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  • What is Asset Under Management (AUM) in Mutual Funds

    What is Asset Under Management (AUM) in Mutual Funds

    Before learning about AUM, let us know a little about AMCs.

    AMC stands for Asset Management Company and manages and operates the mutual funds. It pools money from retail and institutional investors and invests that fund in a diversified portfolio of stocks, bonds, and other financial instruments. AMCs have dedicated research teams and fund managers who make decisions on the allocation of assets and portfolio management. AMCs earn fees for managing mutual funds, a percentage of the fund’s AUM.

    What is AUM?

    AUM assets under managemnet

    AUM stands for asset under management. AUM in mutual funds refers to the total market value of all the assets a mutual fund manages on behalf of its customers. It is an essential metric in the financial markets. A larger AUM generally implies a larger fund with more investors. The respective mutual fund scheme AUMs can be found in the monthly fact sheet of the AMCs on their website or online mutual fund research platforms.

    Indian Mutual Funds Industry

    Before getting into the Indian mutual funds industry, let us know about the history of mutual funds. To make India financially stable, strong, and independent and encourage saving and investment, the first mutual fund was established in 1963, Unit Trust of India, by a combined initiative of the Government and the Reserve Bank of India by an act of Parliament. The mutual funds industry has grown significantly over the years. Unit Scheme 1964 was the first scheme that UTI launched.

    In 1993, the first set of SEBI Mutual Fund Regulations existed for all mutual funds except UTI. The former Kothari Pioneer (now merged with Franklin Templeton Mutual Fund) was the first private-sector mutual fund registered in July 1993.

    With the entry of private sector funds in 1993, a new age began in the Indian MF industry, giving Indian investors a wider and better choice of Mutual fund products.

    The MF Industry’s AUM has grown from ₹ 22.24 trillion as of October 31, 2018, to ₹46.72 trillion as of October 31, 2023, more than a 2-fold increase in 5 years (source- AMFI website). The Indian Mutual Funds industry has witnessed robust growth over the years. The sector provides investors with different mutual fund categories like equity, debt, and hybrid funds catering to their risk profiles and preferences. Not only this, the mutual fund industry in India has also undergone a digital transformation.

    Read Also: Mutual Funds: Meaning, Types, Features, Benefits and How They Work.

    Calculation of AUM

    calculation of AUM

    AUM in mutual funds is calculated by adding up the market value of all the securities, cash, and other assets mutual funds hold.

    The formula for the same is listed below

    AUM= Market Value of Securities + Cash & Cash equivalents + Other Assets

    For example, a mutual fund holds the following

    The market value of securities = Rs. 50 Crore

    Cash & Cash equivalents = Rs. 7 Crore

    Other Assets = Rs. 3 Crore

    Therefore, AUM = Rs. 50 Cr. + Rs. 7 Cr. + Rs. 3 Cr. amounts to Rs. 60 Crore.

    It’s important to note that the actual calculation may involve more detailed considerations, especially in a real-world scenario where the portfolio may consist of various types of securities, derivatives, and other financial instruments. Moreover, the market values of securities can fluctuate, affecting the AUM over time.

    Remember that the total value of AUM keeps changing depending on the performance of the assets.

    Significance of AUM in different Mutual Funds Categories

    What is a high AUM in mutual funds? It's Worth
    1. Larger AUM in equity funds, whether large or mid-cap, reflects a broader investor base and better scale of operations. However, a larger AUM while investing in small-cap companies can pose challenges. Therefore, small caps do not concentrate much on AUM.
    2. Smaller AUM in sectoral and thematic funds may indicate a more focused approach to investment since these funds often focus on specific sectors and themes.
    3. In the case of hybrid funds, a mixture of equity and debt, a larger AUM can provide better diversification benefits.
    4. Fixed-income funds like bonds also need a larger AUM for better diversification.

    Factors affecting AUM

    Does AUM impact Mutual Funds? What are the key factors?
    1. Performance of the Market

    When markets are performing and in a rising phase, investors are more likely to invest, resulting in increased inflows and higher AUM for investment companies. In falling markets, investors redeem the funds, resulting in a decline in AUM.

    1. Fees & Expenses

    The expenses charged by asset management companies can influence AUM. Lower fees can make the funds more eye-catching to investors.

    1. Advertisement & Distribution of Funds

    Effective marketing and distribution policies are vital in attracting new investors and growing a firm’s investor base. Successful marketing campaigns and a strong distribution network can help the MF house generate inflows and increase AUM.

    1.  Economic Conditions

    The global economic environment can also affect AUM. When a country is economically stable and in its growth phase, more investments will occur, leading to higher inflows.

    1. Past performance

    The historical show of a company plays a vital role in determining AUM. Funds generating consistent positive returns will eventually attract new investors.

    For this, first, we need to understand what is the expense ratio. The expense ratio is defined as the annual cost of managing and operating mutual funds. AMCs charge these expenses and are a percentage of AUM., for example, management fees, administrative expenses, and Distribution expenses. Formula for calculating Expense Ratio = (Total Fund Expenses / AUM) *100. Therefore, there is an inverse relationship between AUM and the expense ratio.

    As AUM increases, the overall percentage of expenses relative to assets decreases. Keep in mind that AUM influences the calculation of the expense ratio and plays a vital role in structuring the overall cost of the fund and

    Conclusion

    CONCLUSION

    To wrap it up, AUM is an important metric for investors when it comes to selecting mutual funds. It can only provide insight about the AMC but cannot be the sole factor when making investment decisions also, a higher AUM does not signify better returns and performance by the mutual funds. The significance of AUM can fluctuate across different fund categories.

    Read Also: History of Mutual Funds in India

    Frequently Answered Questions (FAQs)

    1. What is AUM?

      AUM stands for asset under management and is the total market value of all the assets that a mutual fund manages on behalf of its customers

    2. What is the formula for calculating AUM?

      The formula for calculating AUM isAUM= Market Value of Securities + Cash & Cash equivalents + Other Assets

    3. How is the expense ratio and AUM related?

      Expense ratio and AUM share an inverse relationship, i.e., an increase in AUM decreases the expense ratio.

    4. Who manages the mutual fund?

      Asset Management companies manage mutual funds.

    5. When was the first mutual fund in India established?

      1st mutual fund in India was established in the year 1963.

  • What is Debt Mutual Funds: Invest in the Best Debt Funds in India

    What is Debt Mutual Funds: Invest in the Best Debt Funds in India

    What are Debt Mutual Funds?

    What Is Debt Mutual Funds

    Debt mutual fund is a category of mutual fund that invests in fixed-income instruments such as Corporate and Government bonds, commercial papers, treasury bills, state development bonds, etc. (T-bills are short-term debt instruments or money market instruments that the government of India issues. These are generally given for 91 days, 182 days, or 364 days. They are provided to fulfill the short-term financial needs of the government). 

    The primary objective of debt mutual funds is to generate income for investors through interest payments while preserving the capital invested. Debt mutual funds allocate their holdings across various debt instruments to diversify the risk. This helps the fund manager reduce the impact of poor performance by any single security.

    what are debt funds

    Debt funds invest in listed or unlisted securities, including corporate and government bonds. The NAV of the fund is calculated as the difference between the buy price and the sell price. Debt funds also receive regular interest from the underlying debt, which is added daily.

    A debt fund’s NAV also depends on the interest rate. Debt mutual funds are open-ended funds, which means investors can buy or sell fund units on any business day at the fund’s net asset value (NAV). When considering debt mutual funds, it’s essential to assess your investment goals, risk tolerance, and time horizon and select funds that align with your financial objectives.

    Who should invest in Debt Funds?

    ebt mutual funds

    Debt Funds are suggested for individuals who prefer capital preservation to higher returns because debt funds provide investors with consistent returns and are less volatile. Investors who want a regular income but are risk-averse i.e., refrain from taking risks with their investments.

    Read Also: Debt Mutual Funds: Meaning, Types and Features

    How to invest in Debt funds

    bank account deposits

    You can invest in direct debt funds through Asset Management Companies (AMCs), and in the case of regular debt funds, you need to contact mutual funds distributors (MFDs).

    Types of Debt Mutual Funds

    How To Choose Schemes In Debt Funds 

    These categories of debt funds cater to different investor preferences and financial goals. 

    1. Liquid Funds

    Liquid funds invest in very short-term debt instruments like T-bills, Certificates of deposits, and commercial paper and have a maturity of 91 days to generate optimum returns. Liquid fund invests in highly liquid money market instruments and debt securities. The best liquid funds to invest in India are ABSL Liquid Fund, Mahindra Manulife Liquid, PGIM India Liquid, SBI Liquid Fund, and Nippon Liquid Fund.

     2. Short-term Funds

    These funds invest in money and debt market instruments and government securities. The investment duration of these funds is longer than that of Liquid Funds. The best Short-term funds to invest in India are ICICI Prudential ST, UTI SD, HDFC ST Debt, Sundaram SD, and ABSL SD.

     3. Credit Risk Funds

    These funds invest in lower-rated corporate bonds and debt instruments to earn higher returns. The best Credit Rating Funds in India to invest in are DSP Credit Risk, Baroda BNP Paribas Credit Risk, Nippon India Credit Risk, and ABSL Credit Risk.

     4. Fixed Maturity Plans (FMPs)

    FMPs are close-ended mutual fund schemes, and the maturity dates in FMPs are decided beforehand. They invest in debt instruments with a specific date of maturity. FMPs are issued for a period ranging from 30 days to 60 months, and units of FMPs are listed on the stock exchange.

     5. Floating Rate Funds (FRFs)

    FRFs invest in instruments that offer a floating interest rate on your investments in bonds, government securities, and debentures. The best-floating Rate Funds to invest In India are ABSL Floating Rate, Franklin Ind Floating Rate, and HDFC Floating Rate.

     6. Gilt Funds

    Gilt in Gilt funds stands for government securities. This fund invests your capital in government securities issued by central and state governments. This fund offers you low credit risk and moderate returns. The best Gilt Funds to invest in India are ICICI Pru Gilt Fund, SBI Magnum Gilt Fund, DSP Govt. Securities Gilt Fund, and Kotak Gilt Investment.

    7.   Dynamic Bond Funds

    These funds invest in debt securities with different maturity periods and actively manage the fund’s interest rate risk. Returns vary based on market conditions. Above mentioned are some of the types of debt mutual funds. There are various other types, which we shall discuss later. The best Dynamic Bond funds to invest in India are ABSL Dynamic Bond Fund, ICICI All Seasons Bond Dir, HDFC Dynamic Debt, and 360 ONE Dynamic Bond.

    8. Monthly Income Plans (MIPs)

    MIPs are hybrid schemes that invest in a mixture of debt and equity. However, the allocation in equity is about 15-20% only. These funds offer regular income in the form of dividend payouts. However, you don’t need to receive dividend payments because it is at the discretion of the AMCs and depends on the surplus left from realized gains.

    Taxation of Debt in India

    Tax in debt is divided into two parts.

    Short-term gain and long-term gain where the short-term duration is less than three years as per your income tax slab, and for long-term, it is more than three years at the rate of 20% with indexation benefit. (Indexation- means adjusting your purchase cost based on inflation). Now let us go through the advantages and disadvantages of investing in debt funds before jumping to any conclusion as to why to choose debt funds.

    Advantages of Investing in Debt Funds

    1. Stability & Safety

    Debt Funds invest in fixed-income securities, which are stable and safe compared to other investment options like stocks.

    2. Regular Income

    Debt securities like MIPs and FMPs help the investor receive regular income through interest payments.

    3. Diversification

    With the help of debt funds, investors’ exposure to risk is reduced because debt funds generally have less exposure to equities, reducing the portfolio’s overall risk.

    4. Tax Efficiency

    If you want an escape from taxes, debt funds can be a solution because these funds carry more tax efficiency than any other traditional investment option like FDs and post office schemes. FMPs can offer investors tax advantages because of indexation benefits.

    5. Liquidity

    Debt funds are generally more liquid than FDs. Investors can buy or sell these funds on any business day, providing liquidity when needed, and these funds do not have any lock-in period. However, they do carry minimal exit load in some funds.

    Read Also: Why Debt Funds Are Better Than Fixed Deposits of Banks?

    Conclusion

    CONCLUSION

    Debt mutual funds play a vital role in an investor’s portfolio by providing a range of fixed-income investment options. These funds offer stability, regular income, and diversification by investing in various debt instruments. The choice of debt funds depends upon factors like risk appetite, investment horizon, and financial goals. But it would help if you remember that debt funds are not entirely risk-free. Investors should consider consulting a financial advisor for personalized advice.

    Frequently Answered Questions (FAQs)

    1. What are debt mutual Funds?

      Debt mutual fund is a category of mutual fund that invests in fixed-income instruments such as Corporate and Government bonds.

    2. What are the different types of debt funds?

      Different types of debt mutual funds include short-term funds, Fixed maturity period funds, gilt funds, credit risk funds, etc.

    3. What is the taxation rate on long-term capital gains in debt mutual funds?

      The tax rate on debt mutual funds for the long-term is more than 3 years at 20% with an indexation benefit.

    4. What are T-bills?

      T-bills are treasury bills that the Government of India issues to meet short-term financial needs.

    5. What is the complete form of MIPs?

      MIP stands for monthly income plan.

  • Option Chain Analysis: A Detail Guide for Beginners

    Option Chain Analysis: A Detail Guide for Beginners

    What are the Options?

    Option Chain Analysis

    Options are defined as financial derivatives that provide the buyer with the right, but not the obligation to buy or sell an underlying asset at a predetermined rate within a fixed period of time. Options Trading involves a contract between buyer and seller. These underlying assets include stocks, commodities, indices, or currencies. There are various strategies to trade options. Some of the widely used strategies include straddle, strangle, butterfly spread, covered call, etc. which we will discuss later. Options can be used for speculation, hedging, and generating income.

    options

    What is an option Chain?

    An option chain is a kind of list or a matrix that displays call options and puts options their expiration dates, strike price other information related to the contract for a particular underlying asset. The asset can either be a stock or an index. It can be a valuable tool for those who are looking forward to staying invested in the market for a longer time period. In today’s blog, we will be discussing the terminologies linked with option contracts and how a beginner can analyze the option chain and assess various contract details at a glance.

    option chain

    Read Also: What is Implied Volatility in Options Trading

    Terminologies linked with option chain

    1. Call options

    Options may be categorized into Call options and put options. Call options are contracts that give the holder the right to buy the underlying asset at a particular strike price before or on the date of expiry.

    2. Put options

    Contracts give the holder the right to sell an underlying asset at a fixed price before or on the date of expiry. 

    3. Strike Price

    It is the price per share for which the underlying security may be purchased by the call option holder (or sold by the put option holder)

    4. Spot price

    It is the price at which the underlying asset is trading in the spot market.

    5. Open Interest

    Open interest is the total number of options contracts outstanding for an underlying asset.

    6. Change in open interest

    Change in OI is the number of contracts that are closed, open, or squared off.

    7. Implied Volatility (IV)

    It is a measure of the market’s expectation of future volatility in stock prices.

    8. Volume

    Volume represents the total number of option contracts traded for a particular strike price and expiry date.

    9. LTP

    LTP is the last traded price of an option.

    10.  Premium

    It is the price that an investor pays to buy an option contract. The premium of the contract is influenced by various factors including the strike price, volatility, expiry date and market sentiment.

    11. Lot Size

    Lot size or contract size is the number of units of underlying assets in a contract. For example, the lot size of the Nifty option is currently fixed at 50.

    12. Expiration Date

    The day on which a derivative contract ceases to exist is known as the expiration date. Option contracts expire on the last Thursday of the month.

    13. In-the-money (ITM) option

    A call option is said to be in ITM when the spot price is higher than the strike price. A put option is said to be in the ITM when the spot price is lower than the strike price.

    14.  At-the-money (ATM) option

    This leads to zero cash flow if exercised immediately, and for this option both call and put, the strike price is equal to the spot price.

    15. Out-of-the-money (OTM) option

    This leads to negative cash flows if exercised immediately. A call option is said to be in the OTM when the spot price is lower than the strike price and a put option is said to be in the OTM when the spot price is higher than the strike price.

    16. Intrinsic value and Time value of an option

    The intrinsic value of an option refers to the amount an option buyer will realize, before adjusting for the premium paid. Only in-the-money (ITM) options have intrinsic value whereas at-the-money and out-of-the-money options have zero intrinsic value. The intrinsic value of an option can never be negative.

    Intrinsic value = current stock price – strike price

    Time value is the difference between the premium and intrinsic value. ATM & OTM options have only time value because their intrinsic value is zero.

    17. Bid & Ask Prices

    A bid is the price a buyer is willing to pay and ask is the price sellers are asking for an option.

    18. Option Greeks

    Option premiums change with changes in the factors that decide the price of the option i.e., factors such as strike price, volatility, etc. The sensitivities captured in the market are collectively known as Greeks represented by Delta, Gamma, Theta, Vega, and Rho.

    • Delta – It measures the sensitivity of the option value to a given small change in the price of the underlying asset.
    • Gamma– it measures the change in delta with respect to the change in price of the underlying asset. It signifies the speed at which an option will go either in-the-money or out-of-the-money.
    • Theta– This measures an option’s sensitivity to time decay.
    • Vega- this measures the sensitivity of an option to changes in the volatility of the market.

    Analysis of option chain

    The above image is an example of an option chain that anyone can find on the official website of NSE. The option chain is divided into 2 parts. Calls on the left side and puts on the right side. As you can see there are different strike prices mentioned in the image at which these options are traded. For example, 17350, 17400, 17450, etc. We have already explained the terms that are displayed in the above image as headings. To analyse the option chain first and foremost thing that you need to do is select an underlying asset (Stock, ETF, index)

    After choosing the underlying asset determine the expiration date that matches with your trading strategy. Then start reviewing call and put options and select your strike price i.e., the price at which you wish to purchase the underlying asset. Having known the strike price, examine the bid and ask prices i.e., the premiums for the call or put options whichever you want to trade. Check the trading volumes and open interest for the call and the put option whichever you want to trade. Higher volume and open interest indicate more active trading and do not forget to track changes in OI to measure market movement. For example, if the OI of a particular strike price is increasing, chances are likely that traders are predicting NIFTY to be at that level. Recognize if the call or put options are at-the-money, in-the-money, or out-of-the-money. ATM strike prices are the closest to the current level of NIFTY. Suppose the current level of NIFTY is 19670 so our ATM would be 19750. OTM & ITM have generally lesser volumes and OI than ATM options.

    For ATM options, the uncertainty is highest as compared to ITM & OTM options because even a small price movement in either direction can change the option from ATM to ITM OR OTM. Premiums are generally higher for ITM options as compared to the ATM or OTM options. Before choosing an option to trade, a trader should consider the intrinsic value and time value. Do have a glimpse over the volumes of option contracts because high trading volumes can indicate increased interest in a particular option. Consider implied volatility (IV). A high or increased IV reflects uncertainty and higher premiums in the market.

    The last step is the analysis and proper usage of option Greeks. This can help you analyze the sensitivity of options prices to changes in strike price, volatility, etc. Also, if you look at the option chain you will notice that some part of it is shaded while the other part is white in colour. The upper left shaded part and the lower right shaded part are ITM options while the part which is not shaded is OTM options.

    Also, check out our blog about the different charges you have to bear while trading.

    Read Also: What is Options Trading?

    Conclusion

    conclusion

    Analyzing an option chain involves a combination of technical analysis, understanding option pricing, and formulating trading strategies. By systematically going through the information presented in the option chain, you can make more informed decisions in options trading. Additionally, continuous learning and staying updated on market conditions are key elements of successful option chain analysis.

    Frequently Answered Questions (FAQs)

    1. What is an option chain?

      An option chain is a list of all available contracts for a security or index that displays the call and put options with different strike prices.

    2. What are the Greeks in option chain analysis?

      The Greeks (Delta, Gamma, Theta, Vega) are measures that specify the sensitivity of options price to change in various factors.

    3. What role does risk management play in options trading?

      Risk management in options trading helps in capital preservation.

    4. What is implied volatility?

      It is a measure of the market expectations for price fluctuations in the future.

    5. What is the formula for intrinsic value?

      Intrinsic value = current stock price – strike price.

  • How does the Price of Oil affect the Stock Market?

    How does the Price of Oil affect the Stock Market?

    Oil prices can significantly impact the stock market and are closely inter-related. Oil is an important commodity that contributes to the growth or downfall of an economy and is extensively applied in various industries. Oil prices are defined by a complex interplay of supply and demand dynamics, geopolitical events, production decisions by major oil-producing countries, and changes in the global economy. When the price of oil rises or falls, it can cause various effects that leave footprints throughout the financial markets.

    How Does The Price Of Oil Affect The Stock Market

    In today’s blog, we will be discovering the ways in which changes in the price of oil can affect the stock market. Whether you’re an investor, or simply interested in knowing about the theories of the financial world, understanding the relationship between oil prices and the stock market is crucial for making sound trading decisions and analyzing the current economic trends that are prevailing in the market. The relationship between oil prices and the stock market is complex and intricate.

    How does the Price of Oil affect the Stock Market                                                                    

    Below listed are some of the key points which depict the relationship between the stock market and oil prices

    1. The direct impact of the change in oil prices is on the energy sector stocks which include oil producers and exploration companies. Increased oil prices will have a positive impact on the profitability of these companies. As a result, the stock prices of all the oil companies will soar high.
    2. Oil prices can have a noteworthy impact on inflation. An increase in the price of oil can lead to high production and transportation costs which will increase the general price level of the economy.
    3. Any kind of change in oil prices can also affect other sectors. For example, companies like manufacturing and chemicals that use oil as the key input can have negative effects on their production capacity and their profit margins will be reduced significantly.
    4. Changes in oil prices can also affect the spending capacity of consumers because they will have to pay more money for oil-related products and will be forced to think before buying.
    5. Geopolitical events in major oil-producing regions can disrupt oil supplies and lead to price spikes. These events can increase market uncertainty.
    6. Oil prices are generally denominated in foreign currency i.e., the U.S. dollar. Any kind of increase in the oil price will strengthen the dollar and weaken the Indian currency.

    Read Also: How Interest Rate Changes Affect the Stock Market

    Companies that are majorly affected by the change in oil prices

    Companies that are majorly affected by the change in oil prices

    1. Airlines & Transportation

    Fuel cost comprises one of the most important parts of the operating expenses of the aviation sector. If oil prices are low then the profit margin of these companies will automatically increase. Consumers, in such a case, may get a chance to enjoy lower airfares.

    2. Paint companies

    A fall in the price of oil can reduce the production costs of paint companies. Derivatives of crude oil are important in the production of paints.

    3. Automobile companies

    If there is a sustained increase in prices customers’ choice of fuel-efficient vehicles may change which in turn may affect the demand of some vehicles.

    4. Oil refineries & Marketing Companies

    Oil refineries are meant to convert crude oil into useful products like gasoline and diesel. A spike in oil prices can affect the input costs of these companies.

    5. Agriculture

    Geopolitical events in major oil-producing regions can disturb oil supplies and lead to an increase in prices of oil. These events can increase market uncertainty.

    Oil Crisis

    One of the most famous examples of oil crisis in history is the 1973 oil crisis. This had a deep impact on the global economy and energy policies. Here’s a brief overview of the 1973 oil crisis:

    The oil crisis of 1973 was the end result of some geo-political events. In the year 1973, Egypt and Syria attacked Israel. The U.S. provided military aid to Israel which Arab countries did not like. In reaction, the OPEC countries applied an Oil Embargo on the United States. An Oil Embargo is defined as an economic situation where the transportation of petroleum is limited by some entities to or from an area). This led to a reduction in the global supply of oil. Oil prices at that time were at sky-highs and this caused inflation and higher energy costs. The crisis resulted in increased investment in the development of alternative energy sources, such as nuclear, solar, and wind energy. The purpose of giving the reference to the oil crisis in today’s blog was to give a historical example of how geopolitical conflicts can impact the energy sector. For our readers’ knowledge let us have some basic ideas about OPEC countries.

    1. OPEC stands for the Organisation of the Petroleum Exporting Countries. This organization was formed in the year 1960
    2. OPEC countries are a group of countries that collaborate to coordinate and control the pricing policies of petroleum products.
    3. Currently, there are 13 OPEC countries.
    4. India imports 84% crude oil to fulfill its requirements from countries like Saudi Arabia, Iraq, Iran, and UAE.

    Read Also: How to Trade in the Commodity Market?

    Conclusion

    The relationship between oil prices and the stock market is not always the same and aligned. To conclude, some companies may take advantage of lower oil prices while others may suffer if their core business is dependent on the energy sector. The investor should take note of ongoing oil prices and news updates if any before investing in oil-related companies because chances are likely that oil prices may change and these fluctuations are unavoidable. By now you must have understood that oil prices do have a major impact on the stock market.

    FAQs (Frequently Answered Questions)

    1. How does the price of oil affect the stock market?

      Oil prices affect sectors across the stock market in different ways energy company benefits if the stock prices increase and other companies might suffer losses.

    2. What is the full form of OPEC?

      OPEC stands for the Organisation of the Petroleum Exporting Countries.

    3. From which country India imports maximum oil?

      India imports 84% oil from U.A.E.

    4. What affects the oil prices?

      Any kind of change in supply-demand dynamics and geopolitical events can lead to a change in the price of oil.

    5. How can investors navigate the impact of oil price changes?

      Investors can lower their risk of loss by diversifying their portfolios and concentrating their investments in oil-related stocks.

  • How Interest Rate Changes Affect the Stock Market

    How Interest Rate Changes Affect the Stock Market

    What is Interest Rate?

    Interest rate is defined as the price that you pay when you borrow money from someone or it can also be known as income that you earn on your investments like bonds, FDs, and government securities. We will talk about interest rates in the context of lending and borrowing money. Interest rates in India are managed and regulated by RBI and play an important role in the economic growth of a country.

    How Interest Rate Changes Affect The Stock Market

    RBI manages various types of interest rates. Let’s have a glimpse at these rates.

    1. Repo Rate
      The rate at which the RBI lends money to commercial banks. Any kind of change in repo rate can affect the cost of borrowing for banks as well as retail consumers. The repo rate is considered a key tool to control inflation and stimulate economic growth.
    2. Reverse Repo rate
      The rate at which RBI borrows money from commercial banks. This rate is comparatively lower than the repo rate.
    3. Cash Reserve Ratio
      CRR, or cash reserve ratio, is the amount that commercial banks need to maintain with RBI in the form of cash. Banks do not receive any kind of interest on this from RBI.
    4. Statutory Liquid Ratio
      SLR is the minimum amount in percentage that a bank needs to keep either liquid or as investments in government securities.

    The RBI uses these interest rates and tools to manage monetary policy, control inflation, and maintain financial stability. Our major focus today will be on the repo rate and how even a slight change can have wide-ranging effects on the broader economy.

    Why interest rates are changed?

    why interst rate changes

    RBI changes these repo rates as a part of its monetary policy so that it can achieve its financial objectives. Now, what is monetary policy? Policy framed by the RBI to control and manage the supply of money in the economy. Monetary policy can either be contractionary or expansionary. When the money supply is increased and interest rates are reduced. This is known as the expansionary monetary policy. The vice-versa is known as the contractionary monetary policy. Coming back to our topic RBI changes the repo rate because of the following reasons,

    1. To control inflation in the economy.
    2. To focus on the economic growth of the economy.
    3. Situations prevailing in the global economy

    The decisions related to the repo rate are made during the RBI’s monetary policy meetings, which occur at regular intervals. Before moving further, we will give you some basic idea about the concept of inflation and deflation. Inflation is the general increase in the price level of goods and services in an economy. Consumers tend to pay more than the actual value of the good. The purchasing power of consumers decreases. In such a case under the monetary policy, the government of India increases the interest rate to fight inflation. This will decrease the flow of money in the economy.

    Deflation is the opposite concept of inflation. A general decrease in the price level of goods and services is called deflation. The purchasing power of the consumer is increased. RBI, in this situation, will lower the interest rate in order to increase the flow of money in the economy. We all know that the stock market of any economy is a true indicator that signals the pace of economic growth. So, we need to analyze the fact of how a change in repo rate can impact the markets.

    Read Also: How to Start Stock Market Trading With Low or Limited Capital

    Impact of rate change on the Indian stock market.

    The impact depends on the direction and magnitude of the interest rate changes, as well as the broader economic context.

    Interest rates can be changed in two ways

    • Interest rate hikes
    • Interest rate cuts

    When it comes to interest rate hikes, the cost of borrowing money increases which will make it difficult for the companies to avail loans and this will eventually reduce the profitability of the businesses. This will lead to lower earnings of the companies and decreased prices of the stock.

    Any sort of increase in the rate of interest can make other investment options more attractive. From the consumer’s point of view, there can be a significant change in his spending habits since there we be lesser disposable income in his hand thereby affecting his savings and investments. Interest Rate cuts, on the opposite side, lead to a decline in the cost of borrowing making it easier for the investor to grow which will lead to higher earnings and higher stock growth.

    The immediate impact of interest rate changes on the stock market may vary. Short-term interest rate changes might lead to short-term stock market volatility, while long-term rate trends can have a more lasting effect on the stock market.

    Impact of change in rate by the US Federal Reserve on the Indian stock market

    Impact of interest rate change

    Federal Reserve, since we all know is the central bank of the United States, can either increase or decrease the interest rate depending on the situation and needs of the economy. A change in the rate of the U.S. Federal Reserve affects the economy globally. The relationship between the actions of the Fed and the Indian stock market is influenced by several factors. Some of these factors are listed below.

    1.  If the Fed increases the rate of interest, foreign investors will find the U.S. markets more lucrative to invest in. They will withdraw their funds from the Indian stock market and deploy it in the U.S. so that they can enjoy higher returns.
    2. A slight change in the rate of interest by the Fed can have a significant impact on the exchange rates of currency. If the interest rate increases the U.S. dollar will strengthen and the Indian rupee will weaken.
    3. If U.S. rates rise substantially, it may lead to higher interest costs for Indian companies that have borrowed in U.S. dollars or have exposure to foreign currency debt.

    Read Also: Impact of Interest Rate Change on Financial Markets

    Conclusion

    To conclude interest rate and stock market share an inverse relationship. If you wish to receive consistent returns investing for a longer horizon is suggested. These short-term stances of rate change will create many complications. However, an investor should be well aware of the consequences of the rate change on the market so that he can make informed decisions. They should adopt a diversified investment strategy and take into account their own financial goals, and risk tolerance.

    Frequently Answered Questions (FAQs)

    1. How does interest rate affect bond prices?

      Bond prices and interest rates have inverse relationships i.e., when the central bank increases the interest rates, bond prices decrease, and vice versa.

    2. Do all stocks react to interest rate changes in a similar way?

      No, stocks across sectors react differently to interest rate changes.  

    3. Who regulates and manages the interest rate in the stock market?

      Reserve Bank of India controls and manages the interest rates.

    4. Why does RBI increase the interest rate?

      RBI increases the interest rates in order to control inflation and for the overall growth of the economy.

    5. What happens to borrowing costs when RBI increases the interest rates?

      Borrowing cost for the companies increases if RBI increases the rates.

  • How to Start Stock Market Trading With Low or Limited Capital

    How to Start Stock Market Trading With Low or Limited Capital

    Financial markets are a place where financial assets or instruments are bought and sold. It acts as an intermediary between someone who needs money and someone who wants to invest money. In India, Financial Markets can be classified into two types i.e., money market and capital market. Let us understand the concept of these two markets. 

    How To Start Stock Market Trading With Low Or Limited Capital

    Money market

    money market

    The money market is a place where financial instruments with high liquidity and short-term maturities are traded. It is used by participants as a means for borrowing and lending in the short term, and maturity in this market usually ranges from overnight to just under a year. Instruments of the money market are low-risk investments because the government of India issues them. Examples of these instruments in the money market include T-bills, commercial papers or certificates of deposits.

    Capital market

    capital market

    The capital market is a part of the financial market that facilitates the buying and selling of various financial assets such as stocks, bonds, debentures, and foreign exchange. These markets are controlled by the government and it is meant for both retail and institutional investors.

    The capital market is divided into 2 parts

    • Primary market where new shares are listed for the first time in the market through IPOs.
    • A secondary market where the already issued stocks are bought and sold. The secondary market provides liquidity to investors.

    The secondary market is further classified into various segments like stock market, debt market, commodity market, derivatives market, forex market etc. In today’s blog, we will be discussing about how to start your journey in the stock market with low or limited capital since in a country like India people are not aware of financial planning and there is a constant fear of losing capital which resists them from investing. Due to this people still choose traditional methods of savings like Fixed Deposits.

    Trading- a brief introduction

    trading

    Trading refers to the process of buying and selling financial assets, such as stocks, bonds, commodities, currencies, or derivatives, to profit from price movements.

    Types of trading

    1. Intra-day trading                                                                                                       
      Day traders open and close positions within the same trading day, often making numerous small trades to profit from intraday price fluctuations. They do not hold positions overnight.
    2. Swing trading                                                                                                                                    Swing traders aim to capture price swings or “swings” in the market for a few days to several weeks. They rely on technical and fundamental analysis to identify potential entry and exit points.
    3. Positional Trading                                                                                                                   
      Position traders take a longer-term approach, holding positions for weeks, months, or even years. They often rely on fundamental analysis to make investment decisions and are less concerned with short-term price fluctuations.

    Why should one trade or invest in the stock market?

    Investing in stocks can provide the opportunity to build wealth over the long term. Historically, the stock market has delivered attractive returns that have outpaced inflation whereas traders aim to profit from short-term price movements in stocks. Many people invest in stocks as part of their retirement planning. Investing in equities can potentially grow your retirement savings over time whereas some traders engage in trading as a primary source of income, while others use it as an alternative source of earnings.

    Investing means diversifying your portfolio of stocks and this can not only spread risk but also reduce the impact of poor-performing assets whereas trading can be done either in one stock or in multiple stocks depending upon the choice of the trader. Now chances are likely that a person with an average income may find it difficult to trade due to a lack of funds and financial stability.  

    So here are some tips on how you can start investing with low capital.

    • Understand that with limited capital, your goal should be consistent, small gains rather than quick riches. 
    • Identify how much of your capital you’re willing to risk on a single trade. A common rule is not to risk more than 1-2% of your total capital on a single trade.
    • You can use stop-loss orders to avoid excessive loss. Stick to your predefined stop-loss levels to prevent capital erosion.
    •  Diversification can help minimise your risk. try investing in different asset classes or stocks from various sectors to reduce the impact of a single poor-performing asset on your capital.
    • Begin with a small position size. Invest in a limited number of shares or contracts to minimize the impact of individual trades on your capital.
    • Choose low-cost financial instruments, such as exchange-traded funds (ETFs) or stocks that have low share prices. 

    (ETFs are exchange-traded funds that are tradable on stock exchanges and track a specific index)

    • Go for intra-day and swing trades and buy small quantities of shares. This will boost your confidence and will help you analyse how much water are you in when it comes to live trading.
    • Start learning through online videos or enrol yourself in a trading education programme. Keep yourself updated on market news.
    •  If you have low capital, trading can be emotionally exhausting since it requires a lot of patience. Stay disciplined and don’t let emotions drive your decisions. Maintain a clear and focused mindset.
    •  Opt for a brokerage firm with low fees to reduce your trading as well as transaction costs.
    • Avoid aggressive trading. Overtrading can lead to higher transaction costs and increased risk. You should focus more on quality trades rather than quantity.
    • Make your own trading strategies and start with paper trading. Practice your trading strategies and learn about the trading platform

    Read Also: What is Options Trading?

    Investing in Mutual Funds

    Still, if there is a fear that you might end up losing your capital, no worries you can invest in mutual funds with a small and minimum amount of Rs.500. There are various benefits of investing in mutual funds as well.

    Some of them are listed below,

    1. Professionally Managed Funds                                                                                                         Mutual funds are professionally managed by fund managers. AMCs appoint an eligible manager who then prepares a curated portfolio as per your risk appetite and financial goals.
    2. Diversification                                                                                                                                   AMCs dealing in mutual funds offer a wide variety of schemes in various categories like in large-cap companies, mid-cap companies and small-cap companies. You can choose as per your capital and investment horizon.
    3. Low-cost investment                                                                                                        
      Investment into mutual funds can be started with a minimal amount. You must be thinking how? Well, the answer to this question is, by starting with a monthly SIP of Rs.500.

    (SIP stands for systematic investment plan wherein a fixed amount is deducted from your bank account as part of your investment journey in mutual funds).

    1. Transparency
      Fund managers provide their investors with a transparent environment. You will be told beforehand where your capital is being invested. This increases the trust and harmony between the investor and the manager.
    2. Liquidity                                                                                                           
      Mutual funds are generally open-ended funds, which means you can buy or sell your shares on any business day at the fund’s net asset value (NAV).
    3. Tax Benefit                                                                                                                                            Some mutual funds offer tax advantages, such as tax-efficient funds designed to minimize capital gains distributions for eg. ELSS funds. 

    Read Also: Trading For Beginners: 5 Things Every Trader Should Know

    Conclusion

    Trading with limited capital requires a disciplined approach and a focus on risk management. It’s important to prioritize saving your capital and gradually growing it over time. As you gain experience and build your capital, you can consider more advanced trading strategies.

    FAQs (Frequently Answered Questions)

    1. What are ETFs?

      ETFs are exchange-traded funds that are tradable on stock exchanges and track a specific index. 

    2. Define the money market.

      The money market is a place where financial instruments with high liquidity and short-term maturities are traded. Examples of these instruments in the money market include T-bills, commercial papers or certificates of deposits.

    3. What is SIP?

      SIP stands for a systematic investment plan. You can start SIP with a minimum amount of Rs.500.

    4. Can you do intra-day trading with low capital?

      Yes, you can do intra-day trading with low capital since brokers provide you margin facility i.e., extra funds.

    5. Can I invest 1000 in the stock market?

      There is no minimum amount of capital required since there are also stocks that are low-priced. They will help you trade with low capital and less quantity. 

  • Types of Investment in the Stock Market

    Types of Investment in the Stock Market

    You earn money and you save money, then you get an option to channel your savings in an organised manner. These are called investments. Investments should be based on your desired goal i.e.; emphasis should be on goal-based planning. Goals can be anything marriage, foreign tour, emergency fund, retirement plans or buying a house. Only then any investor can align their investments as per his/her risk tolerance, and time horizon and decide the investment product he wants to opt for. Investments are a source that helps you achieve your desired financial goal. Stock market offers investors various avenues in order to allocate their capital and generate returns over time. Investing in the stock market offers a multitude of opportunities for individuals to grow their wealth.

    Types Of Investment In The Stock Market

    In today’s blog, we will be classifying investments into three categories.

    1. Modern investment options or investment in the stock market
    2. Traditional investment options
    3. Other investment options

    Below is a detailed explanation of the types of investments that are widely used by investors.

    Modern Investment Options

    Stocks

    Stocks

    Stocks are the most chosen and common investment option. Buying shares of a specific company is known as investing in stocks. The investor becomes the partial owner of the company and can enjoy various advantages that include capital appreciation, dividend payouts and voting rights. Stocks are issued by various companies. The initial listing of the stocks is labelled as an IPO (Initial Public Offering) and is introduced in the primary market but is traded in the secondary market. Stocks are volatile and can be risky to invest in.

    Mutual Funds

    Mutual funds collect money from numerous investors to invest in a diversified portfolio of stocks, bonds, or other assets. These funds are managed and curated by professional fund managers and hence become suitable for investors who have less time and expertise to manage their portfolios. When you invest in mutual funds, NAV (Net asset Value) is allotted to you which reflects the net value of the assets that are chosen by the fund manager to invest your money in. Furthermore, SIP/STP/SWP are different ways through which we can invest in mutual funds.

     PMS

    PMS stands for Portfolio Management Services and is generally meant for HNIs (High net worth Individuals) and has a minimum ticket size of Rs 50 Lakhs. There are 2 types of PMS. Discretionary and non-discretionary PMS. PMS fund managers charge fees from their clients based on the asset under management. Individuals, NRIs, HUF, partnership firms, and proprietorship firms can invest in PMS.

    Bonds

    Bonds are fixed-income investments or debt instruments that are issued by the government. When you buy a bond, you are giving money to someone who issues the bond in exchange for interest or coupon, which is paid at regular intervals, and the return of the bond’s face value at maturity. Bonds are regarded as lower-risk investments when compared to stocks. There are generally three types of bonds.

    • Government Bonds/Securities-

    Tradeable bonds which are issued by the central and state governments. These bonds have a fixed coupon rate and maturity. For example, treasury bills.

    • Corporate Bonds

    These bonds are issued by private companies and NBFCs which carry a bit higher yield than government bonds.

    • Municipal Bonds

    These bonds are issued by state municipal corporations to fund projects.

    AIF

    Alternate Investments

    AIF stands for Alternative Investment Funds. It is a privately pooled investment that collects funds from high-class investors. These investors are institutions and high net-worth individuals who have an idea about the higher risk and complex investment arrangements.

    Exchange Traded Funds (ETFs)

    ETFs are investments that are traded on stock exchanges just like any individual stock and provide investors with a diversified portfolio of assets. ETFs have a very low expense ratio.

    Read Also: How Does the Stock Market Work in India?

    Traditional Investment Options

    Fixed deposits

    fixed deposit

    FDs are traditional methods of saving and investment and are good for investors with low or nil risk appetite. The fund is deposited in the bank account in a lump sum for a fixed period of time and at the time of maturity, the depositor gets back the principal amount along with the interest. Interest on FDs is fixed by the banks and offers you guaranteed returns.

    Public Provident Fund

    public provident fund

    PPFs are long-term saving schemes offered by the Indian government. PPFs generally have a lock-in period of almost 15 years. However, individuals can withdraw money partially after a tenure of 5 years is completed from the date they have opened the account.

    Post Office Schemes

    post office

    It is a fixed-income investment offered by the Post Offices. Investors are given monthly interest on their investment amount. This investment option comes with low to moderate risk.

    Savings Account

    A savings account is a basic, interest-bearing deposit account offered by banks. It provides a safe place to store money, and interest is earned on the balance. this account has low risk and high liquidity but has low returns.

    Other Investment options

    Gold

    Gold is considered a safe haven when it comes to investments. Gold is highly liquid and can be easily bought and sold. At times of volatility in the market, the best option to bet upon is gold. It is a popular investment option because of its historical significance. Gold has been a store of value for ages and is believed to be a symbol of wealth. It helps to diversify the risk of your portfolio. You can invest in physical gold, gold ETFs and sovereign gold bonds.  

    Real-estate investment Trusts (REITs)

    Real estate is a great source of rental income from properties because there is a significant growth in the value of the asset be it land or a building, over time. This increases the value of the invested capital which is considered as beneficial for the investor. Real estate investment trusts (REITs) allow investors to invest in real estate without owning physical properties directly. REITs are a source of indirect investment in Real Estate. REITs have emerged as a good option to enable investors to expose themselves to smaller outflow commitments.

    Read Also: How to Start Stock Market Trading With Low or Limited Capital

    Conclusion

    Every investment option has different attributes, returns and risk profile. It is always suggested to investors to conduct systematic research or seek advice from financial professionals before making investment decisions. Choosing the right option completely depends on your financial goals, risk tolerance, and investment horizon. Diversification of portfolios across different investment types can help you lower the risk and shape a well-balanced portfolio that aligns well with your financial goals.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Types of Demat Accounts in India
    2Features and Benefits of Demat Account
    3Can I Have Multiple Demat Accounts in India?
    4How to Open a Demat Account Online?
    5Small-Cap ETFs to Invest in India
    6Best Sip Apps in India for Investment

    FAQ (Frequently Answered Questions)

    1. How do ETFs differ from mutual funds?

      ETFs are traded on stock exchanges like individual stocks whereas asset management companies sell mutual funds.

    2. How to choose the right investment as per my financial objective?

      Pay attention to factors like your investment horizon, risk appetite and reason for investment and seek advice from a professional.

    3. Are FDs modern or traditional methods of investment?

      FDs are a traditional way of investing.

    4. What is the full form of REITs?

      REITs stand for real estate investment Trusts.

    5. Is gold highly liquid?

      Yes, gold is considered highly liquid and is used as a hedge against inflation.

  • Which is Better: Fixed Deposit or Residential Property Investment

    Which is Better: Fixed Deposit or Residential Property Investment

    Fixed Deposit or Residential Property Investment

    What is Real Estate?

    Real Estate is considered as a long-term investment option. It is a kind of risky investment when compared to fixed deposits. Despite fluctuations in the prices of the property over the years, real estate carries great potential to appreciate your invested capital. It’s a broad and diverse asset class that encompasses various types of properties, ranging from residential homes and commercial buildings to undeveloped land and industrial facilities. Real estate is crucial in many aspects of our lives and the economy. Real Estate means a tangible property, including land and buildings.

    Real estate can be a source of rental income from properties for investors and potentially benefit from appreciation in the value of the asset over time. Real estate investment trusts (REITs) allow individuals to invest in real estate without owning physical properties directly. REITs are a source of indirect investment in Real Estate. Location is often considered one of the most critical factors that affect property values in the case of real estate.

    Types of Real Estates

    There are various types of real estate which you should be aware about

    • Residential
    • Commercial.
    • Industrial
    • Land
    • Special Purpose

    Let us go through each of them in detail.

    • Residential Real Estate
      Any property or area used for residential purposes, i.e., for living, e.g., Individual houses, apartments, etc.
    • Commercial Real Estate
      Properties used to carry out a business like office buildings, hotels, etc.
    • Industrial Real Estate
      This real estate comprises property used for manufacturing, production, storage, and distribution.
    • Land Real-Estate
      Any area that is vacant, raw, and underdeveloped that can be bought and sold is called Land real estate.
    • Special-purpose Real Estate
      Religious places like temples, schools, libraries, etc, serve a special purpose for the general public.

    After having an overview of the concept of real estate, in today’s blog, we will be analyzing closely the difference between residential property,  which is a type of real estate, and FDs as an investment option. Investment in residential properties involves buying houses, flats, or any kind of residential unit that can provide you with rental income. Though these properties are a good investment option, you should plan and do proper research before investing. Residential properties are a long-term investment option if you want a capital appreciation, and you should also have an exit strategy. Consider factors like when you might sell the property, how you’ll handle market downturns, and whether you’ll reinvest the proceeds. Consulting with a professional who deals in residential properties and financial advisors can be valuable and useful in the investment process.

    Real Also: Top Real Estate Stocks In India

    Pros of investing in Residential properties

    1. Generation of high returns over the long term.
    2. A significant increase in the invested capital.
    3. Rental income can also be a source of primary or alternative income after retirement.
    4. Real estate investment can provide investors with tax advantages, such as deductions for mortgage interest, property taxes, and depreciation. 

    Cons of Investing in Residential Properties

    • Initially, it would be best to have a lot of money when choosing residential properties as an investment option.
    • Lack of liquidity is one of the major disadvantages when investing in real estate because you cannot sell the property immediately. Certain legal procedures are followed while selling, which can be time-consuming.
    • Maintenance costs can be very high, like property taxes, renovation costs, repairs, and insurance.
    • A decline in the real estate market will affect property values.

    What are Fixed Deposits?

    fixed deposit

    Fixed deposits are a kind of investment option and are a traditional method of saving. Fixed deposits are offered by banks and NBFCs (Non-Banking Financial Institutions). Investment in FDs is a safe option since it gives a fixed return over the years. FDs also offer tax benefits, such as deducting interest income up to Rs. 50,000 per year under Section 80TTA of the Income Tax Act, 1961. FDs are a low-risk investment option with a fixed interest rate, which helps you preserve your capital. You can withdraw your capital whenever you want to, but after a lock-in period only. If capital is withdrawn before the maturity date, a certain penalty amount is charged.

    To invest in FDs, you just need to visit your nearest bank branch or apply online. The process takes a few minutes. Suppose you received an amount of Rs.20000 after winning a match, and instead of buying something expensive, you decided to go for a Fixed Deposit. Now, you will visit your nearest bank branch and deposit your money to earn some amount of interest and will just sit back for some years. You will reach out to the bank once again when your Fixed Deposit matures to get your principal amount as well as the interest that you have earned over the years.

    Types of FDs

    • Regular FDs
    • Cumulative FDs
    • Non-Cumulative FDs
    • Corporate FDs

    Let us explain each of them in detail.

    • Regular FDs
      FD, which offers you a fixed interest rate, and you get back your principal amount with interest at the time of maturity.
    • Cumulative FDs
      In the case of cumulative FDs, the investor gets a return in a lump sum at the time of maturity. Till then, the interest is accumulated and then added to your principal amount.
    • Non-Cumulative FDs
      Regarding non-cumulative FDs, interest is paid to the investor at regular intervals as he chooses.
    • Corporate FDs
      FDs are offered by private organizations and non-banking financial companies (NBFCs) that collect deposits for a fixed tenure and a pre-decided interest rate. The interest rate offered is high when compared to normal bank FDs.

    One of the major drawbacks that any investor can face while choosing FDs is that the investor won’t be getting the benefit of inflation-adjusted returns and can also get negative returns at times. How? Let us understand this with an example.

     Suppose your investment amount is 5 lakhs. Per the current interest rate (6.7%), interest received would be 33,500. If you lie in a tax slab of 30%, an amount of approximately 10,000 will be deducted from your interest amount, and you will receive a net amount of 23,000 as interest, which is 4.6% when expressed in percentage. Since current CPI, i.e., consumer price inflation, is 7.6%. So, the real interest received is 3% only.

    Now, let us come back to our better question. FDs or Residential Investments.

    Also, check out Fibonacci Retracement: Complete Guide On How To Use And Strategy.

    Conclusion

    conclusion

    Fixed deposits (FDs) and real estate are two distinct investment options with advantages and disadvantages. The choice between the two depends on your financial goals, risk tolerance, investment horizon, and circumstances. Choosing between both investment options can be a tough task. However, if you are willing to take on more risk to generate higher returns potentially, then real estate may be a better option for you.

    FAQ (Frequently Answered Questions)

    1. Which is the better investment option, Residential properties or FDs?

      Both investment options have their own merits and demerits. It would be best if you chose as per your financial goals.

    2. Are FDs tax-free?

      No, fixed deposits are not tax-free.

    3. What are cumulative fixed deposits?

      The investor gets a return in a lump sum at the time of maturity. Till then, the interest is accumulated and then added to your principal amount.

    4. Are FDs more risky than residential properties?

      No, FDs are less risky, whereas investments in residential properties are riskier.

    5. What kind of income can we earn from residential property?

      Rental income can be earned from residential property.

  • What is Gann box: How to use, meaning and strategy

    What is Gann box: How to use, meaning and strategy

    A Gann Box which is also known as a Gann Square or Gann Grid, is an indicator of technical analysis which is used in financial markets to analyse price and time relations. It was founded by W.D. Gann in the 20th century and was named after him. He was a famous trader and analyst known for his innovative and inventive market analysis strategies. W.D. Gann observed that the market was cyclical and based on these ideologies he formed the Gann theories using various mathematical and geometrical concepts which included tools like Gann angles, Gann fans, Gann box and Gann squares of nine.

    Gann square of nine is a circular chart, the Gann box is a series of diagonal lines and the Gann Fan consists of a series of angled lines, which are generally drawn from a pivot point on a price chart. In today’s blog, we will dive deep into the concept of the Gann box. The Gann Box studies price trends, support and resistance levels, and reversal points that are formed on candlestick charts. Here’s how a Gann Box works:

    What Is Gann Box

    Construction of a Gann Box

    Gann box

    A Gann Box contains a series of lines that are formed at certain angles and levels. These angles and levels are based on geometric principles and ratios which commonly include 45 degrees, 1×1, 2×1, 1×2, 3×1, and so on. The Gann box mainly comprises the following,

    The 45-Degree Angle:

    The main diagonal line in the Gann Box represents a 45-degree angle and is known as the 1×1 line.

    Other Angles:

    Additional diagonal lines are drawn at different angles, such as 2×1, 1×2, 3×1, and so on, and this completely depends upon the type of analysis being performed.

    Uses of Gann Box:

    Gann Boxes are used to identify and analyse trends in financial markets. The 45-degree angle represents a 1:1 relationship between price and time, so it can be used to identify the strength and direction of a trend.

    The angles and lines in a Gann Box can be used as support and resistance levels. Traders look for price reactions at these levels to make trading decisions.

    Gann Boxes are often used by traders to predict future price levels and the time that it might take to reach the price target.  

    Gann Boxes are used to identify potential reversal points in the market. Traders try to find the intersection of diagonal lines as a signal and assume that a reversal from the analysed price level is likely.

    Some traders use Gann Boxes in combination with other technical analysis tools to identify geometric patterns and potential trading opportunities.

    Read Also: Index Derivatives in India

    The formula for Gann Box

    The formula for calculating other Gann Box angles involves ratios of price to time. 

    The important ratios used in Gann analysis are as follows:

    1×1 Angle – Denotes a 1:1 relationship, which means that one unit of price change corresponds to one unit of time change.  

    2×1 Angle –  Denotes a 2:1 relationship, which means that for every two units of price change, there is one unit of time change.  

    1×2 Angle – Denotes a 1:2 relationship, which means that for every one unit of price change, there are two units of time change.

    3×1 Angle – Denotes a 3:1 relationship, meaning for every three units of price change, there is one unit of time change.

    These lines create a grid on the price chart, and traders use them to identify potential support and resistance levels, time projections, and trend analysis.

     Just like other indicators, Gann Box has its own set of advantages and disadvantages. Some of them are listed below

    Advantages of Gann Box:

    ADVANTAGES
    • Gann Boxes helps traders and investors to plan both time and price levels on a chart which eventually leads to a better and clearer understanding of support and resistance zones and prediction of future price movements of the stock market.
    • Gann analysis is based on geometric and mathematical rules. The angles and lines drawn with Gann Boxes are exact and constant which provides traders with an organized and methodical approach to understand the prevailing trend of the market.
    • Gann Box analysis can be used in combination with other technical and fundamental analysis techniques to expand a trader’s logical approach.

    Disadvantages of Gann Box

    DISADVANTAGES
    • Gann Box analysis as a technical analysis tool can be highly subjective. 
    • Traders may take Gann angles and lines differently, which can lead to different conclusions about support and resistance levels or identification of trend directions.
    • Gann analysis can be confusing at times, with multiple angles and lines on a candlestick chart. Traders may face difficulty in determining which lines are the most appropriate for a market time frame.
    • Focusing and relying heavily on Gann angles can lead to missed opportunities or bad trading decisions.
    • Rapid technological advancements and changes in market dynamics may limit the applicability of Gann analysis to modern trading environments.

    Read Also: Price Action Analysis: An Easy Explainer

    Conclusion

    Traders must understand, that the concept of Gann Boxes can be complex and involves a good understanding of the fundamental principles and how to use them efficiently. The Gann box is a lesser-used tool of technical analysis since it includes mathematical calculations and is not as widely used as RSI, MACD and other indicators. Traders and analysts use Gann analysis in combination with other technical and fundamental analysis techniques to make more informed trading decisions.

    FAQs (Frequently Answered Questions)

    1. Is Gann Box a Leading or Lagging Indicator?

      Gann Box is a lagging indicator.

    2. Who founded Gann Box?

      It was founded by W.D. Gann

    3. What is the accuracy level of Gann Box?

      Accuracy level of Gann Box is 92%

    4. What is the most important angle of Gann Box?

      The most important angle of the Gann box is 45 degrees.

    5. What is Gann Fan?

      Gann fan is a technical concept that consists of a series of diagonal lines that are drawn on a price chart to identify support and resistance levels.

  • Why Debt Funds Are Better Than Fixed Deposits of Banks?

    Why Debt Funds Are Better Than Fixed Deposits of Banks?

    Debt mutual fund is a category of mutual fund that invests in fixed-income instruments such as Corporate and Government bonds, commercial papers, treasury bills, state development bonds etc. The primary objective of debt mutual funds is to generate income for investors through interest payments while preserving the capital invested. Debt mutual funds diversify their holdings across various debt instruments to diversify the risk. This helps reduce the impact of poor performance by any single security. Debt mutual funds are open-ended funds, which means investors can buy or sell fund units on any business day at the fund’s net asset value (NAV). When considering debt mutual funds, it’s important to assess your investment goals, risk tolerance, and time horizon, and select funds that align with your financial objectives.

    Debt Funds and Fixed Deposits Of Banks

    Who should invest in Debt Funds?

    Who should invest in Debt Funds?

    Debt Funds are suggested for individuals who prefer capital preservation to higher returns because debt funds provide investors with consistent returns and are less volatile. Investors who want a regular income but are risk-averse i.e., they refrain from taking risks with their investments.

    Read Also: Debt Mutual Funds: Meaning, Types and Features

    How to invest in Debt funds

    How to invest in Debt funds

    You can invest in direct debt funds through Asset Management Companies (AMCs) and in the case of regular debt funds you need to contact mutual funds distributors (MFDs).

    Types of Debt Mutual Funds

    These categories of debt funds cater to different investor preferences and financial goals. 

    1. Liquid Funds

    Liquid funds invest in very short-term debt instruments like T-bills, Certificates of deposits, and commercial paper and have a maturity of 91 days to generate optimum returns.

    2. Short-term Funds

    These funds invest in money and debt market instruments and government securities. The investment duration of these funds is longer than that of Liquid Funds.

    3. Floating Rate Funds (FRFs)

    FRFs invest in instruments that offer a floating rate of interest on your investments in bonds, government securities and debentures.

    4. Gilt Funds

    Gilt in Gilt funds stands for government securities. This fund invests your capital in government securities that are issued by central and state governments. This fund offers you low credit risk and moderate returns.

    5. Dynamic Bond Funds

    These funds invest in debt securities that have a different maturity period

    and actively manage the fund’s interest rate risk. Returns vary based on market conditions.

    Above mentioned are some of the types of debt mutual funds. There are various other types which we shall discuss later.

    Taxation of Debt in India

    Taxation in debt is divided into 2 parts.

    Short-term gain and long-term gain where the duration of short-term is less than 3 years as per your income tax slab and for long-term it is more than 3 years at the rate of 20% with indexation benefit.

    (Indexation- means adjusting your purchase cost based on inflation)

    Now let us understand the concept of Fixed Deposits before jumping to any conclusion as to why to choose debt funds.

    What are fixed deposits?

    What are fixed deposits?

    Let’s make it easy, simplified and crisp with a short example.

    Suppose, you received a Diwali Bonus of Rs.50000 and instead of buying something expensive, you decided to go for a Fixed Deposit. Now you will visit your nearest bank branch and will deposit your money to earn some amount of interest and will just sit back for some years. You will reach out to the bank once again when your Fixed Deposit matures to get your principal amount as well as the interest that you have earned over the years.

    Therefore we can say that a fixed deposit (FD) is a tenured deposit account provided by banks or  NBFCs (Non-banking financial companies ) that provides investors a higher interest rate than a regular savings account, until the given maturity date. Investment in fixed deposits is considered a risk-free investment.   

    Merits of Investing in Fixed Deposit

    1.       Guaranteed Rate of Interest

    2.       Easy to Monitor

    3.       Tax Benefits

    4.       Loan Against FD

    5.       Flexible Period

    6.       Better option for senior citizens

    Taxation of Fixed Deposits in India (Example)

    Taxation of Fixed Deposits in India (Example)

    In India, the interest income earned from fixed deposits is subject to taxation under the Income Tax Act. Here’s a simplified example to explain how FD interest is taxed

    Suppose Mr A has a bank FD of Rs.1 lakh and as per the current rate he is earning an interest 6.5% per annum on his FD which amounts to 6500 (6.5% of 1 lakh). Now he is liable to pay tax on 6500 as per his income slab.

    After an in-depth analysis of debt funds and fixed deposits let us have an overview of why you should invest in debt funds and not in traditional saving methods like bank FDs.

    Read Also: A Guide To Fixed Deposits: Exploring Types And Interest Rates

    Why choose Debt Funds over Bank Fixed Deposits?

    1. The returns generated both on FDs and debt funds are fixed and assured but interest rates in debt funds can be repriced according to the movements in the markets. Portfolio rejig by the fund managers can also lead to fluctuations in returns of debt funds whereas when it comes to FDs, returns are fixed.
    2. In the case of FDs pre-mature withdrawals can lead to penalty whereas when it comes to debt funds only a minimal exit load is charged and that too only if withdrawal is done before the stipulated time period.  
    3. Bank FDs are generally considered risk-free or possess lower risk as they are insured to the extent of Rs 5 lakh for the principal and the interest by the Deposit Insurance and Credit Guarantee Corporation. Although Debt funds have more credit risk they offer higher yields unlike FDs and these funds are suggested for risk-averse investors.
    4. In bank FDs, at the time of investment, the rate of interest offered by banks depends on the tenure of the FD meanwhile in debt funds the fund manager uses his expertise to invest the capital into different papers or bonds according to the scheme objective which can lead to variation in returns generated per year.
    5. You can invest in Debt funds either through SIPs or in a lump sum. It entirely depends upon you whereas in the case of FDs, you can only invest in a lumpsum amount thereby making it difficult for the lower-income group to invest.

    Conclusion

    On parting ways, both financial instruments be it debt funds or FDs have their own set of merits and demerits. Depending upon the investors’ risk appetite debt funds are always suggested who are willing to take risks on their capital and are risk-averse. Unlike FDs, debt funds help the investor in the diversification of their portfolio and achieve their financial goals. Debt funds offer you more tax efficiency if your investment period is more than 3 years. Fixed deposits are best suited for investors who have lower income and have an investment horizon of less than 3 years otherwise debt funds are the best to opt for!

    FAQs (Frequently Asked Questions)

    1. What are Debt Funds?

      Debt mutual fund is a category of mutual fund that invests in fixed-income instruments such as Corporate and Government bonds, commercial papers, and treasury bills.

    2. Are debt mutual funds riskier than bank FDs?

      Yes, debt mutual funds are riskier as compared to bank FDs.

    3. Is debt fund good for the long term?

      If you have an investment horizon of more than 3 years and have a low-risk appetite, debt funds are a perfect investment option for you.

    4. Bank FDs or Debt, which provide better tax efficiency?

      Debt funds provide more tax efficiency.

    5. Does a debt fund provide a higher return than bank FDs?

      Yes, debt funds offer more returns than bank FDs.

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