Mutual Funds

Mutual Funds

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.


Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.


Commodity Futures are contracts to buy specific quantity of a particular commodity at a future date. It is similar to the Index futures and Stock futures but the underlying happens to be commodities instead of Stocks and Indices.


In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.


As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.


All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type.

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.


SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).


Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.

Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.


Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.


Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.


Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:


Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.


Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.


Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.


Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.


Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.


Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.


There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.



These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.



These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.



A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. An FoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe.



A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads.


A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.


Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments.



The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable.


Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unit holders. It may include exit load, if applicable.


Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme.


A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document.


Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders and giving them option to exit the scheme at prevailing NAV without any load.


Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services.


Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.


Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.


Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.


An investor should take into account his risk taking capacity, age factor, financial position, etc. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.


An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at a later date should be informed to the mutual fund immediately.


An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.


Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.


The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).


According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.


There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.


A mutual fund is required to dispatch to the unit holders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unit holder.


n case of failures to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).


Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unit holder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unit holders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor.


There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unit holders. Apart from it, many mutual funds send quarterly newsletters to their investors.


At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.


There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.


The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place.


The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.


The mutual funds are also required to send annual report or abridged annual report to the unit holders at the end of the year.


Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.


Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.


On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.


The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unit holders.


The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.


Some of the mutual funds send newsletters to the unit holders on quarterly basis which also contain portfolios of the schemes.


Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.


Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs. 10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc. This is explained in an example given below.


Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the factors for making investment decision. Likewise, if a new equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision making by the investor. Similar is the case with income or debt-oriented schemes.


On the other hand, it is likely that the better managed scheme with higher NAV may give higher returns compared to a scheme which is available at lower NAV but is not managed efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as much as inefficiently managed scheme with lower NAV. Therefore, the investor should give more weightage to the professional management of a scheme instead of lower NAV of any scheme. He may get much higher number of units at lower NAV, but the scheme may not give higher returns if it is not managed efficiently.


As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.


Investors should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.


In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.


Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also published useful literature for the investors.


Investors can log on to the web site of SEBI www.sebi.gov.in and go to "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given.


Yes. The nomination can be made by individuals applying for / holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate.


In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unit holders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.


Investors would find the name of contact person in the offer document of the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset Management Company and trustees are also given in the offer documents. Investors should approach the concerned Mutual Fund / Investor Service Center of the Mutual Fund with their complaints, If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with it regularly. Investors may send their complaints to:


Securities and Exchange Board of India Office of Investor Assistance and Education (OIAE)

  • Exchange Plaza, “G” Block, 4th Floor,
  • Bandra-Kurla Complex,
  • Bandra (E), Mumbai – 400 051.
  • Phone: 26598510-13

An applicant proposing to sponsor a mutual fund in India must submit an application in Form A along with a fee of Rs.25,000. The application is examined and once the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs For details, see the SEBI (Mutual Funds) Regulations, 1996.


The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, livestock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.


With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:-

Derivative includes -

  • A security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;
  • A contract which derives its value from the prices, or index of prices, of underlying securities;

What is a Futures Contract?

  • Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the future/option contract in cash.

Options Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc.



Under Securities Contracts (Regulations) Act,1956 options on securities has been defined as "option in securities" means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities;



An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price.



Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame.



As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract.



An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price.



Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame.



As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract.

Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index.



Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date.



An index, in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy. Indices that represent the whole market are broad based indices and those that represent a particular sector are sectoral indices. In the beginning futures and options were permitted only on S&P Nifty and BSE Sensex. Subsequently, sectoral indices were also permitted for derivatives trading subject to fulfilling the eligibility criteria. Derivative contracts may be permitted on an index if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index. The index is required to fulfill the eligibility criteria even after derivatives trading on the index has begun. If the index does not fulfill the criteria for 3 consecutive months, then derivative contracts on such index would be discontinued.



By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on Expiry.

Derivative trading in India takes can place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organisation (SRO) and SEBI acts as the oversight regulator. The clearing & settlement of all trades on the Derivative Exchange/Segment would have to be through a Clearing Corporation/House, which is independent in governance and membership from the Derivative Exchange/Segment

Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index.



Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date.



An index, in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy. Indices that represent the whole market are broad based indices and those that represent a particular sector are sectoral indices. In the beginning futures and options were permitted only on S&P Nifty and BSE Sensex. Subsequently, sectoral indices were also permitted for derivatives trading subject to fulfilling the eligibility criteria. Derivative contracts may be permitted on an index if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index. The index is required to fulfill the eligibility criteria even after derivatives trading on the index has begun. If the index does not fulfill the criteria for 3 consecutive months, then derivative contracts on such index would be discontinued.



By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on Expiry.

With the amendment in the definition of ''securities'' under SC(R)A (to include derivative contracts in the definition of securities), derivatives trading takes place under the provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992.



Dr. L.C Gupta Committee constituted by SEBI had laid down the regulatory framework for derivative trading in India. SEBI has also framed suggestive bye-law for Derivative Exchanges/Segments and their Clearing Corporation/House which lay''s down the provisions for trading and settlement of derivative contracts. The Rules, Bye-laws & Regulations of the Derivative Segment of the Exchanges and their Clearing Corporation/House have to be framed in line with the suggestive Bye-laws. SEBI has also laid the eligibility conditions for Derivative Exchange/Segment and its Clearing Corporation/House. The eligibility conditions have been framed to ensure that Derivative Exchange/Segment & Clearing Corporation/House provide a transparent trading environment, safety & integrity and provide facilities for redressal of investor grievances. Some of the important eligibility conditions are-



  • Derivative trading to take place through an on-line screen based Trading System.

  • The Derivatives Exchange/Segment shall have on-line surveillance capability to monitor positions, prices, and volumes on a real time basis so as to deter market manipulation.

  • The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades, quantities and quotes on a real time basis through atleast two information vending networks, which are easily accessible to investors across the country.

  • The Derivatives Exchange/Segment should have arbitration and investor grievances redressal mechanism operative from all the four areas / regions of the country.

  • The Derivatives Exchange/Segment should have satisfactory system of monitoring investor complaints and preventing irregularities in trading. o The Derivative Segment of the Exchange would have a separate Investor Protection Fund.

  • The Clearing Corporation/House shall perform full novation, i.e., the Clearing Corporation/House shall interpose itself between both legs of every trade, becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades.

  • The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both.

  • The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The concept of value-at-risk shall be used in calculating required level of initial margins. The initial margins should be large enough to cover the one-day loss that can be encountered on the position on 99% of the days.

  • The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments. o In the event of a Member defaulting in meeting its liabilities, the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions.

  • The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his client. The Clearing Corporation/House shall hold the clients margin money in trust for the client purposes only and should not allow its diversion for any other purpose.

  • The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange / Segment.


Presently, SEBI has permitted Derivative Trading on the Derivative Segment of BSE and the F&O Segment of NSE.



The various types of membership in the derivatives market are as follows:


  • Trading Member (TM) - A TM is a member of the derivatives exchange and can trade on his own behalf and on behalf of his clients.

  • Clearing Member (CM) - These members are permitted to settle their own trades as well as the trades of the other non-clearing members known as Trading Members who have agreed to settle the trades through them.

  • Self-clearing Member (SCM) - A SCM are those clearing members who can clear and settle their own trades only



  • Balance Sheet Networth Requirements: SEBI has prescribed a networth requirement of Rs. 3 crores for clearing members. The clearing members are required to furnish an auditor''s certificate for the networth every 6 months to the exchange. The networth requirement is Rs. 1 crore for a self-clearing member. SEBI has not specified any networth requirement for a trading member.

  • Liquid Networth Requirements: Every clearing member (both clearing members and self-clearing members) has to maintain atleast Rs. 50 lakhs as Liquid Networth with the exchange / clearing corporation.

  • Certification requirements: The Members are required to pass the certification programme approved by SEBI. Further, every trading member is required to appoint atleast two approved users who have passed the certification programme. Only the approved users are permitted to operate the derivatives trading terminal.y


The derivatives member is required to adhere to the code of conduct specified under the SEBI Broker Sub-Broker regulations. The following conditions stipulations have been laid by SEBI on the regulation of sales practices:


  • Sales Personnel: The derivatives exchange recognizes the persons recommended by the Trading Member and only such persons are authorized to act as sales personnel of the TM. These persons who represent the TM are known as Authorised Persons.

  • Know-your-client: The member is required to get the Know-your-client form filled by every one of client.

  • Risk disclosure document: The derivatives member must educate his client on the risks of derivatives by providing a copy of the Risk disclosure document to the client.

  • Member-client agreement: The Member is also required to enter into the Member-client agreement with all his clients.


  • Derivative products have been introduced in a phased manner starting with Index Futures Contracts in June 2000. Index Options and Stock Options were introduced in June 2001 and July 2001 followed by Stock Futures in November 2001. Sectoral indices were permitted for derivatives trading in December 2002. Interest Rate Futures on a notional bond and T-bill priced off ZCYC have been introduced in June 2003 and exchange traded interest rate futures on a notional bond priced off a basket of Government Securities were permitted for trading in January 2004.



A stock on which stock option and single stock future contracts are proposed to be introduced is required to fulfill the following broad eligibility criteria:-


  • The stock shall be chosen from amongst the top 500 stock in terms of average daily market capitalisation and average daily traded value in the previous six month on a rolling basis.
  • The stock's median quarter-sigma order size over the last six months shall be not less than Rs.1 Lakh. A stock's quarter-sigma order size is the mean order size (in value terms) required to cause a change in the stock price equal to one-quarter of a standard deviation.
  • The market wide position limit in the stock shall not be less than Rs.50 crores. A stock can be included for derivatives trading as soon as it becomes eligible. However, if the stock does not fulfill the eligibility criteria for 3 consecutive months after being admitted to derivatives trading, then derivative contracts on such a stock would be discontinued.

The Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to Securities Contract (Regulation) Act, 1956 had recommended that the minimum contract size of derivative contracts traded in the Indian Markets should be pegged not below Rs. 2 Lakhs. Based on this recommendation SEBI has specified that the value of a derivative contract should not be less than Rs. 2 Lakh at the time of introducing the contract in the market. In February 2004, the Exchanges were advised to re-align the contracts sizes of existing derivative contracts to Rs. 2 Lakhs. Subsequently, the Exchanges were authorized to align the contracts sizes as and when required in line with the methodology prescribed by SEBI.


Investing in equity involves purchasing shares of a company listed on a stock exchange. You can acquire these shares in two ways - either through the Primary Market, i.e., when a company makes an offer to issue its equity for the first time (this is called Initial Public Offering (IPO)) or through the secondary market, i.e. via a stock exchange. When you trade in equity through a stock exchange, you have to make use of the services of a brokerage firm, which acts as your agent whenever you buy or sell.



Equity is considered a high risk-high return investment avenue. This is because there is scope for considerable appreciation or loss of the capital that you invest, depending on various factors such as the performance of the company that you have invested in, general market conditions, the state of the economy, etc. However, it forms an integral part of any well-balanced portfolio, since it is at one end of the risk-return spectrum.


There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.


Equity is a must for any well-balanced portfolio. So, irrespective of whether you are a high net worth investor or a small retail investor and irrespective of whether you have a large or timid appetite for risk, you must hold some portion of your assets in equity. This is because it is the only instrument that has the ability to truly deliver a high return, when held over a long period of time.



However, the amount of equity that you hold in your portfolio is a very subjective decision and will depend upon various factors. These include your investment objectives, time horizon and risk appetite. But as a general guideline, there's a rule of thumb that states that to decide upon the proportion of your assets that should go into equities, reduce your age from 100 and tha's the proportion of your money which should be put in equities. The remaining can be invested in fixed income securities.

Every investor must do some homework before investing money in equities...



  • While recommendations and tips received from your broker, a friend, etc. may be the starting point of your selection, let it not be the only reason that makes you purchase a particular stock, even if these tips have come from 'market experts'. Short list the shares that you want to buy on the basis of your investment objective, risk profile and the stock's fundamentals..

  • If you feel that the price of a stock is high, don't purchase it. Buy stocks that you believe still have scope for appreciation.

  • Don't try to time your purchases. That could turn you into a speculator instead of an investor.

  • Lastly, once you have purchased shares, if the business prospects of the company change to its detriment, get rid of the stock. Don't hesitate to liquidate your portfolio before your target time horizon if circumstances lead you to believe that it's necessary.
  • There are various factors that determine the value of a stock. Understanding these will help you to pay a price that reflects the true value of a stock.

  • Demand and Supply: In the short term, the basic economic theory of demand and supply determines a stock's worth. So, when the demand for a stock exceeds its supply (that is, there are more buyers than sellers), its price tends to rise. And, when supply overtakes demand (that is, sellers exceed buyers), the stock loses value. However, these are short-term market trends, which tend to get evened out over a period of time. In the medium to long-term, a stock is driven by the company's fundamental strength i.e. business potential, past performance, competence and credibility of its promoters and management, etc.

  • Growth potential: Investors are willing to pay a premium for stocks of companies that have the potential to increase their revenues and net profits. The greater this growth potential, the higher the premium given to the stock. If a company proves that it is capable of sustaining growth, the market will continue to give it high valuations. And, that's likely to be the major driver for stock valuations.

  • Fundamentals: A company's growth outlook is linked to its business prospects and how well its management is capitalising on the existing opportunities. The quality of a company's management is crucial. So, pay attention to the management practices of a company and its level of corporate governance.
  • Buy low and sell high is the ultimate guide to successful stock investing. It is also the reverse of what many investors do, although they don't intend to. They tend to buy high and sell low because they use price, and in particular, the price movement, as their only signal to buy or sell.

  • Investors are tempted to buy stocks that have shot up and are basking in the media spotlight just to get a part of the action. They jump at a stock that is already trading at a premium that's how they buy high. Ironically, if a stock has had a good run up it may be time to sell, not buy (sell high).

  • On the flip side, when a stock price is falling, most investors may want to sell in a panic, although the company has not lost any intrinsic value and still remains a sound investment that's how they sell low. In fact, when a stock's price has fallen, it's a great time to buy (buy low), if your research on the company suggests that it is a good long term buy.

  • Experienced traders can make money jumping in and out of a stock that's caught the public's attention, but it's not a game for the inexperienced and it can definitely not be called 'investing', in the true sense of the word. There are risks involved and tax consequences that apply to such trading, along with other issues, which means that most investors should leave this tricky activity to short-term traders.

There are various risks that companies are exposed to and when you invest in equity, your returns are affected by these risks. These are business risks (i.e. the risks associated with the prosperity of a business and the demand for its products), financial risks (the skill with which a company's finances are managed to ensure that it has an optimum level of debt, equity, reserves, etc.), industry risk (changes in technology, regulations, fashions, etc., affect the performance of an industry), management risks (the level of corporate governance, management skills and vision), political, economic and exchange rate risks (these factors affect a company but are outside its control). There are other risks, such as market risks (the risk that the market will collapse, or that you have invested at the peak), which determine your returns on your equity investment.


Before you start investing in equity, you need to open the following accounts:


  • - A broking account with a stock broker

  • - A demat account with a depository participant

  • - A bank account for cash payments and receipts (you can use one of your existing bank accounts for this purpose)

You then need to decide whether you want to invest by making purchases/taking delivery of shares or by undertaking margin trading (in this case you pay only a portion of the cost for purchases and your broker funds the balance and you don't take delivery of the shares. You simply book your profit or loss).

Initial Public Offering, IPO, is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.


Primarily, issues can be classified as a Public, Rights or preferential issues (also known as private placements). While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively simpler. The classification of issues is illustrated below:Public issues can be further classified into Initial Public offerings andfurther public offerings. In a public offering, the issuer makes an offer fornew investors to enter its shareholding family. The issuer company makes detailed disclosures as per the DIP guidelines in its offerdocument and offers it for subscription.


The significant features are illustrated below:


  • Issues

  • Public Preferential Rights

  • Initial Public Offering Further Public Offering

  • Fresh Issue Offer for sale Fresh Issue Offer for sale

Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer's securities.


A follow on public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.


Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.


A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained in Chapter pertaining to preferential allotment in SEBI (DIP)


SEBI has laid down eligibility norms for entities accessing the primary market through public issues. There is no eligibility norm for a listed compaNy making a rights issue as it is an offer made to the existing shareholders who are expected to know their company. The main entry norms for companies making a public issue (IPO or FPO) are summarized as under:


Entry Norm I (EN I): The company shall meet the following requirements:


  • (a)   Net Tangible Assets of at least Rs. 3 crores for 3 full years.

  • (b)   Distributable profits in atleast three years

  • (c)   Net worth of at least Rs. 1 crore in three years

  • (d)   If change in name, atleast 50% revenue for preceding 1 year should be from the new activity.

  • (e)   The issue size does not exceed 5 times the pre- issue net worth To provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, SEBI has provided two other alternative routes to company not satisfying any of the above conditions, for accessing the primary Market, as under:

Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer's securities.


A follow on public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.


Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.


A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained in Chapter pertaining to preferential allotment in SEBI (DIP)


Entry Norm II (EN II):

  • (a)   Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).

  • (b)   The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years

  • OR


    Entry Norm III (EN III):

  • (a)   The "project" is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).

  • (b)   The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.

  • In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria of having at least 1000 prospective allotees in its issue

Yes, SEBI (DIP) guidelines have provided certain exemptions from the eligibility norms.


The following are eligible for exemption from entry norms.


  • (a)   Private Sector Banks

  • (b)   Public sector banks

  • (c)   An infrastructure company whose project has been appraised by a PFI or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by any of these institutions.

  • (d)   Rights issue by a listed company

Any company making a public issue or a listed company making a rights issue of value of more than Rs 50 lakhs is required to file a draft offer document with SEBI for its observations. The validity period of SEBI's observation letter is three months only i.e the company has to open its issue within three months period.


A Follow on Public Offering, FPO, is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.


It's an issue where issuing company defines single price per share. After subscription, company decides the basis of allotment depending upon under/over subscription. On this basis an applicant may or may not get allotment of shares.


It's an issue where issuing company defines a price range i.e floor (lower) price and Cap (Upper) price. After subscription, company decides the basis of allotment depending upon under/over subscription. On this basis an applicant may or may not get allotment of shares.


At Reliance Money, investing in IPOs hassle-free i.e. without going through the tedious process of filling the application form, signing cheque and finding location for submitting form. All you need to do is fill in the requisite details in the online screens by selecting IPO page of the main trading menu and then select desired issue. Required paperwork will be done by us for you on the basis of the information provided by you.


In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called "Cut Off Price". Only retail individual investors have an option of applying at Cut Off Price.


'Retail Individual Investor' means an investor who applies or bids for securities of or for a value of not more than Rs.2,00,000/=.


Yes you can view your transactions by clicking IPO Order Book link on main menu. You need to give the date range and all transactions for specified date range will be displayed.


Yes you can modify your transaction by clicking Modify Order link from main menu of IPO. Click the Modify link for desired IPO and follow the instruction.


You will receive an email from Reliance Securities for the status of your application.


You will receive an email from Reliance Securities about allotment of shares. Alternatively you can also check up your demat account balance with your Depositary Participant.


Futures market in commodity is a continuous auction market where buyers and sellers meet to trade on futures contract of specific underlying commodity.


Futures contract is legally obligatory. Delivery period, quantity and quality of a contract are standard. Buyers and sellers negotiate through an exchange to set a price.


A future trading is trading of futures contract. The buyer of futures contract has a right to purchase the commodity of same quality, quantity in specified time from the seller of the contract.


Say a jeweler requires 100 gms of gold 3 months from now. He goes to gold smith and buys and takes delivery of the consignment (gold) at the quoted price. This is spot transaction. If the same jeweler opts for a 3-month exchange traded future contract, he buys a future contract in gold at a price decided today but agrees to take delivery at a future date. This is called a futures transaction.


Producers, processors, traders, stockists, hedgers, arbitrageurs, speculators are the people who trade in commodities.


A hedge is just a way of insuring an investment against risk. Hedger eliminates the price risk of physical material he owns by taking an offsetting position in futures market.


A trading strategy that looks to take advantage of price differences of the same commodity, trading on different exchanges. Arbitrage trading may also refer to trading on price differences between physical commodity and the commodity futures.


Speculating is taking a position based on expectations about whether prices will rise or fall in the future hoping to profit from the price change.


Yes, Indian commodity markets are regulated by Forward Market Commission (FMC).


Prerequisites of trading

Resident Indian

PAN


Associated Bank savings Account / Reliance Mutual Fund (Liquid Scheme) & Reliance trading Account


Demat a/c is not mandatory for trading purposes

  • - Mandatory for delivery based positions

  • - Commodity demat a/c is separate from equity demat a/c Sales Tax no. is not mandatory for trading

  • - Mandatory for delivery based positions

No, NRIs are not allowed to trade as of now.


No, NRIs are not allowed to trade as of now.


Banks, Mutual funds, FIIs, and NRIs are not allowed to trade.


The following commodities are actively traded in these two Exchanges:-


MCX


  • - Bullion: Gold and Silver
  • - Metals: Aluminum, Copper, Zinc etc.
  • - Oil and Oil Seed: Refined Soy Oil, Soy Bean etc.
  • - Energy: Brent crude oil, Crude oil, etc
  • - Other commodities: Urad, Chana, Wheat, Guar Seed, Sugar, Potato etc.

NCDEX


  • - Bullion: Gold and Silverr
  • - Metals: Aluminum, Copper, Nickel, Sponge iron and Zinc.
  • - Oil and Oil Seed: Castor oil, Crude Palm oil, Soy Oil, Soy Bean etc.
  • - Energy: Brent crude oil, and Furnace oil.
  • - Agro Commodities: Cotton, Chana, Masur, Tur, Urad, Basmati rice, Wheat, Maize, Cashew Kernel, Guar seed, Sugar, Rubber, etc.

For newly listed commodities please visit home page of exchange websites www.mcxindia.com and www.ncdex.com


Both MCX and NCDEX provide trading facility from Monday to Saturday.


  • - Monday to Friday 10 am - 5 pm for agro-based commodities

  • - Monday to Friday 10 am - 11.30 pm for precious / base metals and energy

  • - Saturdays 10 am - 2 pm all commodities


Both the commodity exchanges have done exceedingly well over the years, in terms of risk management, volumes or launching new & better commodity products. Before choosing an exchange you need to check the following:


  • - The commodity you wish to trade is listed on that exchange

  • - Check the contract specifications of that commodity to ensure it suits you best

  • - There is enough liquidity i.e. price difference between the best buyer (bid) and best seller (offer) should be minimal in the given commodity (i.e daily volumes are high & you will be able to liquidate your position at will)
  • - Commodity price should be in sync with the physical market prices or its respective benchmark prices
  • - The exchange that matches the above mentioned characteristics can be your choice


You can find detailed contract specifications on the websites of the exchanges. You can log on to www.ncdex.com and check the product section or homepage of Multi Commodity Exchange at www.mcxindia.com


Margin is deposit money which is required in advance to execute trades on the exchanges.


Initial Margin is the amount of money deposited by both buyers and sellers of futures contract to ensure the performance of trades executed.


Maintenance margin is an amount over and above the initial margin to ensure that the balance in the margin account never becomes negative.


Additional margin is an amount imposed to remove unexpected volatility from the market.


On the day of entering into the contract, it is the difference of the entry value and closing price for that day. In case of carry forward position, MTM is the difference of the market price less yesterday's closing price.


It means buying a commodity in anticipation that the price will go up.


It means selling a commodity in anticipation that the prices will come down.


It means selling a commodity in anticipation that the prices will come down.


Yes, there are circuit limits or daily price range (DPR) to safeguard the interests of general investors from the extreme volatilities in markets for preventing any unexpected fall or rise beyond a limit. When the circuit limit is hit, there is a cooling period of fifteen minutes after which the trading will begin again with fresh circuit limits.


Is there any limit to the quantity I can trade/hold in any given commodity at any point of time trading limit at client / member level


Yes, there is a maximum permissible limit on holding a particular commodity for client as well as member. It varies from commodity to commodity and exchange to exchange. Please see contract specification on exchange website for position limit at client and member level at www.ncdex.com and www.mcxindia.com.


Yes. As soon as the order is executed your trade book will also be updated simultaneously. In future we would work towards providing other mediums of alert such as SMS service.


Foreign Exchange is the trading of one currency against another. Professionals refer to this as foreign exchange, or use the acronyms Forex or FX. The financial asset constituting Forex are "currency-pairs" like Euro and US Dollar, or US Dollar and Japanese Yen, and so on.


(In the same way as Scripts constitute the Stock Market)


There is no central location of the Forex Market. It's an OTC market where trades are conducted on phone or through internet, so you can virtually put a trade from anywhere and anytime.


In terms of trading volume, the currency exchange market is the world's largest market, with daily trading volumes of nearly $2 trillion. For example, one of the largest Stock Exchanges in the world the New York Stock Exchange has a daily trading volume of approximately $60 billion.


The currency exchange market is a true 24-hour market, 5 days a week. There are dealers in every major time zone. Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.


Today, over 85% of all currency exchange transactions involve a few major currencies: the US Dollar (USD), Japanese Yen (JPY), Euro (EUR), Swiss Frank (CHF), British Pound (GBP), Canadian Dollar (CAD), and Australian Dollar (AUD). The most Liquid currency-pairs are EUR/USD, USD/JPY, GBP/USD, AUD/USD and USD/CHF.


The most often traded or ''liquid'' currencies are those of countries with stable governments, respected central banks, and low inflation.


The Forex Market is regulated through the regulation of the entities offering Forex Trading services.


For example, in USA, all the entities offering Forex Trading Services to its clients are regulated by National Futures Association (NFA) and Commodities Futures Trading Commission (CFTC).


In UK, entities offering Forex are governed by Financial Services Authority (FSA).


(In the case of Reliance Forex, the entity, HotSpot is governed by NFA and CFTC regulations.)


Yes. After RBI's circular dated November 04, 2004 on "Liberalized Remittance Scheme of USD 25,000" Indian Individuals may freely remit up to $25,000 per calendar year for any permissible current or capital account transaction or a combination of both.


This opens up a Window for Indian clients to remit funds abroad to do Forex trading.


The individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made. He has to furnish an application-cum-declaration in the specified format, called A2 Form, regarding the purpose of the remittance and declare that the funds belong to him and will not be used for purposes prohibited or regulated under the Scheme.


The investor is free to book profit or loss abroad and to invest abroad again. He is under no obligation to repatriate the funds sent abroad.


Once a remittance is made for an amount up-to USD 25,000 during the calendar year, he would not be eligible to make any further remittances under this route, even if the proceeds of the investments have been brought back into the country.


The rates of Currency-pairs are always quoted two-way, i.e. the quote would include Both Buy and Sell Price for a Currency-pair. Rates would typically appear as:


EUR/USD = 1.2001/1.2003 (or just 1.2001/03)


EUR/USD refers to the two currencies Euro (the European currency) and U.S. Dollar. The first is referred to as the base currency, while the second as the quote currency.


As a Trader you can buy or sell EUR/USD:


  • Buying EUR/USD means Buying Euro by Paying in USD;

  • SellingSelling Euro and Getting USD

  • If you are Buying EUR/USD, you will Buy it at the Offer/Ask Price on the Right side, i.e. @ 1.2003 USD per Euro.

  • If you are Selling EUR/USD, you will Sell it at the Bid Price on the Left Side, i.e. @ 1.2001 USD per Euro.e

  • You are Long in the currency you have Bought and Short in the currency you have Sold.

The Tradable Forex Rates are quoted by the Market Maker. The Market Maker, in-turn, gets these rates from the Banks they have tied up with.


So, whenever you are trading in a Forex Market, you are Buying From and Selling To the Market Maker.


Bid is the highest price that the market maker, is willing to pay for the particular currency at the moment; Ask/Offer is the lowest price that the market maker, is willing to accept for the particular currency. Together, the two prices constitute a quotation.


In our earlier example:


EUR/USD = 1.2001/1.2003 (or just 1.2001/03)


The Market Maker is willing to Pay, at the most, 1.2001 USD for every Euro you wish to sell; while he will take from you at least 1.2003 USD for every Euro you wish to buy.


Bid/Ask Spread is the difference between the Bid Rate and the Ask or Offer Rate. Spread is determined by the breadth and depth of the market for the concerned currency-pair as well as on the currency-pair's volatility. For currency-pairs, higher the Liquidity - Lower the Spread;


A typical Forex trading system will allow for a very high degree of leverage in its margin requirements, up to 100:1. The system will automatically calculate the funds necessary for current positions and will check for margin availability before executing any trade.


(Reliance Forex offers a Leverage of 100-times to its clients.)


Margin-trading has its own risks and rewards.


The good thing about margin is that, as an investor you are not required to put down the full value of the trade you got into. Instead, you are just required to put down a deposit known as "margin" which enables you to gear up your trade size to institutional level. In typical sense margin works as collateral with the broker through which your trade is getting executed. So, with a 1% margin you can take a position worth a 1000 USD by just blocking $10 out of your trading resources.


The risk of trading on margin is that, you may lose your entire deposit when the market moves against you, because, the leverage associated with the margin magnifies your losses


Forex Trading, per-se, involves no transaction costs. Clients are not charged any Brokerage or Commission.


Banking Costs are involved in Remittance of Money to a foreign bank account and Bringing Money back to India. These costs would depend on the Bank through which you do your remittance.


Operational Costs associated with Forex Trading is the "Roll-over Cost" or Carrying Forward Charges.


Forex is Foreign Exchange


Life insurance is designed to protect you and your family against financial uncertainties that may result due to unfortunate demise or illness. You can also view it as a comprehensive financial instrument as a part of your financial planning offering you savings & investment facilities along with cover against financial loss. By choosing the right policy as per your needs i.e. customised solutions, you will be able to plan for a secure future for yourself and your loved ones.


  • Choosing the right plan

Identifying the right plan basis your needs is the first crucial step towards insurance planning. Our financial consultants can help you with all the analysis to offer a customised solution by doing a thorough need analysis.Please contact our financial consultants to help you choose the right plan for you.


  • Analysing Needs

What is your need?


  • Protection
  • Need for a sound income protection in case of your unfortunate demise
  • Investment
  • Need to ensure long-term real growth of your money
  • Saving
  • Save for the milestones and protect your savings too
  • Pension
  • Need to save for a comfortable life post retirement

Once you have analysed your needs as per above classification, you need to then ascertain important factors such as type of cover, insurance amount as per one's income, life stage and dependents. It is difficult to arrive at all these figures yourself. Our financial consultants can help you with all the analysis to offer a customised solution by doing a thorough need analysis.


Please contact our financial consultants to help you choose the right plan for you.


The rates are applicable for the financial year 2016-17 and subject to enactment of the Finance Bill, 2016 Tax Implications on Dividend received by Unit holders


Individual/ HUF
Domestic Company
NRI
Dividend
Equity oriented
schemes
Nil
Nil
Nil
Debt oriented schemes
Nil
Nil
Nil
Tax on distributed income rates (payable by the MF scheme)**
Equity oriented
schemes*
Nil
Nil
Nil
Money market or Liquid schemes / debt schemes (other than infrastructure debt fund)
25% + 12% Surcharge + 3% Cess
30% + 12% Surcharge + 3% Cess
25% + 12% Surcharge + 3% Cess
= 28.84%
= 34.608%
= 28.84%
Dividend
Infrastructure Debt Fund
25% + 12% Surcharge + 3% Cess
30% + 12% Surcharge + 3% Cess
5% + 12% Surcharge + 3% Cess
= 28.84%
= 34.608%
= 5.768%

* Securities transaction tax (STT) shall be payable on equity oriented mutual funds at the time of redemption/switch to the other schemes/sale of units.

** For the purpose of determining the tax payable by the scheme, the amount of distributed income has to be increased to such amount as would, after reduction of tax on such increased amount, be equal to the income distributed by the Mutual Fund. In other words, the amount payable to unit holders is to be grossed up for determining the tax payable and accordingly, the effective tax rate would be higher.


Capital Gains Taxation


Individual/ HUF
Domestic Company
NRI
Equity Oriented Schemes ●Long Term Capital Gains (units held for more than 12 months) ●Short Term Capital Gains (units held for 12 months or less
Long term capital gains
Nil
Nil
NRI
Short term capital gains
15%
15%
15%
Other Than Equity Oriented Schemes ●Long Term Capital Gains (units held for more than 36 months) ●Short Term Capital Gains (units held for 36 months or less)
Long term capital gains
20%
20%
Listed - 20% Unlisted - 10%*
Short term capital gains
30%^
30%^
30%^

Tax Deducted at Source (Applicable only to NRI Investors) #
Short term capital gains
Long term capital gains
Equity oriented schemes
15%
Nil
Other than equity oriented schemes
30%^
10%* (for unlisted) & 20% (for listed

$ Surcharge at 15% to be levied in case of individual/ HUF unit holders where their respective income exceeds Rs 1 crore.

@ Surcharge at 7% to be levied for domestic corporate unit holders where income exceeds Rs 1 crore but less than 10 crores and at 12%, where income exceeds 10 crores.

# Short term/ long term capital gain tax will be deducted at the time of redemption of units in case of NRI investors. &After providing indexation.

* Without indexation and without taking into consideration foreign exchange fluctuation ^ Assuming the investor falls into highest tax bracket.

$ @ Education Cess at 3% will continue to apply on aggregate of tax and surcharge.

^^This rate applies to companies other than companies engaged in manufacturing business who are proposed to be taxed at lower rate subject to fulfillment of certain conditions. Further, the domestic companies are subject to minimum alternate tax not specified in above tax rates.

Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.

The Finance Bill, 2016 proposes to provide tax exemption to unit holders vis-à-vis transfer of units upon consolidation of the plans within a scheme of mutual fund in accordance with SEBI (Mutual Funds) Regulations, 1996.

In the absence of PAN of the investors, withholding tax / TDS applies at a higher rate if tax is deductible on the amount payable to such investor. The Finance Bill, 2016 proposes to provide relaxation to nonresidents from deduction of tax at higher rate in the absence of PAN subject to fulfillment of certain conditions.

Dividend Stripping: The loss due to sale of units in the schemes (where dividend is tax free) will not be available for setoff to the extent of tax free dividend declared; if units are:(A) bought within three months prior to the record date fixed for dividend declaration; and (B) sold within nine months after the record date fixed for dividend declaration. Bonus Stripping: The loss due to sale of original units in the schemes, where bonus units are issued, will not be available for set off; if original units are: (A) bought within three months prior to the record date fixed for allotment of bonus units; and (B) sold within nine months after the record date fixed for allotment of bonus units. However, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such unsold bonus units.



Mutual Fund investments are subject to market risks, read all scheme related documents carefully.