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  • Budget 2024-25: How Will New Tax Slabs Benefit The Middle Class?

    Budget 2024-25: How Will New Tax Slabs Benefit The Middle Class?

    The Government of India introduced the Union budget for the 2024-25 on July 23, 2024. It was the first budget of the third term of the Modi Government. The budget featured a wide array of changes to achieve economic development targets. 

    For the middle class, some of the key features of the budget are introduction of new tax slabs under the new regime, hike in the standard deduction limit, etc.

    In this blog, we will discuss the changes introduced in Budget 2024 for the general public, i.e., the new tax slabs and standard deduction.

    What is Income Tax and the Slab Rates?

    Income tax is the direct tax which is imposed on income or profits earned by individuals and corporations. It is a major source of revenue for the government; in fact, almost 19% of the govt. revenue comes from Income tax only in FY 23-24. This 19% covers Corporation Tax (CIT) and Personal Income Tax (PIT) including Securities Transaction Tax (STT).

    India has a progressive income tax system, which means people with higher incomes pay more of their income in taxes. Income is divided into different slabs, each with a specific tax rate.

    Income Tax and the Slab Rates

    Additionally, India offers two tax regimes: the old tax regime and the new tax regime. The new regime offers a lower tax rate but comes with fewer deductions. An individual can choose the regime that best suits their situation.

    In the union budget of 2024-25, the govt. has revised the tax slabs under the new tax regime. Keep in mind that there is no modification in slabs of the old tax regime. Let’s have a look at the existing slabs of new tax regime:

    Income Tax Slab (in INR)Income Tax Rate (%)
    Up to 3,00,0000
    3,00,001 – 6,00,0005%
    6,00,001 – 9,00,00010%
    9,00,001 – 12,00,00015%
    12,00,001 – 15,00,00020%
    15,00,001 and above30%

    Read Also: Budget 2024-25: How Will New Tax Slabs Benefit The Middle Class?

    Slab Rates Proposed in Budget 2024-25

    The income tax slab rates for the new tax regime proposed in Budget 2024-25 are:

    Income Tax Slab (in INR)Income Tax Rate (%)
    Up to 3,00,0000
    3,00,001 – 7,00,0005%
    7,00,001 – 10,00,00010%
    10,00,001 – 12,00,00015%
    12,00,001 – 15,00,00020%
    15,00,001 and above30%

    Did you know?

    Finance Minister Nirmala Sitharaman made history on 23 July 2024, by presenting her seventh consecutive budget—six annual budgets and one interim budget. No other finance minister in India’s history has reached this milestone. This achievement surpasses the previous record held by former Finance Minister Morarji Desai, who presented six budgets in a row.

    What is Standard Deduction?

    In the Income Tax Act, we have certain exemptions and deductions to reduce our tax liability. Deductions are provisions that allow an individual to reduce his/her income and, thus, reduce the tax liability.

    Standard deduction is one of the most popular deductions claimed by individuals. It is a flat deduction that an individual can subtract from the total salary or pension received in a given financial year. Remember that the standard deduction is not available for business income.

    An important change regarding the standard deduction under the new tax regime was announced in the Budget 2024-25. The limit was hiked from INR 50,000 to INR 75,000. Similarly, for family pensioners, the deduction has been increased from INR 15,000 to INR 25,000.

    Read Also: Budget 2024: Explainer On Changes In SIP Taxation

    How Much Tax Can You Save?

    Now the main question arrives: how much can an individual actually save because of the above-mentioned changes? Let’s have an analysis on this.

    How Much Tax Can You Save?

    We will calculate the income tax based on the new slab rates and the slab rates prior to the Budget 2024-25. Suppose Raman works in an MNC and earns INR 13,50,000 from salary in a given financial year. Considering he has no other source of income, let’s calculate his tax liability based on existing and revised slab rates of new tax regime:

    Based on the existing slab rates (prior to Budget 2024-25)

    Salaried Income = INR 13,50,000

    Net Income after standard deduction of INR 50,000 = INR 13,00,000

    Tax Calculation

    Slab (INR)Income Tax RateIncome Tax (INR)
    Up to 3,00,0000%0
    3,00,001 to 6,00,0005%15,000
    6,00,001 to 9,00,00010%30,000
    9,00,001 to 12,00,00015%45,000
    12,00,001 to 13,00,00020%20,000

    Total tax payable as per the existing slabs of new tax regime is INR 1,10,000.

    Based on New Slab Rates (announced in Budget 2024-25)

    Salaried Income = INR 13,50,000

    Income after Standard Deduction of INR 75,000 = INR 12,75,000

    Tax Calculation

    Slab (INR)Income Tax RateIncome Tax (INR)
    Up to 3,00,0000%0
    3,00,001 to 7,00,0005%20,000
    7,00,001 to 10,00,00010%30,000
    10,00,001 to 12,00,00015%30,000
    12,00,001 to 12,75,00020%15,000

    Total tax payable as per latest slabs of the new tax regime is INR 95,000.

    So, in our example, if an individual is earning INR 13.5 lakhs from salary, then he or she can save INR 15,000 in taxes based on the revised tax slabs under new tax regime.

    Read Also: Budget 2024: F&O Trading Gets More Expensive?

    Conclusion

    In summation, the tax slab rate changes for new tax regime introduced in Budget 2024, along with an increase in the standard deduction, will result in increased tax savings for the middle class. The reduced tax liability will result in a rise in disposable income, resulting in an increase in consumption and ultimately end up in boosting the growth of the Indian economy.

    However, you must be wondering why the government has announced these changes. If people pay less tax, doesn’t that mean the government earns less? The answer to this is not that simple. There are a few changes announced in the Budget 2024-25 which are not beneficial for the general public. For example, there’s an increase in the Short-Term and Long-Term Capital Gains tax rates, removal of the indexation benefit for real estate, etc. We’ll discuss these changes in more detail in another blog.

    Frequently Asked Questions (FAQs)

    1. What is Income Tax?

      Income tax is the tax imposed on the income or profits earned by individuals and businesses. It is a direct tax and a major source of revenue for the government.

    2. What is standard deduction?

      A standard deduction is a flat deduction that an individual can subtract from the total salary or pension earned in a given financial year.

    3. In which regime are the changes introduced in Budget 24-25?

      The govt. introduced changes in slab rates of the new tax regime in the Union budget of 2024-25.

    4. What are the changes introduced with respect to the standard deduction in Budget 2024-25?

      The standard deduction has been hiked from INR 50,000 to INR 75,000 for salaried individuals and from INR 15,000 to INR 25,000 for family pensioners.

    5. What will be the impact of increased standard deduction for the middle class?

      An increase in the standard deduction will result in higher tax savings and higher disposable income.

  • Bollinger Bands: Interpretation and Uses

    Bollinger Bands: Interpretation and Uses

    As investors, to gain higher returns, you always need to know the stock trends and then make the trading decision. One of the best ways to gauge the trend is to use technical analysis tools. It gives us an overview of market volatility and stock trends. There are a variety of indicators that a professional trader uses to make investment decisions. Bollinger Bands is one popular indicator among them.

    In this blog, we have covered Bollinger Bands, its mechanism, and practical applications.

    What are Bollinger Bands?

    Bollinger Band is the technical analysis indicator that was developed by John Bollinger in the 1980s.  These consist of three lines plotted on a price chart: a simple moving average (SMA) in the middle and two standard deviation bands, one above and one below the SMA. There are two parameters on which it works, they are:

    • Period:  By default, 20 days are considered for technical analysis.
    • Standard Deviation: It is calculated based on stock highs and lows.

    Key Components of Bollinger Bands

    Bollinger Bands consists of three main bands listed below:

    1. Middle Band (Simple Moving Average): The simple moving average is usually set to 20 days. It represents the average price over a specific time frame.

    Middle band = 20 day SMA.

    2. Upper Band: It is the SMA plus two standard deviations (SD). It marks the upper boundary of price movement.

    Upper band = 20 day SMA + (2 * 20 day SD of price)

    3. Lower Band: It is the SMA minus two standard deviations(SD). It marks the lower boundary of price movement.

    Lower band = 20 day SMA – (2 * 20 day SD of price)

    Diagram 1: Picture showing three components of the Bollinger Band

    Interpretation of Bollinger Bands

    There are three situations in which Bollinger Bands helps you identify the stock condition according to the band movement.

    • Overbought Conditions: When the price moves towards the upper band, it indicates that the asset is overbought. This can be a signal that the price might fall in the future.
    • Oversold Conditions: When the price moves towards the lower band, it indicates that the asset is oversold. It signals that the price might increase in the future.
    • Volatility Indication: The distance between the upper and lower bands widens during high volatility periods and contracts during low volatility. This helps traders anticipate potential breakout scenarios.

    Uses of Bollinger Bands

    Bollinger Bands has the following uses:

    • Spotting Trend Reversals: The price crossing above the middle band (SMA) can signal an uptrend, while crossing below can signal a downtrend.However, Bollinger Bands must be used with indicators like RSI or MACD to confirm trend reversals.
    • Bollinger Band Squeeze for Breakout Trading: Contraction of bands indicates low volatility and a potential breakout in the near future.If a breakout occurs with an increase in volume, then traders can enter positions in the breakout direction.
    • Setting Stop-Loss and profit-booking levels: Traders usually place stop-loss orders just outside the bands for protection against breakouts.The middle or opposite band of the Bollinger Bands can be considered as a profit-booking level.

    Examples

    • Example 1: The price of a stock touches the upper Bollinger Band, indicating a potential overbought condition. Trader decides to wait for confirmation before making a decision.If the price crosses below the middle band, you can decide to sell or short the stock.
    • Example 2: After a period of consolidation with narrow bands, the price breaks above the upper band with high volume. You enter a long position, anticipating a strong upward move.
    • Example 3: A trader with a long position places a stop-loss slightly below the middle band to protect against losses and uses the upper band level as the profit-booking level.

    Advantages and Disadvantages of Bollinger Bands

    Advantages and Disadvantages of Bollinger Bands
    Advantages of Bollinger BandsDisadvantages of Bollinger Bands
    The bands provide a clear visual representation of market volatility and potential price reversals. These are easy to interpret, even for beginners.Like any indicator, Bollinger Bands are not 100% reliable. It can generate false signals, especially in volatile or sideways markets.
    Bollinger Bands work well with other technical indicators.As Bollinger Bands are based on moving averages, they sometimes lag behind current price movements. It makes them less effective in volatile markets.

    Read Also: Breakout Trading: Definition, Pros, And Cons

    Conclusion

    Bollinger Bands are an easy way to identify market trends, volatility, and reversals. After knowing how to interpret and apply Bollinger Bands, you can improve your trading strategies and increase your chances of success in the market. However, it is advised to consult a financial advisor before making any investment decision.

    Frequently Asked Questions (FAQs)

    1. Can Bollinger Bands be used in any timeframe?

      Yes, Bollinger Bands work on all timeframes, from intraday to monthly charts, making them versatile for various trading strategies.

    2. How do I customize the settings for Bollinger Bands?

      Adjust the standard 20-period SMA and 2 standard deviations based on your trading style. For the short term, use a 10-period SMA with 1.5 standard deviations, and for the longer term, a 50-period SMA with 2.5 standard deviations is appropriate.

    3. Can Bollinger Bands be used with other indicators?

      Yes, they are often paired with indicators like RSI to identify overbought/oversold conditions and volume indicators for validating breakouts.

    4. How do Bollinger Bands react to sudden market news?

      They expand or contract based on price movements and volatility. Sudden news causing significant price changes will lead to rapid band widening, which indicates increased volatility.

    5. Are Bollinger Bands effective in all market conditions?

      Bollinger bands are less effective in choppy or sideways markets, where prices oscillate without clear direction. It will potentially generate false signals. Use them with other analysis techniques for confirmation.

  • Skewness and Kurtosis: Meaning, Types & Difference

    Skewness and Kurtosis: Meaning, Types & Difference

    Financial data available today requires a lot of processing before it can be used to get insights. Each dataset needs to be classified into a distribution that can be described using certain metrics. Two such metrics are skewness and kurtosis. Skewness and kurtosis are statistical measures used for data analysis. While skewness unveils asymmetry in data, kurtosis is all about decoding the tails of the distribution.

    What is Skewness & Kurtosis?

    Skewness measures the deviation of the given distribution of a random variable from a symmetric distribution. Skewness measures the asymmetry of the distribution.

    Kurtosis is a statistical measure that describes the shape of a distribution’s tails relative to its overall shape. It indicates the presence and extent of outliers in the data by focusing on the tails and the peak. Kurtosis measures the “tailed ness” or the sharpness of the peak of the distribution.

    Skewness – An Overview

    Skewness - An Overview

    Skewness is a measure of the asymmetry of the probability distribution of a real-valued random variable about its mean.

    Skewness is important in statistical analysis because many statistical methods assume normality (symmetrical distribution). High values of skewness can indicate the presence of outliers and affect the validity of statistical tests. Understanding skewness helps in choosing appropriate statistical methods and data transformation techniques.

    Types of Skewness:

    • Positive Skewness (Right Skewed): The right tail (higher values) is longer, and the mass of the distribution is concentrated on the left. The condition for positive skewness is Mean> Median>Mode. 
    • Negative Skewness (Left Skewed): The left tail (lower values) is longer, and the mass of the distribution is concentrated on the right. The condition for negative skewness is Mode>Median>Mean.   
    • Zero Skewness (Symmetrical Distribution): The distribution is perfectly symmetrical. The condition for zero skewness is Mean=Median=Mode.

    Kurtosis – An Overview

    Kurtosis is a statistical measure that defines how much the tails of a distribution differ from the tails of a normal distribution. It tells us about the presence of outliers in the data.

    Types of Kurtosis :

    • Leptokurtic (Kurtosis > 3): The distribution shows heavy tails, indicating more outliers and a sharp peak.
    • Mesokurtic (Kurtosis = 3): The data follows a normal distribution, and kurtosis is equal to 3.
    • Platykurtic (Kurtosis < 3): The distribution shows flat tails and a flat peak, indicating fewer outliers.

    Application in Finance

    In finance and investment analysis, skewness is an important statistical measure used to assess the asymmetry of the return distribution of assets, portfolios, or investment strategies. Here’s how skewness can be applied in this field:

    1. Risk Assessment

    Positive Skewness:

    • Returns Distribution: A positively skewed distribution means that there are more frequent small losses and few large gains. Investors might prefer positively skewed assets because of the potential for high returns.
    • Risk Perception: Positive skewness is often associated with assets that have a higher potential for extreme positive returns, making them attractive to risk-seeking investors.

    Negative Skewness:

    • Returns Distribution: A negatively skewed distribution means that there are more frequent small gains and few large losses. This can be more risky because large losses can significantly impact the portfolio.
    • Risk Perception: Negative skewness is often associated with assets that have a higher potential for extreme negative returns, making them less attractive to risk-averse investors.

    2. Portfolio Construction and Diversification

    • Balancing Skewness: By understanding the skewness of individual assets, portfolio managers can construct diversified portfolios that balance the skewness. For instance, combining assets with positive and negative skewness can potentially reduce overall portfolio risk.
    • Hedging Strategies: Identifying assets with negative skewness can help in designing hedging strategies to protect against large losses.

    3. Performance Evaluation

    • Comparing Investments: Investors can compare the skewness of different investments to understand their risk-return profiles better. Investments with similar expected returns but different skewness levels may have different risk characteristics.
    • Understanding Outliers: Skewness helps in understanding the presence of outliers in the return distribution. For example, a positively skewed investment might experience occasional large gains, while a negatively skewed investment might experience occasional large losses.

    5. Risk Management

    • Stress Testing: Skewness is used in stress testing and scenario analysis to evaluate how extreme market conditions might impact the portfolio.

    Difference Between Skewness and Kurtosis

    SkewnessKurtosis
    Skewness focuses on the asymmetry of the distribution.Kurtosis focuses on the tails and the peak of the distribution.
    Skewness indicates the direction (left or right) and the extent of asymmetry.Kurtosis indicates the presence and extent of outliers by assessing the tails and peaks.
    Value Interpretation:Positive value: Right skew.Negative value: Left skew.Zero value: Symmetrical distribution.Value Interpretation:Value > 3: Leptokurtic (heavy tails).Value = 3: Mesokurtic (normal distribution).Value < 3: Platykurtic (light tails).

    Interpretation of Skewness and Kurtosis 

    Example – 1

    Dataset A: 2,3,3,4,5,7,8,20

    Skewness= 1.74, a positive value indicates a longer right tail.

    Kurtosis = 5.17,  higher than 3, indicating the presence of outliers.

    Example – 2

    Let’s consider an example involving the daily returns of two different investment funds: Fund A and Fund B.

    Fund A: High Kurtosis (Leptokurtic)

    Returns Dataset: −15%,−10%,−5%,0%,5%,10%,50%

    Kurtosis Calculation: The returns of Fund A show a high kurtosis value (3.8), indicating a leptokurtic distribution. This means there are more frequent moderate returns and a higher likelihood of extreme positive or negative returns. It suggests that it is more prone to extreme events, both gains and losses. Investors in this fund should be prepared for high volatility and the possibility of significant outliers.

    Fund B: Low Kurtosis (Platykurtic)

    Returns Dataset: −2%,−1%,0%,1%,2%

    Kurtosis Calculation: The returns of Fund B show a low kurtosis value ( -1.2), indicating a platykurtic distribution. This means there are fewer extreme values and more frequent returns close to the mean. Investors in this fund can expect lower volatility and fewer outliers.

    Limitations of Skewness and Kurtosis

    While skewness and kurtosis are valuable measures in statistical analysis, they also have limitations that should be considered when interpreting data.

    Limitations of Skewness

    The limitations of skewness are:

    • Sensitivity to Outliers: Skewness can be highly sensitive to outliers. A few extreme values can significantly affect the skewness value, which may not always represent the overall distribution accurately.
    • Interpretation Complexity: Interpreting skewness coefficients requires understanding the context of the data. For example, positive skewness may not be problematic in certain financial data where higher values are expected.
    • Not a Standalone Measure: Skewness alone cannot provide a complete picture of data distribution. It should be used in conjunction with other measures such as mean, median, and standard deviation.
    • Symmetry Assumption: Skewness assumes an unimodal distribution (one peak). In bimodal or multimodal distributions, skewness might not be meaningful.

    Limitations of Kurtosis

    The limitations of kurtosis are:

    • Misinterpretation of Tails: High kurtosis indicates heavy tails, but it does not specify whether the heavy tails are due to a few extreme outliers or a general spread of values. This can lead to misinterpretation.
    • Focus on Tails: Kurtosis primarily focuses on the tails and peak of the distribution. It does not provide information about the overall shape or central tendency of the data.
    • Non-Intuitive Interpretation: Kurtosis values can be difficult to interpret intuitively. While values greater than 3 indicate leptokurtic distributions and values less than 3 indicate platykurtic distributions, understanding the practical implications can be challenging.
    • Assumption of Normality: Kurtosis comparisons are often made against the datasets with normal distribution. However, not all real-world data follow a normal distribution, making this comparison less meaningful in some contexts.
    • Sensitivity to Sample Size: Kurtosis can be sensitive to sample size. Small sample sizes can produce unreliable kurtosis estimates, leading to potential misinterpretation.

    Read Also: Understanding the Difference Between Credit and Debt

    Conclusion

    Skewness and kurtosis are complementary measures that provide a complete picture of the distribution characteristics of a dataset. Skewness tells us about the direction and degree of asymmetry, while kurtosis informs us about the tails and peaks, indicating the presence of outliers. They should not be used in isolation but rather as part of a comprehensive analysis that includes other statistical measures and visualizations. Understanding these limitations helps avoid potential misinterpretations and ensures a more accurate analysis of the data.

    Frequently Asked Questions (FAQs)

    1. Can skewness be zero?

      Yes, skewness can be zero. This happens when the distribution is perfectly symmetrical.

    2. How can skewness be used in investment analysis?

      Skewness is used to measure the degree of asymmetry in returns on investment. For example, some portfolio managers prefer investments with a positively skewed return distribution, which means they may have frequent small losses or modest gains with a possibility of occasional large gains.  

    3. Can skewness be used in option trading?

      Yes, skewness is particularly relevant in options trading. Traders can use the skewness of the return distribution of underlying assets to design strategies to take advantage of expected price movements.

    4. What is one of the limitations of both skewness and kurtosis?

      In complex distributions with multiple peaks or unusual shapes, these measures might not provide clear insights.

    5. What is the relationship between kurtosis and volatility?

      High kurtosis (leptokurtic) can indicate poor data quality due to the presence of outliers. Low kurtosis (platykurtic) suggests fewer outliers, which generally indicates better data quality.

  • What is Spread Trading?

    What is Spread Trading?

    Have you ever heard of an option strategy that remains neutral and aims to profit from the price differences? Spread trading is all about profiting from the difference and not the direction. In today’s blog, we will explore spread trading in detail, including its types, advantages, disadvantages, and the factors that should be considered while doing spread trading.

    What is Spread Trading?

    Spread trading is a strategy in the financial markets where a trader simultaneously buys and sells two related securities. The goal is to profit from the difference (or spread) between the two positions rather than from the absolute price movements of the underlying securities. Spread trading is commonly used in options, futures, and derivative markets.

    Types of Spreads Trading

    Spread trading encompasses various strategies across different financial markets, each with unique characteristics and objectives. Various types of spread trading involving different assets are listed below:

    1. Options Spreads

    Vertical Spreads: 

    • Bull Call Spread: Buy a call option with a lower strike price and sell a call option with a higher strike price.
    • Bull Put Spread: Buy a put option with a lower strike price and sell a put option with a higher strike price.
    • Bear Call Spread: Buy a call option with a higher strike price and sell a call option with a lower strike price.
    • Bear Put Spread: Buy a put option with a higher strike price and sell a put option with a lower strike price.

    Horizontal (Calendar) Spreads: 

    • Calendar Spread: Buy and sell options of the same strike price but with different expiration dates.
    • Diagonal Spread: Buy and sell options with different strike prices and expiration dates.

    Butterfly Spreads:

    • Long Butterfly Spread: Buy one in-the-money option, sell two at-the-money options, and buy one out-of-the-money option.
    • Iron Butterfly Spread: Short ATM call and put and buy OTM call and put.

    Condor Spreads:

    • Iron Condor: Short slightly OTM call and put and buy further OTM call and put.

    Ratio Spreads:

    • Ratio Call Spread: Buy a certain number of ATM or slightly OTM call options and sell more OTM call options.
    • Ratio Put Spread: Buy a certain number of ATM or slightly OTM put options and sell more OTM put options.

    2. Futures Spreads

    • Calendar Spreads: Buy and sell futures contracts of the same asset but with different expiration dates.

    3. Stock Spread Trading

    Pairs Trading:

    • Market Neutral: Buy shares of an undervalued stock and sell shares of an overvalued stock in the same sector or industry. Both the stocks must be highly correlated.

    Sector Spreads:

    • Sector Rotation: Buy shares in a promising sector and sell shares in a sector expected to underperform.

    4. Bond Spread Trading

    Yield Curve Spreads:

    • Flattening of Yield Curve: Buy a long-term bond and sell a short-term bond to profit from changes in the yield curve.
    • Steepening of Yield Curve: Buy a short-term bond and sell a long-term bond to profit from changes in the yield curve.

    Credit Spreads:

    • Investment Grade vs. High Yield: Buy a bond with a higher credit rating and sell a bond with a lower credit if a downgrade in credit rating is expected throughout the credit markets.

    5. Commodity Spread Trading

    • Inter-Commodity Spread: Buy and sell futures contracts of related but different commodities (e.g., corn and wheat).
    • Intra-Commodity Spreads: Buy and sell futures contracts of the same commodity with different expiration dates.

    6. Forex Spread Trading

    Currency Pairs:

    • Relative Strength: Buy one currency pair and sell another to profit from relative movements.

    7. Interest Rate Spread Trading

    Swap Spreads:

    • Fixed vs. Floating: Trade the difference between fixed and floating interest rates.

    8. Volatility Spread Trading

    Volatility Spreads:

    • Long Straddle: Buy an ATM call and a put option with the same strike price and expiration date to profit from large moves in either direction.
    • Long Strangle: Buy out-of-the-money call and put options with different strike prices but the same expiration date.
    • Short Straddle: Sell an ATM call and a put option with the same strike price and expiration date to profit from range-bound moves in either direction.
    • Short Strangle: Sell out-of-the-money call and put options with different strike prices but the same expiration date.

    Each type of spread trading strategy has its own risk and reward profile, and traders select strategies based on their market outlook, risk tolerance, and investment objectives.

    Read Also: What is a Bid-Ask Spread?

    Factors Affecting Spread Trading

    Factors Affecting Spread Trading

    Spread trading can be quite complex because it usually involves derivative instruments. A trader must be aware of the effects of various factors listed below on the spread trading:

    • Volatility: Changes in the volatility of the underlying asset can affect the value of options spreads, particularly for calendar and diagonal spreads where different expirations are involved.
    • Time Decay (Theta): The rate at which the value of an option erodes as it approaches its expiration date. This is particularly important for calendar and diagonal spreads.
    • Interest Rates: Changes in interest rates can impact the cost of carry for futures contracts, thereby affecting the profitability of spreads. For bonds, yield curve movements impact the profitability of spreads.
    • Underlying Asset Price Movements: The price movement of the underlying asset directly affects the profitability of vertical and ratio spreads. 
    • Dividends: For options on dividend-paying stocks, expected dividends can impact option prices and, thereby, the value of spreads.
    • Liquidity and Bid-Ask Spread: The liquidity of the options and the difference between the bid and ask prices can affect the execution and profitability of spread trades.
    • Economic Data Releases: Events like interest rate decisions, employment reports, and GDP releases can cause significant price movements in the price of underlying, thus impacting spread trades.
    • Geopolitical Events: Political instability, trade negotiations, and other geopolitical events can impact volatility and spreads.
    • Regulatory Changes 
      • Market Regulations: Changes in market regulations can impact trading strategies, costs, and overall market dynamics. For example, changes in margin requirements can affect futures and options spread trading.
      • Tax Policies: Tax laws and policies can influence the attractiveness and profitability of certain spread strategies.
    • Arbitrage Opportunities
      • Mispricing: Arbitrage opportunities arise when related securities are mispriced relative to each other. Spread traders often exploit these inefficiencies to generate profits.
      • Market Inefficiencies: Identifying and capitalizing on market inefficiencies is key to successful spread trading.
    • Correlation: The degree of correlation between the assets involved in the spread can impact the strategy. For instance, pairs trading relies on the correlation between two stocks.

    Generally, good market conditions, higher liquidity, lower volatility, stable economy and political conditions, and good creditworthiness will narrow the spread, and reverse conditions will widen the spread. By considering these factors, traders can better manage risks and improve the potential for successful spread trading. 

    Advantages of Spread Trading

    Advantages of Spread Trading

    Spread trading is popular among traders due to the following advantages:

    • Lowers the direction risk:  Price difference can be captured in both buy and sell spread trades, so market direction is not important here.
    • Hedging Tool:  Spreads can function as hedges against potential losses.
    • Diversification:  Portfolio diversification can be achieved by incorporating different assets and spreads.
    • Lower Margin requirement: Many spread strategies require lower margins to execute.

    Disadvantages of Spread Trading

    Spread trading can be risky due to the following reasons:

    • Market Volatility:  In a highly volatile market, certain spread trading strategies can result in huge losses.
    • Margin Requirements: Adverse market movements can lead to margin calls.
    • Liquidity risk: Some spreads may involve assets with illiquid derivative contracts.
    • Execution timing: An investor must time the market to capture favorable price movement.

    Spread Trading Examples

    Spread trading involves the simultaneous purchase and sale of two related securities to profit from the difference in their prices. 

    For example, a trader has identified two companies, Company A and Company B, that operate in the same industry. Historically, their stock prices have moved closely due to similar market conditions and economic factors. However, due to recent earnings reports, Company A’s stock price has fallen sharply, while Company B’s stock price has risen.

    Strategy: Pairs Trading

    • Buy the undervalued stock (Company A).
    • Sell the overvalued stock (Company B).

    Trade Setup

    1. Buy 100 Shares of Company A:
      • Current Price: INR 60 per share
      • Total Cost: INR 60 * 100 shares = INR 6,000
    2. Sell 100 Shares of Company B:
      • Current Price: INR 40 per share
      • Total Proceeds: INR 40 * 100 shares = INR 4,000

    Net Investment

    • Net Proceeds:  INR 4,000 (sale of Company B shares) –  INR 6,000 (purchase of Company A shares) = $2,000 net cash paid.

    Example of Bond Spread Trading 

    Yield Curve Spread Example:

    • Sell a long-term bond (e.g., sell a 10-year Treasury bond).
    • Buy a short-term bond (e.g., buy a 2-year Treasury bond).
    • Outcome: The trader profits if the yield curve steepens (long-term interest rates rise more than short-term rates).

    Spread trading allows traders to take advantage of relative price movements rather than relying solely on the direction of the market. This can be particularly useful in uncertain market conditions.

    Read Also: What is Zero Days to Expiration (0DTE) Options and How Do They Work?

    Conclusion

    Spread trading is a sophisticated strategy that leverages the price differences between related financial instruments to generate profits. This approach minimizes directional risk by focusing on the relative movements of the underlying assets rather than their absolute price changes. Spread trading can be applied across various markets, including options, futures, stocks, bonds, and commodities, offering flexibility and the potential for customized risk and reward profiles. 

    Successful spread trading requires a deep understanding of the factors affecting spreads, such as volatility, time decay, interest rates, liquidity, and market sentiment. By carefully analyzing these factors and employing appropriate spread trading strategies, traders can achieve consistent returns and manage risk more effectively. However, you should consult your financial advisor before investing.

    Frequently Asked Questions (FAQs)

    1. What is spread trading?

      Spread trading involves the simultaneous buying and selling of two related financial instruments to profit from the difference in their prices. 

    2. What is one of the limitations of spread trading?

      Spread trading is complex and requires a deep understanding of the instruments and strategies involved.

    3. Can spread trading be automated?

      Spread trading can be automated using algorithmic trading strategies and advanced trading platforms.

    4. Is spread trading suitable for all traders?

      Spread trading is more suited for experienced traders due to its complexity. 

    5. How do I get started with spread trading?

      Learn about different spread trading strategies and the factors affecting them.  Practice it virtually, and develop a strategy based on your risk tolerance and market outlook before investing real money.

  • Long-Term Capital Gain (LTCG) Tax on Mutual Funds

    Long-Term Capital Gain (LTCG) Tax on Mutual Funds

    People invest their hard-earned money in mutual funds to reach their financial objectives. The assets held by mutual funds generally increase in value over time, but this is not a surety. However, investors must pay taxes on the profits these investments have generated. In this blog post, we’ll discuss the idea of taxes on long-term capital gains on mutual funds.

    What is LTCG Tax?

    What is LTCG Tax?

    “Long-Term Capital Gain” (LTCG) is the name of the tax applied to the gains made when selling specific assets after a set amount of time. To put it simply, the government taxes gains earned on an asset known as a long-term capital gain when an investor sells it after holding it for a specific amount of time.

    Features of LTCG tax on Mutual Funds

    Long-term capital gains taxes have the following features:

    1. LTCG is levied when an investor sells an asset after holding it for a certain period.
    2. The rate of tax depends on the asset class.
    3. The government provides certain exemptions if capital gain arises in some asset classes.
    4. This is chargeable under the head Capital Gain of Income Tax Act.

    LTCG on Mutual Funds

    Mutual funds come in various forms according to asset classes, and depending on how long you keep the assets, you may have to pay long-term capital gain tax on them. 

    Equity Mutual Fund

    Mutual funds classified as equity funds invest primarily in equity-related securities; the holding duration determines how these funds are taxed. The gain will be referred to as a long-term capital gain if the holding period exceeds 365 days. Equity mutual funds are suitable for investors willing to assume additional risks in exchange for a higher return.

    Taxation on Equity Mutual Fund

    As per the Income Tax Act, the long-term gains made on equity mutual funds are taxed at 10% over and above 1 lakh. Let us understand this with an example.

    On January 1, 2022, an individual invested INR 1 lakh in an equity-oriented mutual fund. On February 25, 2023, he sold it for INR 2.5 lakh, realizing a gain of INR 1.5 lakh due to bullish market conditions.

    The investor will not pay taxes on the INR 1 lakh, while the remaining INR 50,000 will be subject to 10% tax. The total amount to be paid as taxes is INR 5,000. 

    Debt Mutual Fund

    Mutual funds that invest your money in fixed-income instruments like corporate bonds, government bonds, debentures, etc., are known as debt mutual funds. Debt funds, which offer lower returns than equities mutual funds, are a good option for investors not ready to take on a lot of risk. A mutual fund falls under the category of debt mutual fund if it invests less than 35% in equity.

    Taxation on Debt Mutual Fund

    In the past, gains on debt funds held for longer than three years were regarded as long-term and were subject to indexation. Gains realized on these funds before the three-year time frame are classified as short-term capital gains and are subject to taxation as per the individual’s tax slab rate. However, under the current law, profits on these funds are taxed according to your income tax slab, which varies from 10% to 30% depending on your income tax bracket, regardless of the holding term. 

    If an individual is subject to a 30% tax bracket, invested INR 1 Lakh in a debt-oriented mutual fund on January 1, 2021, and sold it on June 10, 2024, but did so after three years and realized a profit of INR 50,000, he will be liable to pay taxes based on his 30% income tax slab, which means his total tax liability will be approximately INR 15,000.  

    Hybrid Mutual Fund

    The portfolios of hybrid mutual funds are allocated to debt and equity. Like equities and debt funds, the taxation of hybrid funds is contingent upon the holding duration and the portfolio’s asset allocation. 

    Equity-Oriented Hybrid Funds  

    The fund will be classified as an equity-oriented hybrid fund if at least 65% of its total assets are allocated to equities and equity-related securities. The gains from equity-oriented hybrid funds are subject to a 10% tax on profits exceeding one lakh Indian rupees upon sale after one year. 

    Debt-Oriented Hybrid Funds 

    A mutual fund is classified as debt-oriented if it has an equity exposure between 35% and 64%. The gains realized after 36 months will be considered long-term gains and taxed at 20% with indexation benefits.

    For example, if an individual invested INR 1,00,000 in a fund with approximately 60% of its total allocation in debt and the remaining 40% in equity, the fund will be regarded as a debt-oriented hybrid fund. The investor redeemed his investment for INR 1,50,000 and realized a gain of INR 50,000 after four years. 

    Purchase value after indexation = Original Amount * ( Current year CII / Purchasing year CII) 

    Here, CII = Cost Inflation Index

    Let the CII in the purchase year be 102 and the CII in the current year be 110

    Purchase value after indexation = INR 1,00,000 * (110/102) = INR 1,07,843

    Total realized gain with indexation benefit = INR 1,50,000 – INR 1,07,843 = INR 42,157

    Tax Payable = 20% * INR 42,157 = INR 8,431 

    Read Also: What is Capital Gains Tax in India?

    Exemptions on Capital Gains

    Exemptions on Capital Gains

    Apart from the INR 1,00,000 exemption on equity mutual funds, an investor can also claim the following exemptions:

    Section 10(38)

    Under this section, the long-term capital gains resulting from the transfer of equity and equity-oriented mutual funds are exempt from taxes if the following conditions are met:

    • Transfer should be after October 1, 2004.
    • It should be a long-term asset.
    • Security transaction taxes are applicable.

    Section 54F

    The section 54F allows investors to save capital gains taxes if the proceeds of the sale of a long-term capital asset are used to buy or construct a residential house in India. The tax exemption can be claimed if:

    • The property must be purchased one year before or two years after the sale of mutual funds.
    • The property must be constructed within three years from the sale of mutual funds.

    Conclusion

    To sum up, an investor must be aware of the taxes applicable to the gains realized by their mutual fund investments. A long-term investment horizon has more tax benefits compared to investing for a short time. However, the investment horizon is determined by the individual’s financial conditions, so you should speak with your investment advisor before making decisions. 

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1What Is An IPO Mutual Fund? Should You Invest?
    2Mutual Fund Taxation – How Mutual Funds Are Taxed?
    3What is Solution Oriented Mutual Funds?
    4What is TREPS & Why Mutual Funds Invest in it?
    5Debt Mutual Funds: Meaning, Types and Features

    Frequently Asked Questions (FAQs)

    1. In the case of equity mutual funds, how much long-term capital gain is tax-free?

      Up to INR 1,00,000 in long-term capital gains on equity-oriented mutual funds is exempt from taxes. 

    2. Is the amount of tax automatically deducted from the profit?

      No, tax is not subtracted automatically; investors must compute gain and pay tax when they file their income tax return. 

    3. What tax-saving options are available in mutual funds?

      The Equity Linked Savings Scheme (ELSS) is a mutual fund investment that can assist investors save money on taxes by allowing them to claim a maximum deduction of INR 1.5 lakhs under the 80C of the Income Tax Act. 

    4. How to avoid LTCG taxes on mutual funds?

      An investor can avail exemption under Section 10(38) and Section 54F.

    5. How are debt mutual funds taxed in India?

      In India, capital gains from debt mutual funds are included in your income and subject to taxation according to your income tax bracket. 

  • Semiconductor Industry in India

    Semiconductor Industry in India

    The tiny chips in electronic devices that often go unnoticed are an important part of the contemporary world. Semiconductors are the powerful brains that drive everything from the smartphones in our pockets to the ground-breaking artificial intelligence revolutionizing several industries. With India’s increasing prominence in the global semiconductor industry, it is important to know the steps taken by the Government of India to make India a global hub of the semiconductor industry.

    In today’s blog, we will explore the semiconductor industry in India, the India Semiconductor mission, factors that favor the semiconductor industry, and its future outlook.

    Overview of the Semiconductor Industry in India

    The Indian semiconductor market is experiencing strong growth and is expected to grow at 17.10% CAGR between 2024 and 2028 due to its growing population, rising disposable incomes, etc. India aims to become a global leader in the semiconductor industry, with its domestic semiconductor consumption projected to exceed $80 billion by 2028. This industry is fiercely competitive, with major players from countries like the United States, China, South Korea, and Taiwan dominating the market.

    The Indian Government wants to boost the semiconductor industry with the ‘Make in India’ campaign and has also announced plans to establish semiconductor fabrication plants in the country.

    India Semiconductor Mission (ISM)

    Semiconductor Industry in India

    Indian Semiconductor Mission is a specialized and independent business division of Digital India Corporation (DIC). The aim of the mission is to make India self-reliant in terms of semiconductors.

    The mission received an allocation of INR 76,000 crore for the establishment of three semiconductor units. The approved three semiconductor units are:

    • Semiconductor Fabrication plant: Tata Electronics Private Limited (“TEPL”) will collaborate with Powerchip Semiconductor Manufacturing Corp (PSMC), Taiwan, to set up a semiconductor fabrication unit in Gujarat. PSMC is well known for its logic and memory foundry segments and has six semiconductor foundries in Taiwan. The fabrication plant will have a capacity of 50,000 wafer starts per month (WSPM).
    • Semiconductor ATMP unit in Assam: Tata Semiconductor Assembly and Test Pvt Ltd. (“TSAT”) will set up a semiconductor ATMP (Assembly, Test, Marking and Packaging) unit in Assam. The unit is developing indigenous advanced semiconductor packaging technologies and will have a capacity of 48 million semiconductor chips per day.
    • Semiconductor ATMP unit for specialized chips: CG Power will partner with Renesas Electronics Corporation, Japan, and Stars Microelectronics, Thailand, to set up a semiconductor unit in Gujarat. Renesas is a market leader in developing specialized chips and operates 12 semiconductor facilities. The unit will have a capacity of 15 million semiconductor chips per day.

    The chips developed in the above three units will have applications in various industries, such as electric vehicles, consumer electronics, mobile phones, etc. Moreover, these units will generate 20,000 direct jobs and about 60,000 indirect jobs.

    Read Also: Semiconductor Penny Stocks in India with Price List

    Favorable Factors for the Semiconductor Industry in India

    There are numerous factors that will help India to become a global leader in the semiconductor industry. Some of these factors are:

    • Skilled Workforce: India has a large workforce in the fields of Science, Technology, Engineering, and Mathematics (STEM), which is required for semiconductor design, manufacturing, etc.
    • Cost Advantage: Companies are investing in India due to the lower cost of production. Moreover, the location of India is also a benefit as it is close to major semiconductor markets in Asia, which reduces transportation costs.
    • Global supply chain diversification: Until now, the semiconductor industry has been concentrated in a few countries, which makes the industry prone to concentration risk and can result in supply shocks. The development of the semiconductor industry in India will reduce the concentration risk.
    • Government support: The government of India has launched ISM and has introduced favorable policies.

    Future Outlook of Semiconductor Industry

    Future Outlook of Semiconductor Industry

    The future of the semiconductor industry looks bright due to the following reasons:

    • The demand for semiconductors in AI and ML applications is projected to experience substantial growth. 
    • IoT (Internet of Things) devices, including smartphones, industrial automation, and healthcare, will boost demand for semiconductors.
    • The rollout of 5G networks is fuelling the need for advanced semiconductors in mobile devices, base stations, and IoT applications.
    • The growth of renewable energy sources, such as solar and wind power, will drive the demand for semiconductors used in energy conversion and storage systems.

    Read Also: Best Small Cap Semiconductor Stocks in India

    Conclusion

    To summarize, the semiconductor industry has a lot of growth potential and is an exciting and dynamic space. The Government of India has identified this opportunity and launched the India Semiconductor Mission to make India a semiconductor hub in the future. Many foreign companies have partnered with Indian firms to set up facilities in India. Moreover, factors such as lower cost of production, skilled workforce, strategic location, and favorable government policies will help the semiconductor industry grow in India. 

    Frequently Asked Questions (FAQs)

    1. What are Semiconductors?

      A semiconductor is a material with electrical conductivity ranging between that of an insulator and a conductor and has unique electronic properties.

    2. What are the favorable factors for the semiconductor industry in India?

      Lower cost of production, skilled workforce, and government support are a few factors that support the growth of the semiconductor industry in India.

    3. What is ISM?

      ISM refers to the India Semiconductor Mission, which was launched by the Government of India.

    4. What is the expected growth rate of the semiconductor industry in India?

      The Indian semiconductor industry is expected to grow at a CAGR of 17.10% between 2024 and 2028. 

    5. Which foreign companies are collaborating with Indian firms to establish semiconductor units in India?

      Powerchip Semiconductor Manufacturing Corp (PSMC), Renesas Electronics Corporation, and Stars Microelectronics are a few prominent companies collaborating with Indian firms to establish semiconductor manufacturing facilities.

  • What is National Company Law Tribunal?

    What is National Company Law Tribunal?

    When there is a dispute between two people, they appear in court and lay out their case. The judge passes a judgment based on the law. However, have you ever considered what a corporation would do if there were a dispute with another corporation? The National Company Law Tribunal (NCLT) has been established to settle disputes between companies.

    In this blog, we will explore NCLT in detail and understand its functions.

    What is NCLT?

    The Companies Act of 2013 established the National Company Law Tribunal, or NCLT, as a special court to handle business-related disputes. NCLT doesn’t handle criminal cases for violations of the Companies Act. The NCLT has several benches around the nation and, thus, provides a simpler way for corporations to resolve their problems. 

    The Justice Eradi Committee recommended the creation of the National Corporate Law Tribunal as a quasi-judicial entity to handle insolvencies and malpractices of Indian companies. The tribunal was established on 1 June 2016 under Section 408 of the Companies Act, 2013. 

    Objective of NCLT

    NCLT plays an important role in protecting the rights of all stakeholders and aims to achieve the following objectives:

    1. Its primary goal is to resolve disputes involving companies through its numerous benches across India.
    2. NCLT assists businesses in streamlining their insolvency procedures. 
    3. NCLT protects the rights of all stakeholders and promotes a business-friendly environment.
    4. It ensures restructuring processes follow the regulations and are in the interest of stakeholders.

    Functions of NCLT

    The major tasks performed by NCLT are as follows:

    • Registration of Companies: The NCLT is authorized to settle disputes about company registration. It has the authority to cancel a company’s registration at any moment and hold members accountable for not meeting legal requirements. 
    • Class action: It prevents companies from engaging in activities outside the Memorandum of Association (MOA) and Article of Association (AOA). A class action can be filed against both private and public companies.
    • Transfer of Shares: The NCLT handles complaints about company shares and securities transfers. NCLT intervenes if a company refuses to transfer securities.
    • Deposits: Since the NCLT was established, they have handled all deposit-related matters. Disgruntled depositors now have the option to sue the corporation and seek compensation for any acts that affect their rights as depositors. 
    • Investigation: Based on the application of 100 members, the NCLT has the complete authority to look into any matter about the corporation. An individual can also convince NCLT to look into the matter even if they have no connection to the business. An investigation can be launched in India or around the globe. 
    • Asset Freezing: According to section 221 of the Companies Act of 2013, the NCLT is authorized to freeze the company’s assets and can initiate investigations. 
    • Conversion of Company’s Status: Sections 13 to 18 of the Indian Companies Act 2013 state that a company may only change from a public limited company to a private limited company after the NCLT’s approval. In addition, section 459 of the Companies Act 2013 permits the NCLT to impose further requirements. 

    Benches of NCLT

    The NCLT operates across India through its various benches –

    National Company Law Tribunal (NCLT) BenchesJurisdiction
    NCLT Ahmedabad BenchState of GujaratUnion Territory of Daman and DiuUnion Territory of Dadra and Nagar Haveli
    NCLT Allahabad BenchState of Uttar PradeshState of Uttarakhand
    NCLT Amaravati BenchState of Andhra Pradesh
    NCLT Bengaluru BenchState of Karnataka
    NCLT Chandigarh BenchState of HaryanaState of PunjabState of Jammu and KashmirState of Himachal PradeshUnion Territory of Chandigarh
    NCLT Chennai BenchState of Tamil NaduUnion Territory of Puducherry
    NCLT Cuttack BenchState of OdishaState of Chhattisgarh
    NCLT Delhi BenchUnion Territory of Delhi
    NCLT Principal Bench
    NCLT Guwahati BenchState of Arunachal PradeshState of AssamState of ManipurState of MizoramState of MeghalayaState of NagalandState of SikkimState of Tripura
    NCLT Hyderabad BenchState of Telangana
    NCLT Indore BenchState of Madhya Pradesh
    NCLT Jaipur BranchState of Rajasthan
    NCLT Kochi BenchState of KeralaUnion Territory of Lakshadweep
    NCLT Kolkata BranchState of West BengalState of BiharState of JharkhandUnion Territory of Andaman and Nicobar Islands
    NCLT Mumbai BenchState of GoaState of Maharashtra

    Advantages of NCLT

    The advantages of NCLT are as follows:

    1. It serves as a specialized court for corporate disputes, which results in quick resolution of the disputes.
    2. NCLT consists of judicial and technical members to give a fair judgment on the dispute.
    3. It has multiple branches and helps reduce the time to resolve disputes.
    4. NCLT encourages better corporate governance and protects stakeholder’s interests.

    Read Also: National Pension System (NPS): Should You Invest?

    Conclusion

    In conclusion, the National Company Law Tribunal was established on 1 June 2016 to settle business-related conflicts like insolvency and other corporate concerns. It has various branches across the country, resulting in quick dispute resolution. It helps businesses by giving them a better working environment and also safeguards the interests of the stakeholders. However, the decisions of NCLT can be challenged in the National Company Law Appellate Tribunal, which can be further appealed in the Supreme Court of India. 

    Frequently Asked Questions (FAQs)

    1. What is NCLT?

      National Company Law Tribunal, or NCLT, is a specialized court that handles various company-related disputes.

    2. What does NCLT stand for in financial terms?

      NCLT refers to the “National Company Law Tribunal”.

    3. Where is the headquarters of NCLT?

      Although the NCLT’s main office is in New Delhi, it has other benches all over India. 

    4. What is the difference between a court and a tribunal?

      A court is a part of the conventional Indian judicial system and resolves criminal and civil cases. In contrast, a tribunal is regarded as an organization with the authority to function as a court on cases of special matters, such as issues linked to companies. 

    5. Can I file an appeal against the NCLT decision?

      A challenge to any NCLT ruling may be made through the National Company Law Appellate Tribunal.

    6. Who is the president of the National Company Law Tribunal?

      Shri Ramalingam Sudhakar is the current president of the National Company Law Tribunal.

  • Best Drone Stocks in India 2026

    Best Drone Stocks in India 2026

    In 2025, with rapid technological advancement, one trending industry that you may want to have in your portfolio is the drone industry. These stocks are becoming popular because of their diversified applications across agriculture, defense, and logistics, among others, and strong government support is being given through initiatives like the Production-Linked Incentive (PLI) Scheme.

    In this blog, let’s look at the best drone stocks in India and the reasons to invest in them.

    Overview of the Drone Industry

    Drone stocks in India have showcased a new emerging sector at the juncture of technology, aviation, and industrial applications. Unmanned Aerial Vehicles (UAV) are pioneering ways to move forward in industries like agriculture, infrastructure, logistics, and defense. People who intend to invest in this sector get lured by the disruptive innovative capabilities and the potential of transformation across sectors that are labor-driven or dependent on conventional methods.

    Top 8 Best Drone Stocks in India

    The best drone stocks based on market capitalization in 2026 are:

    S.No.Top Drone Company Stocks in India (as per Market Capitalization)
    1Hindustan Aeronautics Ltd (HAL)
    2Bharat Forge Ltd
    3Zen Technologies Ltd
    4RattanIndia Enterprises
    5Paras Defense & Space Technologies Ltd
    6IdeaForge Technology Ltd
    7DCM Shriram Industries Ltd
    8Droneacharya Aerial Innovations Ltd

    Market Capitalisation Table of Best Drone Stocks in India

    The drone stocks have been listed in descending order based on their market capitalization in the table below:

    CompanyMarket Capitalization (In crores)Share Prices (In INR)52 Week High Price (In INR)52-Week Low Price(In INR)
    Hindustan Aeronautics Ltd (HAL)3,27,710 4,9005,166 3,046
    Bharat Forge Ltd60,631 1,2681,626 919
    Zen Technologies Ltd14,486 1,6042,628 945
    RattanIndia Enterprises 7,878 57.083.0 37.4
    Paras Defence & Space Technologies Ltd5,995 744972 401
    Ideaforge Technology Ltd2,315 536720 301
    DCM Shriram Industries Ltd1,453 167215 142
    Droneacharya Aerial Innovations154 64.4152 58.0
    (As of 19 September 2025) 

    Best Drone Stocks in India 2026 – An Overview

    The best drone stocks in India are given below, along with a brief overview of the services they provide:

    1. Hindustan Aeronautics Ltd (HAL)

    Hindustan Aeronautics Limited is one of the pillars of India’s aerospace industry, with experience in aircraft and helicopter design, manufacturing, repair, upgrade, and related component designing and manufacturing. TAPAS (Tactical Airborne Platform for Aerial Surveillance) is being developed to perform intelligence, surveillance, and reconnaissance roles. Traditionally a partner to major aerospace companies worldwide, HAL has significantly enhanced India’s defense capability.

    2. Bharat Forge Ltd

    Bharat Forge Limited is an Indian MNC that operates in the forging, automotive, energy,  and defense industries. It was founded in 1961 by Nilkantharao A. Kalyani. Kalyani Strategic Systems Limited (KSSL) is a subsidiary of Bharat Forge that recently launched “BHARAT 150” with a maximum take-off weight of 150 kg and a range of up to 200 km. Having its headquarters in Pune, India, the group has managed to build a brand synonymous with engineering excellence and innovation in manufacturing critical components for both automotive and aerospace industries alike.

    3. Zen Technologies Ltd

    Zen Technologies Ltd. was incorporated in 1993 and is one of the leading companies dealing with drones. The company offers counter-drone systems to detect and disrupt the communication system of the enemy drone. Another key offering is combat training solutions for the defense and security forces. It identifies itself as a major contributor in the field of defense and has over 40 products being used all over the globe. Zen Technologies has built strong R&D capabilities and has over 150 patents.

    4. RattanIndia Enterprises 

    RattanIndia Enterprises is contributing to the drone industry via its subsidiary NeoSky. The company plans to offer drones as a service and product to its target audience. NeoSky works on tapping drone technology for various diverse applications, starting from agriculture, infrastructure monitoring, and logistics. With a strong focus on innovation and efficiency, the company aims to use UAVs to solve most modern-day problems across different sectors. It visualizes itself as playing a definitive role in the country’s evolving drone ecosystem.

    5. Paras Defence & Space Technologies Ltd

    Paras Defence & Space Technologies Ltd is amongst the most prominent companies in the defense and space sectors, and it has a basket of hi-tech solutions. Business offerings range from defense electronics, aerospace and space systems, communication systems, electro-optic devices, and defense and space components. Paras Aerospace Pvt. Ltd. is its subsidiary, which is involved in drones, drone services, and associated technologies. It also has a subsidiary named Paras Anti-Drone Technologies Pvt. Ltd., which develops RF & microwave systems and subsystems to counter UAVs and more. With a strong focus on innovation and quality, Paras Defense builds up India’s defense capabilities and makes vital contributions to India’s growing space exploration ventures.

    6. Ideaforge Technology Ltd

    Ideaforge Technology Ltd. is one of the apex companies in the domain of unmanned aerial systems, commonly known as drones in India. This company is known for its rugged and versatile UAV products currently being used in the domains of defense & homeland security and industrial applications. 

    It has been able to build a credible name based on innovation, picking up complex challenges in surveillance and reconnaissance and maintaining a clear lead over others in India’s drone industry.

    7. DCM Shriram Industries Ltd

    DCM Shriram Industries Ltd. was founded in 1990 and has operations in sugar, alcohol, industrial fibers, etc. Recently, the company acquired a 30% stake in Zyrone Dynamics, a Turkish drone company. The company aims to manufacture drones in India. DCM Trishul and DCM Kailash are the two prototypes developed by the company for surveillance and heavy-lifting requirements. 

    8. Droneacharya Aerial Innovations Ltd

    Droneacharya Aerial Innovation Ltd is one of the firms known for bringing drone solutions to India’s fast-emerging UAV Sector. The company provides services with applications in a wide range of industries, from agriculture and infrastructure to surveillance and disaster management. With a strong core philosophy of bringing in innovation and exceptionally strong technological expertise, Droneacharya envisions improving operational efficiencies and safety standards across industries. 

    Comparative Study of Drone Stocks

    Performance of Drone Stocks

    The table below shows the Best Drone Stocks based on 6-month and 1-year returns.

    Company6 Month Return1 Year Return 
    Hindustan Aeronautics Ltd (HAL)69.33%161.02%
    Bharat Forge Ltd32.73%86.48%
    Zen Technologies Ltd83.70%129.90%
    RattanIndia Enterprises -4.64%88.24%
    Paras Defence & Space Technologies Ltd83.05%101.53%
    Ideaforge Technology Ltd6.35%-30.71%
    DCM Shriram Industries Ltd31.13%120.66%
    Droneacharya Aerial Innovations Ltd-27.66%-7.10%
    (As of 15 July 2024) 

    Key Performance Indicators

    CompanyNet Profit Margin (%)ROCE (%)TTM EPSTTM P/E (x)P/B (x)
    Hindustan Aeronautics Ltd (HAL)2524.49113.9646.779.23
    Bharat Forge Ltd5.7613.320.4379.2510.51
    Zen Technologies Ltd29.546.315.2288.9125.36
    RattanIndia Enterprises 7.56363.0825.4715.5
    Paras Defence & Space Technologies Ltd11.869.88.77159.112.19
    Ideaforge Technology Ltd14.419.611.0775.845.43
    DCM Shriram Industries Ltd5.5220.613.2616.962.4
    Droneacharya Aerial Innovations Ltd17.5611.652.5855.794.7
    *(all the above data is of year ended March 2024)

    Benefits of Investing in Drone Stocks

    The benefits of investing in drone stocks are:

    Benefits of Investing in Drone Stocks
    • High Growth Potential: The commercial drone market is expected to experience multifold growth in the next few years.
    • Multiple sources of revenue: With applications in various industries, including defense and agriculture, a boost in logistics and enterprise will mean diversified revenue for companies.
    • Government Support: The Indian government, through a 20-crore PLI incentive, is supporting the drone industry; hence, there is a need to include the factor of Make in India in business initiatives.

    Factors to Consider Before Investing in Drone Stocks 

    An investor must consider the following factors before investing in drone stocks:

    • Regulatory Environment: An investor must know the regulatory frameworks that govern the drone industry in India. This might have a big impact on access to markets and profitability.
    • Market Potential: Growth prospects of sectors that are increasingly adopting the use of drones, such as agriculture, logistics, and surveillance.
    • Competitive Landscape: An investor must understand the competitive environment for drone manufacturers and service providers to understand a company’s relative placement in the markets.
    • Financial Health: Look at the revenue growth, profitability, and leverage levels of drone companies to check the viability of investment decisions.

    Future of Drone Stocks 

    With the support of the government, like the Drone Shakti scheme and performance-linked incentives, the future of India’s drone market remains bright. The INR 80 crore market will likely touch INR 12,000-15,000 crore by 2026. The sectors that are seeing the entry of drones range from agriculture and defense to healthcare and e-commerce. Heavy investments by Reliance and Adani Enterprises convey the potential of the drone industry in India. Based on these factors, India will become a global drone hub by 2030.

    Conclusion 

    The Indian drone industry holds huge potential across various industries because of the rapidly advancing capabilities of UAVs and the expansion of regulatory frameworks. Companies are working on stretching the efficiency of drones in agriculture, infrastructure, surveillance, and many other areas.

    As the investment and adoption take off together, it is predicted that with the further evolution of drone technology, there will be a creation of jobs, modernization of industries, and sustainable development. India’s drone sector does seem promising for investors; however, one should consult a financial advisor before investing.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
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    Frequently Asked Questions

    1. What are the top drone stocks in India?

      Some of the top drone stocks in India include Hindustan Aeronautics Ltd, Droneacharya Aerial Innovations, and Paras Defense & Space Technologies Ltd.

    2. Why should one consider investment in drone stocks in India?

      The drone industry is rapidly growing, with a lot of support coming from the government and diversified applications.

    3. What should one look at while considering investing in drone stocks?

      Consider looking into financial performance, technology, regulations, market demand, and management expertise.

    4. What are the future prospects of the drone industry in India?

      The drone industry is expected to grow at a CAGR of 22.15% from 2024-2030.

    5. Has the government come up with any specific initiative in favor of the drone industry in India?

      Through the Production-Linked Incentive (PLI) scheme, support is provided for the manufacturing and growth of the drone industry.

  • Best Artificial Intelligence (AI) Stocks In India 2026

    Best Artificial Intelligence (AI) Stocks In India 2026

    Artificial Intelligence (AI) is now a reality and is no longer confined to the realms of science fiction. It is rapidly transforming industries and shaping our daily lives. A good investor always identifies opportunities before others, and artificial intelligence is one industry that can deliver exceptional returns in the future.

    Many Indian companies are driving the AI revolution, and the best part is that the general public can also invest in them through stock markets. In today’s blog, we will explore the best Artificial Intelligence stocks in India based on their market capitalization and their recent returns. We will also discuss the services offered by these companies and the future of the AI industry.

    Overview of AI industry in India

    India’s AI market is expected to reach $17 billion by 2027, with a CAGR of 25% to 35%. India is a major contributor of AI talent worldwide, with 16% of the world’s AI talent coming from India. This ranks India as one of the top three talent markets. The demand for customization and integration of business processes creates a prime opportunity for companies to deliver professional services tailored to integrate them with existing systems and data. AI could greatly contribute to India’s economy. Estimates show it can add $1 trillion by 2035. 

    Additionally, data privacy and security are of utmost importance when adopting AI, and India should have strong regulations to ensure the responsible development of AI.

    Top AI Stocks Based on the Market Capitalisation

    The top AI stocks in 2026 are:

    S.No.AI Stocks
    1Tata Consultancy Services (TCS)
    2Infosys
    3HCL Technologies
    4Wipro
    5Tech Mahindra

    The AI stocks have been listed in descending order based on their market capitalization in the table below:

    CompanyCurrent Market Price (INR)Market Capitalisation (in INR crore)52-Week High52-Week Low
    TCS4,17815,11,8004,2553,311
    Infosys1,7267,16,6611,7381,305
    HCL Tech1,5704,25,923 1,6971,095
    Wipro5602,92,750567375
    Tech Mahindra1,5161,48,267 1,5281,082
    (As of 17 July 2024)

    Best AI Stocks in India Based on Market Capitalization – An Overview

    The best AI stocks in India are given below, along with a brief overview of the services they provide:

    1. Tata Consultancy Services (TCS)

    Tata Consultancy Services is an Indian multinational IT services and consulting company. TCS is headquartered in Mumbai, India. TCS has over 603,305 trained consultants in 55 countries.

    TCS was founded in 1968 when Mr Fakir Chand Kohli brought together a young team of IT professionals. TCS offers a range of IT services in the following domains:

    • Artificial Intelligence
    • Cloud services
    • Consulting
    • Cybersecurity

    2. Infosys

    Infosys is a global IT services and consulting company that offers digital services and consulting. The company was established in 1981 in Pune by seven engineers with a capital of $250. It currently operates with 317,240 employees and has a presence in over 56 countries. It is headquartered in Bangalore, India.

    Initially, the company focused on providing software consulting and development services to US clients. With time, the company pioneered the Global Delivery Model (GDM), which allowed remote execution with cost advantage. The tech giant went public in 1993. Infosys offers a range of IT services in the following domains:

    • Next-Generation Integrated AI Platform
    • Infosys Consulting
    • Cloud-based services
    • Blockchain

    3. HCL Technologies

    Earlier known as Hindustan Computers Limited, it is another key player in the Indian technology industry. The company is headquartered in Noida, India and has an employee strength of over 227,481.

    HCL Technologies offers a range of tech services, which include:

    • Helping clients incorporate AI in their business processes.
    • Digital solutions to increase the efficiency of the client’s business.
    • R&D services to accelerate product development and increase returns.
    • Cloud Services

    4. Wipro

    Wipro is a leading technology services and consulting company that builds innovative solutions that address clients’ most complex digital transformation needs. It has over 225,000 employees.

    The company was founded in 1945 by M.H. Hasham Premji. It initially emphasized selling consumer goods and vegetable oils. In 1981, Wipro diversified its operations into the IT business under the leadership of Azim Premji, who is still a respected figure in the Indian IT industry.

    Wipro offers a range of IT services which includes:

    • Helping businesses migrate to the cloud and leverage its benefits for scalability and efficiency.
    • Providing consulting and implementation services to help companies adapt to the digital age.
    • Creating and maintaining custom software applications for several needs.
    • Developing and implementing AI-powered solutions and integrating robotic automation for advanced functions.
    • Managing and optimizing non-core business processes for cost savings and improved efficiency.

    5. Tech Mahindra

    Tech Mahindra is a part of the Mahindra Group and was founded in 1986. The company employs 138,000 employees and is present in over 90 countries. The company offers innovative and customized information and technology services that help enterprises, associates, etc.

    The company offers a range of services in the following domains:

    • Artificial Intelligence
    • Digital Enterprise applications
    • Cloud & Infrastructure services
    • Strategy & Consulting

    Top AI Stocks Based on 1 Year Return

    The top AI stocks in 2026 are:

    S.No.AI Stocks
    1Oracle Financial Services Software Ltd.
    2Bosch Ltd.
    3Kellton Tech Solutions Ltd.
    4Zensar Technologies Ltd.
    5Cyient Ltd.

    The AI stocks have been listed in descending order based on their 1 year returns in the table below:

    Company1 Year Return 
    Oracle Financial Services Software Ltd182.04%
    Bosch Ltd79.55%
    Kellton Tech Solutions Ltd74.24%
    Zensar Technologies Ltd54.47%
    Cyient Ltd.23.90%
    (As of 17 July 2024)

    Read Also: Best Artificial Intelligence (AI) Smallcap Stocks

    Best AI Stocks in India Based on 1 Year Return – An Overview

    The best AI stocks according to 1 year return are given below, along with a brief overview of the services they provide:

    1. Oracle Financial Services Software Ltd.

    Oracle Financial Services Software Ltd. (OFSS) is a subsidiary of Oracle Corporation and has its headquarters in Mumbai. It helps financial institutions such as banks launch new products and build customer-centric digital solutions with the help of Oracle’s AI-driven applications and cloud services. It has been using machine learning to improve detection, deep learning to find patterns and natural language processing (NLP) to extract data. It offers a range of services listed below:

    • Anti-money laundering & Financial Crime Compliance
    • Cloud Infrastructure
    • Risk and Finance
    • Payments
    • Corporate Banking

    Know the Returns:

    1Y Return (%)3Y Return (%)5Y Return (%)
    9.82%143.97%203.28%
    (As of 18th Fenruary 2025)

    2. Bosch Ltd.

    Bosch is a German multinational company headquartered in Gerlingen, Germany. It was established in 1886 and has offices worldwide. It has the largest development center in India outside Germany for the development of engineering and technology solutions. Bosch Center of Artificial Intelligence is an important part of Bosch Research and specializes in deploying AI technologies into products & services. Bosch also offers services in the following areas:

    • Neuro – Symbolic AI
    • Deep Learning
    • Natural Language Processing
    • Probabilistic Modeling
    • Reinforcement Learning

    Know the Returns:

    1Y Return (%)3Y Return (%)5Y Return (%)
    -5.22%68.77%81.02%
    (As of 18th Fenruary 2025)

    3. Kellton Tech Solutions Ltd.

    Kellton Tech Solutions Ltd. ((KTSL) is an Indian multinational company with its headquarters in Hyderabad, India. It provides AI and ML solutions, which can be used to process data and extract insights at a great pace. It offers Utilitarian AI, which can be used to convert computer vision to text. Other services offered include:

    • Predictive analytics
    • Generative AI
    • Machine Learning
    • NextGen Services

    Know the Returns:

    1Y Return (%)3Y Return (%)5Y Return (%)
    16.51%32.86%626.48%
    (As of 18th Fenruary 2025)

    4. Zensar Technologies Ltd.

    Zensar Technologies is a major player in the Indian AI industry and is a subsidiary of the RPG group. It is headquartered in Pune, India and has offices in 33 global locations. Zensar’s AI/ML-driven Smart Advisor enables users to navigate market data with exceptional speed and accuracy. It analyzes market news, interprets positive and negative sentiments and provides a future outlook. It provides great value in incorporating ESG risk scores into decision-making processes. The company also offers services in the following domains:

    • AI engineering buddy
    • Accelerated generative AI
    • Cloud strategy 
    • Automation

    Know the Returns:

    1Y Return (%)3Y Return (%)5Y Return (%)
    49.49%116.84%466.15%
    (As of 18th Fenruary 2025)

    5. Cyient Ltd. 

    Cyient Ltd. is an Indian multinational technology company with its headquarters in Hyderabad, India. It was founded in 1991 as Infotech Enterprises Ltd and was later renamed Cyient in 2014. In 2023, Cyient collaborated with Microsoft to make a product named “EnGeneer”, which will help in automating engineering processes. Cyient aims to use the Microsoft Azure OpenAI Service to deliver products in the future. It also provides services in the following domains:

    • Generative AI
    • Cybersecurity
    • Cloud services
    • Asset insights

    Know the Returns:

    1Y Return (%)3Y Return (%)5Y Return (%)
    -29.74%64.71%226.95%
    (As of 18th Fenruary 2025)

    Key Performance Indicators (KPIs)

    CompanyROE (%)ROCE (%)Debt to EquityP/E P/B
    TCS50.7363.51032.2516.71
    Infosys29.7736.81027.329.59
    HCL Tech2327.920.0327.136.87
    Wipro14.8117.860.1926.53.93
    Tech Mahindra8.8411.70.0662.895.55
    Oracle Financial Services Software Ltd.28.2435.240.0042.2813.95
    Bosch Ltd.20.6619.480.0040.349.41
    Kellton Tech Solutions Ltd.14.4318.30.2921.363.03
    Zensar Technologies Ltd.18.6623.630.0025.486.3
    Cyient Ltd.16.0320.610.1129.756.49
    *(all the above data is of year ended March 2024) 

    Read Also: What is AI Washing? Definition, Tips, Evolutions & Impact

    Benefits of Investing in AI Stocks

    AI stocks can be a valuable addition to the portfolio due to the following benefits:

    • Future Growth: The artificial intelligence industry is expected to grow multifold in the coming years, which will cause a rise in the prices of AI stocks.
    • Diversification: AI stocks provide diversification benefits and protect investor portfolios from market fluctuations.
    • Multiple revenue sources: Artificial intelligence has applications in many industries that provide numerous revenue sources for AI companies.

    Factors to Consider Before Investing in AI Stocks

    Artificial intelligence is a fairly new industry, and there is a lot of uncertainty surrounding it. Investors must be cautious and consider the following factors before investing in AI stocks:

    Factors To Consider Before Investing In AI Stocks
    • Competition: Investors should identify the industry leader as they will benefit from competitive advantage in the future.
    • Financial Health: Investors should analyze financial statements and look for companies with strong fundamentals.
    • Ethical Considerations: AI can also be used for unethical practices, which can damage a company’s reputation. Investors should avoid such companies. 
    • Regulations: Investors should stay informed about the new regulations applicable to the AI industry and judge their impact on the stock price of AI companies.

    Future of the AI Industry

    The future of the AI industry looks bright due to the following factors:

    1. The development of more powerful and affordable computer chips, especially those designed for AI applications, is helping create more effective AI models.
    2. The exponential growth of data is driving the rapid advancement of AI technology. AI algorithms need large amounts of data to learn and enhance their capabilities.
    3. Investments in AI are increasing from both private and public sectors, which helps fund research and development and create new AI applications.
    4. Nowadays, businesses are looking for methods to automate tasks, and AI is considered an important technology for achieving this.

    Read Also: 5 Top Artificial Intelligence Penny Stocks in India

    Conclusion

    The AI industry in India is growing rapidly because of a large talent pool, consistent government support, and expanding digital infrastructure. However, the road ahead has hurdles. The industry needs more skilled workers and stronger regulations because of data privacy concerns. Even though there are certain challenges, the benefits of AI are undeniable, and as far as AI stocks are concerned, they offer a great avenue for investment. It is important to consider several factors, such as market volatility, competition, etc. and consult a financial advisor before making any investment decision.

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    Frequently Asked Questions (FAQs)

    1. What is AI?

      Artificial intelligence is a field that uses technology to perform advanced tasks like learning and problem-solving.

    2. Why would AI stocks be a good investment?

      AI stocks are good investment options because of the high demand for AI solutions, the potential for technological breakthroughs and increased government support.

    3. How can we ensure responsible AI development?

      Open discussions, addressing ethical concerns, and strong regulations are important for responsible AI development.

    4. Will AI take away all our jobs?

      While some jobs might be automated, AI is also expected to create new opportunities in different work areas.

    5. What are some other AI stocks in India?

      AI stocks in India are TCS, Infosys, Wipro, etc.

  • What is TREPS & Why Mutual Funds Invest in it?

    What is TREPS & Why Mutual Funds Invest in it?

    Financial markets today offer a wide variety of financial products to investors. There is a lot of information about financial products, and you may see something new daily. If you’ve ever looked through a mutual fund’s portfolio, you’ve probably noticed that some of your money is invested in “TREPS.” Are you certain about what it is and why practically every mutual fund has a portion allocated to it?

    In this blog, we will explore TREPS, its features, advantages, disadvantages, and the reasons behind mutual funds investing in TREPS.

    What is TREPS?

    TREPS stands for “Tri-Party Repo Dealing System”, which facilitates the borrowing and lending of funds in a Tri-Party Repo arrangement. Tri-party repo is a type of repo contract where a third entity (other than the borrower and lender) acts as an intermediary between the two parties to facilitate services like collateral selection, payment, settlement, custody, and management during the life of the transaction. It serves as a mechanism for managing liquidity, allowing mutual funds to park their excess capital. 

    Why Mutual Fund Invest in TREPS?

    Why Mutual Fund Invest in TREPS

    Mutual funds invest in TREPS for various reasons listed below:

    • Liquidity: It provides mutual fund flexibility to manage the liquidity for daily needs, as it easily converts securities into cash to meet daily redemptions. Quick conversion into cash also allows mutual funds to take advantage of investment opportunities.
    • Safety: Since TREPS are backed by Government of India securities, they are considered one of the safest short-term investment avenues. This makes them ideal for managing temporary surpluses without taking on high risk.
    • Earnings: It allows the mutual funds to earn a return on the idle cash and helps increase the overall return.
    • Regulatory Requirement: SEBI regulations require mutual funds to maintain a portion of their portfolios in highly liquid instruments. TREPS fulfil this requirement and help funds stay compliant.
    • Portfolio Diversification: Investment in TREPS provides diversification benefits and reduces exposure to market fluctuations.

    Impact of TREPS on Mutual Fund NAV

    The impact of investing in TREPS on the mutual fund’s NAV depends on various factors, such as current market conditions, current portfolio mix, and the size and duration of investments in TREPS.

    Investing in TREPS offers higher returns than cash, which increases net asset value (NAV).

    On the other hand, a sizable investment in TREPS can result in lower returns in the long run, and thus, NAV reduces.

    Key Players in Mutual Fund TREPS transaction

    The key players involved in mutual fund TREPS transactions are as follows-

    • Sellers: These entities initiate the transaction by selling the securities and agreeing to buy them back later.
    • Buyers: The buyer is a counterparty that purchases securities and earns interest.
    • Tri-Party Agent: These agents provide services such as collateral selection, payment, settlement, custody, and transaction management. They are critical in reducing counterparty risk.
    • Custodian: The custodian stores the securities, ensures their safety, and makes them available at the time of settlement. Its role is usually combined with that of a tri-party agent. 
    • Clearing Corporation: CCIL (Clearing Corporation of India Limited) serves as a clearing house, ensuring that all the executed trades are settled properly and maintaining accounts for all members.
    • Regulatory Bodies: The regulatory bodies such as SEBI (Securities and Exchange Board of India) set guidelines to protect the investor’s interest.

    Read Also: Long-Term Capital Gain (LTCG) Tax on Mutual Funds

    Advantages of TREPS

    TREPS offers the following advantages to its investors:

    1. A mutual fund holds some cash to meet redemption requests. Instead of holding cash, they invest in TREPS as they are highly liquid.
    2. It also allows mutual funds to earn additional income, increasing the overall yield of the portfolio.
    3. Through TREPS, mutual funds can reduce the volatility of a portfolio.
    4. It allows them to manage their cash flows efficiently and act actively on market opportunities.
    5. TREPS is considered a risk-free investment option as the government backs it. 

    Disadvantages of TREPS

    Disadvantages of TREPS are:

    1. Investment in TREPS offers lower returns when compared with other opportunities available in the market.
    2. The involvement of a third party increases the complexity of the transaction, which also increases its cost.
    3. Most mutual funds have investments in TREPS, eventually leading to the concentration of risk.
    4. TREPS are subject to market risk due to changes in interest rates, which can affect the return of mutual funds. 

    Read Also: Shariah-Compliant Mutual Funds: Should You Invest?

    Conclusion

    In conclusion, investing in TREPS offers mutual funds a safe, flexible approach to managing capital and boosting portfolio return while preserving adequate liquidity. They also have a positive impact on the mutual fund NAV in the short term, but a longer investment horizon can result in lower returns and negatively impact the NAV. 

    TREPS are affected by interest rate changes and often offer lower returns than other asset classes. Speak with your investment advisor if you intend to invest in mutual funds. 

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    Frequently Asked Questions (FAQs)

    1. Who do mutual funds put their money in TREPS?

      Mutual funds must place their assets in liquid securities like TREPS to comply with SEBI regulations requiring them to have a certain amount of cash on hand to fulfill investor redemption requests. 

    2. What does TREPS stand for?

      TREPS stands for Tri-Party Repo Dealing System.

    3. Who can participate in TREPS?

      Any institutional investor, including banks, mutual funds, etc., is eligible to invest in TREPS if they meet the regulatory compliance guidelines provided by SEBI and have the required infrastructure.

    4. Is it safe to invest in TREPS?

      Yes, it is safe to invest in TREPS as the government backs the underlying assets.

    5. Does TREPS generate higher returns than traditional savings accounts?

      TREPS investments have the potential to yield larger returns than traditional savings accounts, which is why mutual funds find them attractive.

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