value of a company’s net assets on its balance sheet. In other words, it reflects what a company would be worth if it liquidated all its assets and paid off all its debts. It essentially represents the shareholder’s equity in the company.

A high book value can indicate a financially stable company with a significant amount of assets.
However, book value does not necessarily reflect the current market value of a company or its future growth potential. This is because value relies on the historical costs of assets, which might not reflect their current fair market value.

Calculation of Book Value

Book Value = Total Assets – Total Liabilities

Where Total Assets include all the company’s valuable possessions such as property, inventory, cash, and investments.

Total liabilities include all the money the company owes, such as loans, accounts payable, and accrued expenses.

Book Value per share is derived by dividing the book value of the company by the number of outstanding shares.

Book Value per share = Book Value / Number of Outstanding Shares

Additionally, book value is an important metric for investors as it provides insight into the underlying value of a company’s assets.

Investors often compare a company’s stock price to its book value per share to analyse whether the stock is undervalued or overvalued relative to its asset base. However, keep in mind that most of the growth companies trade well above their Book value.

Book Value vs. Intrinsic Value

Basis	Book Value	Intrinsic Value
Basis	Book Value	Intrinsic Value
Definition	Represents the net value of a company’s assets after subtracting its liabilities	Represents the true worth of an asset based on fundamental analysis.
Calculation	BV = Total Assets – Total Liabilities	Intrinsic Value is often estimated using various methods such as DCF analysis.
Perspective	Focuses on the balance sheet and tangible assets.	Considers future earnings, growth prospects, and risk factors.
Limitations	It does not account for intangible assets like goodwill or intellectual property	It is subjective and is dependent on the analyst’s assumptions and methodology.
Market Relationship	It can serve as a floor for a company’s stock price	A stock trading below intrinsic value may be considered undervalued, while one trading above it may be considered overvalued.

Conclusion

Book value offers a reliable, historical perspective on a company’s financial standing. Intrinsic value, on the other hand, takes you on a journey into the future, estimating a company’s future growth. By wielding book value and intrinsic value analysis, you become a more well-rounded investor, equipped to make informed decisions and uncover hidden gems in the stock market.

Remember, successful investing is all about peering beyond the surface and understanding the underlying value of a company.

Frequently Asked Questions (FAQs)

What is Book Value?
Think of it as a company’s net worth on paper, i.e., what shareholders would get if the company shut down and sold everything.
Is a high book value good?
Not necessarily. A company with a lot of assets might not be using them well if its stock price is low.
Which one is more important, Book value or Intrinsic Value?
They both play an essential role in the investment world. Book value can show potential bargains, while intrinsic value helps identify long-term growth prospects.
Is a high intrinsic value good?
Generally, yes. But keep in mind that it is an estimate. Thus, take into account any risks that can have an impact on future profits.
Can intrinsic value ever be negative?
Yes, if a company is expected to lose money in the future, its intrinsic value could be negative.

May 3, 2024

What Was the Great Depression? Impact & Causes

The Great Depression – A phrase that conjures images of bread lines, dust storms, and despair. But what exactly caused this economic catastrophe? And what can we learn from it today?

In this blog, we will deep dive into the Great Depression, exploring the factors that led to its outbreak.

The Great Depression – An Overview

The Great Depression was a severe global economic downturn that lasted from 1929 to roughly the late 1930s. It was the longest and most severe depression ever experienced by the industrialised Western world, sparking fundamental changes in economic institutions, macroeconomic policy, and economic theory.

It began in the United States with the stock market crash of 1929. The crash triggered the unemployment rates. By 1993, one-quarter of all workers in the United States were unemployed.

The effects were felt around the world. International trade declined and agricultural prices collapsed, leading to social unrest and political instability in many countries.

Before we proceed further, let us have a quick review of what Depression means in economics.

Depression is a severe downturn in economic activity that is marked by a sharp decline in economic growth (GDP falls significantly), high unemployment as businesses cut back production, leading to job losses, and deflation because prices may fall or stagnate due to weak demand and reduced investment and trade.

Causes of the Great Depression

The Great Depression was not caused by a single factor, but rather a confluence of issues. Below mentioned are some of the key contributing factors that economists generally agree upon:

Stock Market Crash of 1929 – The Roaring twenties saw a massive stock market bubble fuelled by speculation and easy credit. When the bubble burst in October 1929, it wiped out billions of dollars in wealth and triggered a wave of panic selling. This loss of confidence led to a sharp decline in consumer spending and investment.
Banking Panics and Deflation – The stock market crash caused many people to rush to banks and withdraw their savings, fearing bank failure. This led to the collapse of thousands of banks. The money supply shrank with fewer banks’ lending money, leading to deflation. Deflation discourages spending as people wait for even lower prices, further weakening the economy.
Unequal Income Distribution – During the 1920s, much of the economic gains went to the wealthy, while wages for average workers stagnated. This meant that a large portion of the population had little disposable income to spend, limiting overall consumer demand.
Government Policies – The government’s response to the crisis was also debated. Some argue that the Federal Reserve’s tight monetary policies worsened the situation by limiting the money supply. Additionally, the Smoot-Hawley Tariff Act of 1930 raised import taxes, sparking a trade war that further hampered international trade.
Global Conditions – The international economy was interconnected, and the problems in the United States quickly spread to other countries. The gold standard, which fixed exchange rates between currencies, made it difficult for countries to respond to the crisis with independent monetary policies.

Effects of the Great Depression

The impact of the Great Depression was devastating, leaving deep scars on the global economy and society.

With unemployment and economic collapse, many people lost their homes and faced hunger. Breadlines became a grim symbol of the era, with millions relying on soup kitchens and charities for basic needs.
The event also marked a turning point in government intervention in the economy. The era saw the rise of programs like social security and unemployment insurance aimed at providing a safety net for citizens.
Businesses failed at an alarming rate, leading to mass unemployment. In the US, unemployment peaked at a staggering 25% in 1993, meaning one in four workers was not able to find a job, which ultimately translated to widespread poverty and hardship.
The economic downturn, coupled with severe drought conditions, led to an ecological disaster in the Great Plains of the United States. Millions of acres of fertile land were ravaged by dust storms, displacing farmers, and further crippling the agricultural sector.
International Trade declined as countries turned inward, protecting their economies with tariffs and restrictions. This strangled global commerce and hampered economic recovery.
The desperation caused by economic hardship led to social unrest and labour strikes. People demanded government action and reforms to alleviate their suffering.
The depression took a severe psychological toll. The loss of livelihood, homes and sense of security led to widespread despair and hopelessness.
The failure of existing economic systems led to a rise in new ideologies, including communism and fascism. These ideologies promised solutions to the economic crisis and gained popularity among people.

How did the Great Depression end?

There is no single answer to how the economic downturn ended. Gradual recovery and World War 2 suggest that the Great Depression gradually improved in the late 1930s, when US President Franklin D. Roosevelt aimed to create jobs, stimulate the economy, and provide relief to the unemployed.

However, full recovery remained elusive until World War 2 began in 1939. The massive mobilisation of resources and wartime spending boosted production and employment.

Regardless of the exact cause of its end, it left a lasting impact and fundamentally changed the role of the government in the economy.

Conclusion

The Great Depression left a profound mark on the world, shaping economies, societies, and governments. It serves as a stark reminder of the fragility of economic systems and the importance of sound economic policies and regulations. The Great Depression is a historical event that helps us understand the economy better and prevent future economic crises.

Frequently Asked Questions (FAQs)

When did the Great Depression happen?
Ans. It generally lasted from 1929 to the late 1930s.
What was the Dust Bowl?
Ans. A severe ecological disaster caused by drought and economic hardship that destroyed the Great Plains.
What was the role of the government during the depression?
Ans. The era saw a rise in government intervention to provide some relief to the general public.
Which countries were affected by the Great Depression?
Ans. As the economies of many countries are linked together, the effects of the Great Depression were felt in almost the entire world. However, the countries such as the USA, the UK, and many European countries were severely affected by the Great Depression.
How did the Great Depression impact people’s lives?
Ans. Millions of people lost their homes, faced hunger, and suffered immense trauma because of the Great Depression.

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

Also give this a Read – Top Economic Indicators

May 3, 2024

P2P Lending: Definition, Benefits, And Limitations

Ever feel stuck between the rock-bottom interest rates on savings accounts and the sky-high rates on traditional loans? P2P lending might be the answer you have been looking for. This innovative financial tool is shaking things up by connecting borrowers directly with lenders, offering a win-win for both sides.

In this blog post, we will explore the details of P2P lending, how it works, and its benefits.

P2P lending, or peer-to-peer lending, is a way for people to borrow and lend money directly to each other, bypassing traditional banks. It happens through online platforms that connect borrowers and lenders.

How it Works

P2P lending eliminates the intermediaries and banks to connect borrowers directly with lenders through online platforms. The process is as follows:
The borrower creates an account on a P2P lending platform and submits a loan application specifying the amount and purpose of the loan.
The platform analyses creditworthiness through various checks, including credit score, income verification, and sometimes social media activity.
Based on this assessment, the platform assigns the borrower a credit rating and sets an appropriate interest rate.
The platform lists the borrower’s loan profile and details such as loan amount, interest rate, credit rating, and purpose.
Investors browse these listings and choose loans to fund based on their risk tolerance and desired returns.
Once the lender funds the loan, the platform disburses the money to the borrower, who makes fixed repayments, including principal and interest.
The P2P platforms generally handle all the administrative tasks linked with loan servicing, including collecting repayments, and chasing late payments. Generally, they take a cut from both the lender and the borrower for their services.

P2P Platforms in India

There are plenty of P2P lending platforms operating in India. The most popular P2P platforms in India are mentioned below:

Faircent is India’s first P2P lending platform to receive an NBFC P2P license from the RBI. It offers various investment options across multiple tenures, with interest rates ranging from 8.5% to 12%.
Lenden Club – It is one of India’s largest P2P lending platforms. It offers loans for several purposes with interest rates starting from 6.5% per annum. Founded in 2015, the platform has over 20 lakh investors and offers several lending options.
Lendbox is a popular P2P lending app with flexible liquidity options. It was founded in 2015 and is regulated by the Reserve Bank of India.
India P2P – India’s other well-regarded platform offering investors the opportunity to earn up to 18% per annum by investing in retail loans.

When choosing the P2P platforms, one should keep these things in mind:

The interest rates offered by the P2P platform.
The fees charged by the platform for providing its services.
The types of loans offered and the repayment terms.
Platform’s history and track record.

Regulation in India

The Reserve Bank of India (RBI) regulates P2P lending in India. In 2017, the RBI issued guidelines for P2P lending, known as the Master Directions for NBFC Peer-to-Peer Lending Platform. These guidelines aim to ensure the orderly development of the P2P lending sector and protect the interests of both the borrowers and the lenders.

Some key points about P2P lender regulation are as follows:

Only registered NBFCs with a specific license for P2P lending can operate as P2P platforms.
Platforms must meet specific requirements, such as sound technological structure, and proper KYC procedures for borrowers and lenders.
Platforms cannot accept deposits from lenders or provide any credit enhancement or guarantee on loans.

Benefits of P2P Platforms

For Borrowers

P2P platforms often eliminate bank overhead costs, leading to lower interest rates for borrowers than traditional loans offered by scheduled banks.
P2P platforms leverage technology to streamline loan applications, leading to faster approvals than banks.
Borrowers with limited credit history or those who would not qualify for a traditional loan may find success with P2P lenders.
Some P2P platforms offer more flexibility regarding loan amounts and repayment options than banks.

For Lenders

P2P loans can offer higher returns on investment than traditional savings accounts interest, fixed deposits, or bonds.
Lenders can spread their investments across multiple loans to mitigate risk.
These platforms provide detailed borrower information, giving lenders more control over their investments.

Limitations of P2P Platform

For Borrowers

P2P platforms often cater to smaller loan sizes compared to traditional banks. They might not be suitable for borrowers needing significant funding.
The P2P platform may charge borrowers several fees, such as processing and admin fees, which can increase the overall rate offered by the lenders.

For Lenders

P2P investments are less liquid than traditional assets like stocks or bonds. You may have to wait for the loan term to end to access your funds.
There is no 100% guarantee that Borrowers will repay the loan, regardless of their credit score. Things can go wrong, and borrowers may default on their loans. Further, P2P platforms may not have the same safeguards as banks in such situations.

Conclusion

P2P lending offers a compelling alternative to traditional finance, providing lower borrowing rates and higher returns. Whether you are a borrower seeking a better deal or a lender looking to maximise returns, P2P lending offers a chance to rethink how your money works for you.

However, it is essential to carefully consider your risk tolerance and conduct thorough research before diving in, as there is always a risk of default, even with the platform assessment. The success of P2P investment hinges on the reliability of the chosen platform. Research their track record and security measures.

Frequently Asked Questions (FAQs)

What is P2P lending?
It is borrowing and lending money directly between individuals, bypassing traditional banks.
Is P2P lending safe?
Though reputable platforms assess the borrower’s risk profile, there is always a risk of default.
How can I become a borrower on a P2P platform?
Apply online, undergo a credit check, and receive an interest rate based on your creditworthiness.
How much can I borrow or lend through the P2P platform?
Limits vary by platform, but they often cater to smaller loan amounts.
What will happen if a borrower defaults?
Platforms may have processes for debt collection, but you may not recover your money in full as a lender.

May 1, 2024

What is AI Washing? Definition, Tips, Evolutions & Impact

Ever feel like an intelligent appliance is not smart? Or maybe that AI-powered service seems suspiciously similar to a basic chatbot? You are not alone. Today’s tech world is buzzing with a term you might not be familiar with – AI Washing.

In this blog, we will explore the deceptive world of AI Washing, where companies mislead consumers / investors about the role of artificial intelligence in their products. We will learn why this is happening, how to avoid it, and the impact it has on different segments of society. Let us unveil the truth behind the AI hype.

What Is AI Washing

AI Washing is a marketing trick that uses deception. Companies will claim a product or service uses advanced AI technology when it does not. They are trying to make their offering seem more high-tech and appealing to customers by hitching a ride on the growing interest in Artificial Intelligence (AI).

This trick is more or less similar to greenwashing, which is when companies exaggerate their environmental efforts.

For instance, a company might say their new vacuum cleaner uses ‘revolutionary AI’ to clean your floors. But it does bump around randomly until it hits everything, and that’s not very AI.

There are a couple of reasons why AI Washing might be trending these days:

Artificial Intelligence is a rapidly growing field that is getting a lot of buzz. People are interested in it, and companies are well aware that by claiming their products are AI-powered, they can seek the attention of the customers and investors.
Many people do not have a clear understanding of how AI works. This makes it easier for companies to use confusing jargon and get away with AI washing.
If a product sounds impressive and futuristic, people might be more likely to buy it, regardless of whether the AI claims are real.

Therefore, AI washing is popular because it preys both on the popularity of AI and the lack of widespread knowledge about how it works.

Evolution of AI Washing

With the rapid growth of Artificial Intelligence and Machine Learning in the 2010s, AI became a buzzword linked with innovation and progress. This created a market opportunity for companies to leverage the term, even if their products had little to no real AI integration.

Various factors converged to make AI washing more prevalent.

Many consumers lack a deep understanding of AI, making it easier for companies to use technical jargon and create a mystique around their products.
The rapid pace of technological advancement can make it difficult for consumers to keep up. This allows companies to exploit the knowledge gap and make vague claims about AI Capabilities.
Some companies focus on flashy marketing campaigns over clear explanations of how their products work. This lack of transparency creates a fertile ground for AI washing.

Tips to avoid AI Washing

Look for Transparency:
Reputable companies that genuinely use AI will often be happy to explain how it works in their products. If information is scarce or shrouded in technical jargon, that may be a red flag.
Ask Questions:
Do not be afraid to dig deeper. Research the company’s claims and see if there are independent reviews that shed light on the actual functionality.
Focus on the function:
Instead of getting caught up in fancy AI buzzwords, think about what the product does. Does it solve a problem in a meaningful way? That is more important than any AI label.
Healthy Scepticism:
A little doubt is a good thing. If something sounds too good to be true, especially when it comes to AI claims, it probably is. By asking the right questions, you can avoid getting swept away by AI washing and make informed decisions about the products you choose.

Impact of AI Washing

AI washing can have negative impacts on several parties involved, including customers, businesses, and the AI Industry.

Deception and Wasted money:
Consumers misled by AI Washing might end up buying products that do not offer the promises stated which can eventually lead to frustration and a feeling of being cheated.
Erodes trust in AI:
Repeated exposure to exaggerated claims can make people skeptical about the real power of AI technology.
Hurts reputation:
Companies caught AI Washing can damage their brand image and lose customer’s confidence.
Distracts from Genuine Innovation:
The focus on the hype can overshadow real advancements in AI Development.
Slows down the Progress:
If resources are wasted on AI Washing, it can slow down genuine research and development in the field.
Hinders Public Adoption:
A public disillusioned by AI Washing might be less receptive to future AI applications, even beneficial ones.

Overall, AI washing can create a climate of distrust and hinder the responsible development and adoption of AI technology. By being aware of AI washing tricks and tactics and demanding transparency, consumers and businesses can help ensure the ethical and productive advancement of artificial intelligence.

Examples of AI Washing

The US Securities and Exchange Commission penalised two investment advisory firms, Delphia and Global Predictions for falsely claiming their use of advanced AI in their investment decisions.
Coca-Cola’s Y3000 drink supposedly co-created with AI to have a unique taste, raised eyebrows at initial launch. The drink was a limited-edition beverage, and the company claimed that the drink’s flavour was developed using AI in combination with human input. The AI analysed the consumer data on emotions, aspirations, and flavour preferences to create a taste profile for the future. However, the critics pointed out that it was just a marketing gimmick with minimal AI involvement.
Retail giants like H&M and Zara have also been criticised for using terms like ‘AI-powered’ in their marketing campaigns without clear explanations of what mean in terms of their products.

Conclusion

To wrap it up, AI washing is a threat to consumer trust. By educating ourselves and demanding transparency we can push back. Do not get swept away by the fascinating words of companies and focus on product functionality. Look for businesses that explain how AI is used and focus on tangible benefits. Together, we can create a tech landscape where AI is a force for good, not a marketing ploy. Keep in mind that the future of AI depends on us all being informed and empowered consumers.

Frequently Asked Questions (FAQs)

What is AI Washing?
AI washing is when companies mislead consumers about the extent of artificial intelligence used in their products or services.
Why do companies do it?
Companies use AI washing to make their products more innovative and appealing, hoping to fascinate customers.
How can I spot AI washing?
Be aware of vague claims like ‘AI-powered’ or ‘intelligent’ and look for details on how AI is used.
Is anything being done about AI washing?
Yes, there is a growing awareness, and some regulatory bodies are looking into misleading AI claims.
Does this mean that all AI claims are false?
No! Real AI advancements are happening, but be careful of exaggerated marketing.

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

May 1, 2024

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Company Overview

Aadhar Housing in Numbers (As per Prospectus)

Details of IPO

Key Details

Timeline

Reservation

Financial Highlights

Balance Sheet (INR crore)

Income Statement (INR crore)

Cash Flow Statement (INR crore)

Strength and Weakness of the Company

Strength

Weakness

Awards and Recognitions

Conclusion

Frequently Asked Questions (FAQs)

When will the Aadhar Housing Finance IPO open?

When was Aadhar Housing Finance established?

Is Aadhar Housing Finance a profit-making company?

What is the minimum lot size that retail investors can subscribe to?

What is the tagline of Aadhar Housing Finance?

What are T-bills?

Issuers of T-bills

Did you know?

How do T-bills work?

Benefits of Investing in T-bills

Risks associated with T-bills

Investing in T-bills

Conclusion

Frequently Asked Questions (FAQs)

What is the minimum investment amount for T-Bills?

Are T-bills adjusted for inflation?

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

Are T-bills and T-bonds different?

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

What is Cost Inflation Index

The Base Year Concept

Cost Inflation Index Calculation

Benefits of CII for Investors

Conclusion

Frequently Asked Questions (FAQs)

What is CII?

Why is CII important?

Who decides the CII?

Is CII is applicable to all the assets?

Can I use the actual purchase price instead of CII?

Objectives of IPO

What is Quota in an IPO?

Retail Individual Investors

Non-Institutional Investors (NIIs)

Qualified Institutional Investors (QIBs)

Procedure of Allotment

Application

Allotment

Post Allotment Notification

How to increase the chances of Allotment?

Conclusion

Frequently Asked Questions (FAQs)

What is ASBA?

Is getting shares in an IPO guaranteed?

How can I improve my chances of allotment?

What happens after the application window closes?

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

What is a Contract Note?

Purpose of a Contract Note

Format of a Contract Note

A Contract Note does not contain the following details:

Conclusion

Frequently Asked Questions (FAQs)

Can a contract note be issued in an electronic form?

What time should the contract note be delivered?

Can I get a contract note for the purchase of shares?

Is the contract note provided free of charge?

Are margin details available in the contract note?

Bowie Bond Overview

History of Music Bonds

Features of Music Bonds

Advantages of Music Bonds

Disadvantages of Music Bonds