findocblog

Blog

  • Top Five Commodity Markets in India: Opportunities and Challenges for Traders

    Top Five Commodity Markets in India: Opportunities and Challenges for Traders

    India is one of the largest and most diverse commodity markets in the world, with a rich history of commodity trading those dates back to ancient times. India has four major commodity exchanges that facilitate online trading of commodities: Multi Commodity Exchange of India (MCX), National Commodity and Derivatives Exchange (NCDEX), Indian Commodity Exchange (ICEX), and National Multi Commodity Exchange of India (NMCE). These exchanges offer trading in various commodities across different segments, such as bullion, energy, agricultural products, metals, spices, guar complex, and others.

    What is Commodity Trading?

    Commodity trading is the buying and selling of raw materials or primary products that are used in various industries, such as agriculture, energy, metals, and softs. Commodity trading can be done in two ways: spot market and futures market. In the spot market, the commodity trade happens immediately, in exchange for cash or other commodities. In the futures market, the commodity trade is based on contracts that specify the quantity, quality, price, and delivery date of the commodity in the future. However, commodity trading is majorly done through futures contracts.

    In this article, we will discuss the top five commodity markets in India and the opportunities and challenges for traders in each market.

    1. Bullion Market

    The bullion market refers to the trading of precious metals, such as gold and silver. The bullion market is one of the most popular and liquid commodity markets in India, as it attracts a large number of investors, traders, hedgers, speculators, and arbitrageurs. The bullion market is mainly traded on MCX, which offers futures contracts on gold, silver, and platinum. The market offers a hedge against inflation and currency devaluation and a wide range of products and strategies for traders. However, it still has many challenges as well.

    Challenges:

    • The bullion market is highly volatile and unpredictable, as it is affected by various global and domestic factors that are beyond the control of traders. Price volatility in the international markets, import duties, and changing consumer preferences pose challenges that traders need to navigate skilfully.
    • The prices of bullion are influenced by various factors, such as global demand and supply, geopolitical events, currency fluctuations, inflation, interest rates, and market sentiments.

    2. Energy Market

    The energy market refers to the trading of energy products, such as crude oil, natural gas, gasoline, heating oil, etc. The energy market is one of the most dynamic and influential commodity markets in India, as it affects the economy and various sectors that depend on energy consumption, and has also been underway reform for the past few years. It offers a high growth potential for traders who want to capitalize on the increasing demand for energy products in India and globally. The energy market is mainly traded on MCX, which offers futures contracts on crude oil, natural gas, gasoline (petrol), heating oil (diesel), etc.

    Challenges:

    • Both Metal and energy markets are highly affected by international affairs and geopolitical situations.
    • The prices of energy products are influenced by various factors, such as global demand and supply, production levels, inventory levels, geopolitical events, environmental issues, technology innovations, and market sentiments.
    • Fluctuations in oil prices and shifts toward renewable energy sources can introduce volatility and require adaptive trading approaches.

    3. Agricultural Market

    The agricultural market refers to the trading of agricultural products, such as grains, pulses, oilseeds, spices, fibres, etc. The agricultural market is one of the most diverse and important commodity markets in India, as it affects the livelihood of millions of farmers and consumers. The agricultural market is mainly traded on NCDEX, which offers futures contracts on various agricultural products, such as wheat, rice, maize, soybean, mustard seed, cotton, castor seed, etc. This market has high growth potential for traders and also offers a wide range of products and strategies for traders to suit their risk-reward preferences, such as options, spreads, calendar spreads, etc.

    Challenges:

    • The agricultural market is highly volatile and unpredictable, as it is affected by various natural and human factors that are beyond the control of traders.
    • Factors such as erratic weather conditions, pest outbreaks, and infrastructural limitations can impact agricultural yields and influence trading outcomes.

    4. Metals Market

    The metals market refers to the trading of metals, such as copper, zinc, lead, nickel, aluminium, etc. The metals market is one of the most active and liquid commodity markets in India, as it attracts a large number of industrial users and investors. The metals market is mainly traded on MCX, which offers futures contracts on various metals. The market offers a high-leverage opportunity for traders who want to take advantage of price movements with a small margin requirement.

    Challenges:

    • Economic downturns, supply disruptions, and market speculations can contribute to base metal price fluctuations, demanding vigilant risk management.
    • The prices of metals are influenced by various factors, such as global demand and supply, industrial production, inventory levels, geopolitical events, currency fluctuations, interest rates, and market sentiments.

    5. Spices Market

    The spices market refers to the trading of spices, such as pepper, cardamom, chilli, ginger, turmeric, etc. The spices market is one of the unique and niche commodity markets in India, as it reflects the rich cultural and culinary diversity of the country. The market offers a social benefit for traders who want to contribute to the development and welfare of the spice growers and exporters. The spices market is mainly traded on NCDEX and ICEX, which offer futures contracts on various spices.

    Challenges:

    • The spices market is highly volatile and unpredictable, as it is affected by various natural and human factors that are beyond the control of traders.
    • Unfavourable international trading situations can potentially affect the Spice market.

    Commodity trading in India is well-regulated and closely monitored by SEBI. Markets also have their own governing bodies and exchange boards. Each participant must abide by the rules and regulations of fair trade. Trade in commodities offers a diversification benefit for portfolio management. However, the complex tax rules might disinterest some investors.

    Frequently Asked Questions

    1. How does the rapid reshaping of global trading patterns affect the market?

    Rapid reshaping of global trading patterns highly affects the market; hence, traders should be well-informed before investing. Global and domestic factors are beyond the trader’s control hence a highly volatile and unpredictable market.

    2. How do regulatory changes and interventions affect commodity markets?

    Commodity markets are subject to regulatory changes and interventions by the government and central banks that can impact the price movements and liquidity of the market.

    3. What are some risks associated with commodity markets?

    All commodity markets are exposed to counterparty risk and delivery risk, as there may be instances of default or delay by the buyers or sellers of the contracts, also are subject to transaction costs and taxes that can reduce the profitability of the trades.

    4. What factors affect Agriculture and Spice markets in commodity trading?

    Both Agriculture and Spice markets are affected by various natural and human factors. Natural calamities such as drought, and flood can make a real-time sudden surge in the price of the available product. For example- the price hike of tomatoes this year could be traced back to the sudden rise in temperature in March-April and the leaf curl virus.

    5. What factors affect Metal and energy markets in commodity trading?

    Both Metal and energy markets are highly affected by international affairs and geopolitical situations. The global economy, supplies and policies make a huge impact on the commodity market. For example- changes in global trade policies or conflicts between nations can impact the availability and price of metals and energy commodities.

  • Algo Trading Backtesting Techniques: Ensuring Strategy Robustness

    Algo Trading Backtesting Techniques: Ensuring Strategy Robustness

    Algorithmic trading, or Algo trading, is a process for traders to make data-driven decisions. It comprises the use of a few computer programs to make decisions based on the market movement. Automated trading offers benefits like speed, accuracy, consistency, and less human errors. However, like any program, there are a few challenges and risks involved, such as technical errors, market changes, regulations, and strategy failures. And this is where algo backtesting comes to rescue.

    Algo backtesting allows traders to test their theories and algorithmic trading strategies before going live on the market. It is the process to simulate the performance of a trading strategy using historical data. Algo Backtesting can help the traders,whether a scalper trader or long-term investor, evaluate the profitability, risk, and robustness of their strategies under different market conditions before even deploying the strategies into the live market.

    However, algo backtesting is not a foolproof method to guarantee success in algo trading. In this article, we will discuss some of the common algo backtesting techniques and methods that algo traders can use to validate and improve their strategies.

    Also Read: What is Algo Trading

    Why Backtest Your Strategy?

    Backtesting is an important stage of creating a profitable trading strategy. It helps you test your approach with old market data before actually implementing it in real-time. Through this process, you can analyse your strategy and see how it would have performed under various market conditions. This can help you know the strengths, weaknesses, and possible risks involved. Backtesting also gives feedback regarding major performance factors like profitability, win rate, drawdowns, and risk-reward ratios. This assists in fine-tuning and optimising the strategy for improved performance.

    Without backtesting, traders risk entering the market blindly, which may lead to losses. A well-tested strategy boosts confidence, cuts down on emotional trading, and makes sure that your trades are not made on guesswork but out of data-driven knowledge. In a nutshell, backtesting closes the gap between theory and reality so that you can trade with discipline and increased opportunities for long-term success.

    Types of Algo Backtesting Techniques

    There are various types of algo backtesting techniques that traders can use to test their strategies. Some of the common types are:

    1. Walk Forward Backtesting

    This is a type of algo backtesting that involves testing a strategy on multiple sets of historical data that are also divided into in-sample and out-of-sample periods. In walk-forward backtesting, the strategy is optimized in the in-sample period and then tested in the out-of-sample period.

    This process is repeated for different combinations of in-sample and out-of-sample periods. Walk-forward backtesting can provide a more realistic and robust way to evaluate a strategy’s performance in different time periods. However, walk-forward backtesting can also be time-consuming and complex to implement and analyse.

    2. Out of Sample Testing

    This is a type of algo backtesting that involves testing a strategy on a set of historical data that is not used for optimization or calibration. Out-of-sample testing can provide a way to validate a strategy’s performance on unseen data that is independent of the optimization process. Out-of-sample testing can help to avoid over-fitting and data snooping bias. However, out-of-sample testing can also be insufficient and inaccurate if the out-of-sample data is not large enough or diverse enough to capture future market conditions.

    3. Sensitivity Analysis

    This is a type of algo backtesting that involves testing a strategy’s performance under different values of its parameters and settings. Sensitivity analysis can provide a way to measure a strategy’s robustness and stability under different market scenarios. Sensitivity analysis can help to identify the optimal and robust values of the strategy’s parameters and settings. However, sensitivity analysis can also be tedious and challenging to perform and interpret.

    4. Monte Carlo Simulation

    This is a type of algo backtesting that involves testing a strategy’s performance under different random scenarios that are generated by a statistical model. Monte Carlo simulation can provide a way to measure a strategy’s performance under various possible outcomes that are not captured by historical data. Monte Carlo simulation can help to estimate the probability and magnitude of the strategy’s returns, risks, and drawdowns. However, Monte Carlo simulation can also be computationally intense and dependent on the quality and validity of the statistical model.

    Key factors to consider

    Before starting backtesting, it’s important to set the right foundation. Rushing into it without preparation can give misleading results. Here are some factors to keep in mind:

    • Consider Market Conditions: Market behaviour changes over time. A strategy that worked in a bullish (rising) market may fail during a bearish (falling) trend. Traders must backtest across different conditions to see if the strategy is flexible.

    • Account for Trading Costs: Brokerage fees, taxes, and slippage (the small difference between expected and actual trade price) can affect profits. Ignoring these can make the strategy look more successful than it truly is.

    • Set Risk Management Rules: Backtesting is not just about profits. It’s also about how much you could lose. Adding stop-loss levels or risk per trade guarantees that the results are realistic based on trading discipline.

    Additionally, traders should also focus on account setup. If you are new to trading, the first step is to open a Demat Account that allows you to execute trades securely. Platforms like Findoc provide the option to open free demat account online in just a few steps, making it easy to start algo trading confidently.

     

    Also Read: What is a Demat Account?

    Steps to Backtest a Trading Strategy

    To simplify backtesting, let’s divide it into a step-by-step guide:

    1. Define Your Trading Strategy

    A trading strategy includes rules for entering and exiting trades. For instance, a strategy can indicate “buy when the stock crosses above its 50-day average and sell when it falls below.” Without having a specific set of rules, backtesting cannot provide accurate insight.

    2. Choose Historical Data

    Select a stock or index and decide the time period you want to test. If you’re testing short-term strategies, a few months of minute-by-minute data may be required. For long-term strategies, several years of daily data may be enough.

    3. Run the Backtest

    Using either software or manual spreadsheets, apply your strategy to the past data. Record each trade, including buy price, sell price, and profit or loss.

    4. Analyse the results

    If the results are not promising, tweak the rules slightly and test again. For instance, you may change the stop-loss from 5% to 3% or adjust your entry signal.

    By following these steps, traders can simulate how their strategy might perform without risking money in the live market.

    Challenges in Algo Backtesting

    Algo backtesting offers numerous benefits but also involves various challenges and limitations for algo traders, such as:

    i. Overfitting and data snooping bias

    Excessive optimization, inadequate data, or improper testing methods can result in overfitting and data snooping bias. Creating a strategy that fits the historical data more than it should might fail to produce results in the future. The same historical data for multiple tests and optimizations can lead to false discoveries and spurious results.

    ii. Ignoring transaction costs

    Transaction costs are the costs associated with executing a trade, such as commissions, fees, slippage, etc. Transaction costs can have a significant impact on the profitability of a strategy, especially for high-frequency or low-margin strategies. Ignoring transaction costs in algo backtesting can lead to unrealistic and inflated results that do not reflect the actual performance of a strategy in the live market. Your trade might be profitable, but the end result might result in a negative balance.

    iii. Market assumptions and limitations

    Market assumptions are the simplifications or approximations that are used to model the market behaviour and dynamics in algo backtesting. Market assumptions and limitations can affect the accuracy and reliability of the algo backtesting results, as they may not capture the complexity and uncertainty of the real market.

    Ensuring Strategy Robustness

    Stock market is always volatile and ensuring that a strategy will always work based on such dynamic data would require a set of strategies, not just one. However, here are some set-up parameters to keep in mind:

    • Define clear and conscious rules specifying entry, position sizing, target and stop-loss levers. Clarity in parameters ensures consistency and reproducibility during testing.
    • The choice of market, whether stocks, forex, or commodities, and the timeframe, such as daily, hourly, or minute charts, significantly influences the strategy’s performance and suitability. Create a unique strategy for each market/trade.
    • The shifts or transitions in the market behaviour and dynamics that occur over time can affect the performance of a strategy, as it may not adapt or adjust to the new market conditions.
    • With parameters set, historical data is utilized to identify potential trades. The historical period chosen should align with the intended trading horizon. Trades are then marked based on entry and exit signals generated by the strategy.
    • Algo traders should always include realistic and updated slippage and latency estimates in their algo backtesting process and analysis.
    • Always keep the transaction cost in mind, especially for high-frequency or low-margin strategies. To evaluate profitability, calculate the gross return by tallying all trades, considering both wins and losses. Net return, a more realistic measure, is obtained by deducting commissions and trading costs from the gross returns.

    Interpreting Backtesting Results

    Running the test is just the first step. The real value comes from analysing the results carefully. Here’s what to focus on:

    • Profitability: How much profit did the strategy generate? While high profits look attractive, they must be consistent across different timeframes.

    • Risk and Drawdowns: A strategy that doubles money but faces frequent heavy losses may not be suitable for beginners. Check how deep the losses went and how long it took to recover.

    • Consistency: Did the strategy work only in one type of market (bullish, bearish, or sideways)? Consistency across conditions is key for long-term success.

    • Trade Frequency: Some strategies may show profits but require hundreds of trades, leading to high costs. Analysing trade frequency helps to check if the method is practical.

    • Comparison with Benchmark: Compare the performance against a benchmark index like Nifty 50 or Sensex. If your strategy underperforms the benchmark, it may need adjustments.

    In short, analysing results is about balancing risk and reward while checking if the strategy is realistic for live trading.

    How Backtesting Differs from Scenario Testing

    Backtesting and scenario testing are both techniques for analysing trading strategies, but they are used for distinct purposes. Backtesting uses historical market data to check how a strategy would have performed in the past. It focuses on real, recorded market movements. In contrast, scenario testing examines how a strategy might react to hypothetical or extreme market conditions, such as crashes or sudden volatility. Though backtesting indicates previous success, scenario testing gets traders ready for the unforeseen future events.

    Backtesting vs Paper Trading

    Backtesting and paper trading are both complementary tools for traders, but differ in approach. Backtesting evaluates a strategy based on historical market data to check how it would have performed in the past. It is fact-based and allows for strategies to be refined quickly. However, paper trading tests strategies on real-time market conditions without using actual money. It focuses on implementation, timing, and emotional control. In simple terms, backtesting provides for academic insights, while paper trading gives hands-on experience prior to investing real money.

    Algo backtesting is an essential step for trading success, as it helps to test and validate the validate the best algorithmic trading strategies before deploying them in the live market. However, it is not a foolproof technique to guarantee a return. Like any other strategy, Algo backtesting also suffers from limitations, bias and inaccurate market comprehension. Updating the strategies regularly as per market dynamics would help investors with better gains.

    Frequently Asked Questions

    1. How to choose the appropriate data, frequency, and time period for algo backtesting?

    Backtesting data and strategies are created according to the market, target stock, and goals. For example, if you are planning to hold for over a month or so to achieve your target, go for a strategy designed for a long-term period. The quality and accuracy of the data play a crucial role. It is important to select high-quality data, that is, data without any errors only from trusted sources for the utmost accuracy.

    2. How to compare different algo backtesting methods and software?

    The difference lies in multiple factors such as cost, ease of use, features, and capabilities. For example, some algo backtesting software may have more advanced features or support for more asset classes than others. Investors are advised to read reviews and comparisons of different algo backtesting tools to make an informed decision.

    3. How to account for transaction costs, slippage, and market impact in algo backtesting?

    These factors would influence the end profit/loss. Incorporating these in your strategy in the algo backtesting model would fetch the accuracy. This can be done by including estimates of transaction costs such as commissions and fees in your calculations. You can also model slippage by incorporating the difference between the expected execution price and the actual execution price into your calculations.

    4. How to evaluate the performance and robustness of a strategy?

    Testing your backtesting strategy on various performance metrics would help you evaluate the end result. This is advised to use various affecting variables such as net profit, desired return, Sharpe ratio, transaction cost and maximum drawdown etc. Then compare the results to see how well the strategy performed under different market conditions and assess its consistency over time.

    5. What are the benefits and limitations of algo backtesting?

    The idea of algo backtesting is to be able to test a trading strategy without risking any actual capital. A good strategy prepares investors for different market circumstances before investing any money. However, there are also limitations to algo backtesting such as the fact that past performance is not necessarily indicative of future results. There can be multiple events in the real-time market that did not happen in the past.

  • Top Reasons to Consider Investing in the Sovereign Gold Bond Scheme

    Top Reasons to Consider Investing in the Sovereign Gold Bond Scheme

    Gold has always been considered a safe haven for all investors. If you just ask your parents or grandparents, you will realise that they have always purchased gold not only as jewelleries but also for investment purposes. However, holding physical gold is a tedious job. There are a lot of threats and risks of having gold in physical form at your residence or even in the bank locker. Here, the sovereign gold bond comes in.

    What is a Sovereign Gold Bond?

    Sovereign Gold Bonds (SGBs) can be defined as securities offered by the government, which are denominated in units of gold. In simple words, these bonds are substitutes for physical gold and serve the same purpose of investment. These bonds are purchased with cash and when they are redeemed that the investors get back the maturity amount in cash as well.

    Reserve Bank of India issues these bonds on behalf of the government and the last issue was in June, 2023. The subscription was open for the last tranche of SGBs from 19th June, to 23rd June 2023, and the issue price was Rs. 5926 per gram of gold. However, the investors who applied online for this issue were offered a discount of Rs. 50 per gram.

    As sovereign gold bonds are debt instruments, the primary return on investing in these bonds is from the interest received. As these are government bonds, so you can be assured about the interest income on a regular basis along with timely redemption and refund of the amount invested.

    Reasons to Invest in Sovereign Gold Bond

    There are eight most important reasons to invest in sovereign gold bonds. Here they are –

    1. Regular interest income: Under the sovereign gold bond scheme, the best part of investing in SGBs is that you earn a regular interest from these bonds, which is currently fixed by the RBI at 2.5% p.a. and this is calculated on the nominal values of the bonds. The interest is payable every six months which is semi-annually.
    2. Appreciation of Invested funds: The value of sovereign gold bonds is determined based on the market price of physical gold. So, at the time of redemption of these bonds, if the price of the gold is higher than the price at the time of purchase, you can also see an appreciation in your investment value. So, there are dual profits, one from the interest amount and then from the appreciation of the gold value.
    3. No hassle of holding physical gold: In earlier times, when our parents used to invest in gold, they had to buy bank lockers for keeping the gold jewellery, or gold bars safe, or lockers at home for the same purpose. Keeping physical gold at home or even in bank lockers is never safe, as there are high chances of theft, burglary, misplacement, and other issues. With SBGs, while you get the exact benefit of having physical gold in terms of value and also interest income, you do not have to think about its safety.
    4. Exempted from capital gain taxes: The capital gains arising from the redemption of SGBs are exempted from capital gain taxes. Moreover, there is an indexation benefit for long-term investments in these bonds.
    5. Nomination facility: You can nominate your loved ones or anyone you trust for SGB investments you have.
    6. Collateral security: In India, gold loan is quite popular and even with SGBs, you can avail of a gold loan. Yes, SGBs can be used as collateral for availing of a loan like any other collateral security or gold in the gold loan. RBI decides the loan-to-value again, and it changes from time to time.
    7. No Hefty Making Charges: Hardly people keep gold in bar form, most of us buy jewelleries, which we can use as ornaments as well as investments in times of crisis. However, making charges for gold jewellery is pretty high, which increases your outlay of funds, and reduces the return. With sovereign gold bonds, you do not have to pay those hefty making charges; instead, you can buy more of the bonds and increase your investment value.
    8. No GST: Similarly, there is no GST applicable on sovereign gold bonds, unlike its physical counterpart. Whether you purchase gold jewellery, bars or coins, you have to pay high GST. With Digital gold, the GST is 3% but it is there. Only with SGBs, there is no GST on gold purchases.
    9. Liquidity: Finally, SGBs are quite liquid investments, they are listed on the stock exchanges and thus can be traded as well.

    Things to Keep in Mind While Investing in Sovereign Gold Bond

    While sovereign gold bonds are great as investments, especially during a crisis, there are certain things you need to keep in mind before you invest in these bonds –

    • While capital gains are exempted from capital gain taxes, you have to hold them for at least eight years to be eligible for the exemption. If you redeem the SGBs before eight years, the capital gains (if any) will be taxable.
    • The interest received on these bonds is not exempted. You have to pay tax as per your income tax slab on the interest income from SGBs.
    • Though SGBs are listed and traded on stock exchanges like NSE and BSE, the trading volumes are very low leaving no room for liquidity.
    • You cannot redeem the SGBs as and when you want. You have to wait for the maturity date and then the government will open the repurchase window every five years.

    Final Thoughts

    As the world is predicting a recession or a slowdown to hit in the coming years, it can be beneficial to invest in sovereign gold bonds as they can help you as a cushion from financial shock, not only during a slowdown but also for other reasons, if you enter into a financial crisis.

  • Understanding the Benefits of Investing in Sovereign Gold Bonds

    Understanding the Benefits of Investing in Sovereign Gold Bonds

    Gold is one of the most popular and valuable assets in the World. It is considered as a safe-haven, a hedge against inflation, and a store of wealth. However, investing in physical gold comes with some challenges and risks, such as storage, security, purity, making charges, and taxation. Even if you buy a coin and avoid a few, storage and security still remain in the picture. So, is there a better way to invest in gold without these hassles? The answer is yes.

    There are a few popular substitutes for holding a physical gold. One of them is Sovereign Gold Bond. The Government of India, in consultation with the Reserve Bank of India (RBI), launched the Sovereign Gold Bond (SGB) scheme in 2015. This scheme allows investors to buy government securities denominated in grams of gold. It is considered one of the best substitutes for holding physical gold because of several advantages. Let’s discuss those first.

    Benefits of Investing in SGB:

    1. Capital Appreciation

    The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption or premature redemption. The investor does not lose in terms of the units of gold which he has paid for.

    2. Interest Income

    The investor also earns a fixed interest of 2.5% per annum on the amount of initial investment. This interest is paid semi-annually to the investor’s bank account.

    3. Tax Benefits at Maturity

    There is no tax deducted at the source (TDS) on the interest payments. Moreover, there is no capital gains tax on the redemption of SGBs if they are held till maturity. The capital gains arising from transfer of SGBs before maturity are also eligible for indexation benefits.

    4. Convenience and Safety

    An investor does not have to worry about the storage, security, purity, or making charges of physical gold. The SGBs are held in the books of the RBI or in demat form, eliminating the risk of loss or theft. The investor also gets a holding a certificate as a proof of investment.

    5. Liquidity and Tradability

    The SGBs have a tenure of eight years, with an option to exit from the fifth year onwards on the interest payment dates. The investor can also sell or transfer the SGBs in the secondary market through stock exchanges. The price and liquidity of SGBs depend on the prevailing market conditions and demand and supply factors.

    6. Collateral Value

    The SGBs can be used as collateral for availing loans from banks and other financial institutions. The loan-to-value ratio will be as per the RBI guidelines.

    How to Invest in SGB?

    The SGBs are issued by the RBI on behalf of the Government of India in tranches throughout the year. The RBI notifies the terms and conditions for each tranche, such as the issue price, subscription period, date of issuance, etc. The investors can apply for sovereign gold bond online through investment platforms or stock exchanges. One can also apply for SGBs at designated banks and post offices.

    The minimum investment in SGBs is one gram of gold and the maximum limit is 4 kg for individuals and Hindu Undivided Families (HUFs) and 20 kg for trusts and similar entities per fiscal year (April-March). The bonds are issued in multiples of one gram of gold.

    The issue price of SGBs is based on the simple average closing price of gold (999 purity) published by India Bullion and Jewellers Association Limited (IBJA) for three working days preceding the subscription period.

    The investors can pay for SGBs through cash (up to Rs 20,000), cheque, demand draft, electronic fund transfer, or online mode.

    An investor can choose to hold SGBs either in physical form or in demat form. If they opt for demat form, they have to provide their demat account details at the time of application.

    Here are a few examples to look for –

    Series Name Face Value NSE Code Interest Rate Market Price
    2022-23 Series IV Rs 5,611 SGBMAR31IV 2.50% Rs 5,100
    2022-23 Series III Rs 5,409 SGBDE30III 2.50% Rs 4,900

    **The market price of SGBs may vary depending on the demand and supply factors and the prevailing gold price. The investors should do their own research and analysis before investing in SGBs.

    Frequently Asked Questions

    1. Are minors eligible to invest in SGBs?

    Yes, minors can invest in SGBs. The application on behalf of the minor has to be made by his/her guardian.

    2. How to pay for SGBs?

    The investors can pay for SGBs through cash (up to Rs 20,000), cheque, demand draft, electronic fund transfer, or online mode.

    3. Can SGBs be transferred or sold once purchased?

    Yes, SGBs can be transferred or sold in the secondary market through stock exchanges. The price and liquidity of SGBs depend on the prevailing market conditions and demand and supply factors.

    4. Can NRIs (Non-Resident Indians) Invest in Sovereign Gold Bonds?

    No. NRIs can’t invest in Sovereign Gold Bonds.

    5. Can I Use Sovereign Gold Bonds as Collateral for Loans?

    You can use these as collateral just like a physical gold. The amount of money you can borrow will depend on the value of the gold, which is set by the Reserve Bank from time to time.

    6. Is nomination possible in SGBs?

    Yes, nomination is possible in SGBs. The nomination form can be obtained from the issuing banks or post offices or downloaded from the RBI website.

    7. Is there any tax deducted at the source (TDS) for SGBs?

    No, there is no TDS applicable on the interest payments or the redemption amount of SGBs (conditions apply).

  • Introduction to Options Trading: A Beginners Guide

    Introduction to Options Trading: A Beginners Guide

    Everyone like to have options so that they can choose as per their wish. This is what options trading gives you, the option to choose. In the stock market, or to be specific derivatives market, options are like the ruler, with all the power and no obligations.

    However, for beginners, option trading may seem a bit complex, as there are a lot of things to keep in mind while trading options. That said, options are also one of the best ways to trade in the market without putting in a lot of money, however, that doesn’t restrict your profit potential. Let us find out how and to do that, we need to dig deeper.

    What are the Options and Option Trading?

    Options are derivative contracts, which are used to speculate the price of the underlying asset and trade accordingly. These derivative contracts offer the buyer the right to buy or sell the underlying asset at a specified date for a pre-determined price. While you get the right to buy or sell the underlying asset, there is no obligation to do it. This is the feature that makes options most sought after.

    So, Options trading can be defined as the trading process of buying and selling these option contracts.

    Types of Options

    Call option: Call option offers the ‘right to buy’ the underlying asset at a predetermined price on a specified date, without any obligation. Traders purchase the call option when they think the price of the underlying asset may go up in the future. So, in order to make a profit, they buy call options by paying a premium, which gives them the right to buy the underlying asset at a future date for a pre-determined price.

    Suppose, you think the price of stock A will go up next month as the company is coming up with new products, which have huge demand in the market. Let’s say, the current price of stock A is Rs. 1000. You are anticipating the price of the stock to go up to Rs. 1200 next month. Therefore, you buy the call option at a strike price of Rs. 1050. You bought five lots, and each lot has 100 stocks, and the premium you paid is Rs. 2000 each, which means a total of Rs. 10000, paid as a premium.

    Now there can be two scenario:

    Scenario 1: Price of stock A goes up to Rs. 1250 next month

    If this happens, then you can execute your call options, and buy 500 units of stock A at a price of Rs. 1050.

    Buying price = Rs. 1050*500 = Rs. 525000

    Premium paid earlier = Rs. 10000

    Total investment = Rs. 535000

    You can sell the shares at a price of Rs. 1250 each.

    Selling price = Rs. 1250*500 = Rs. 625000

    Net profit = Total Investment – selling price

    = Rs. 625000 -535000

    = Rs. 90000

    Scenario 2: Price of stock A decreases to Rs. 950 next month

    Now, since, the price drops against the expectation, you choose not to execute the contract. As there is no obligation to execute the contract on the contract buyer.

    Thus, your total loss would be the amount of premium paid in this case which is Rs. 10000.

    However, if you had invested in the stock instead of buying the call option, then

    • First, you had to invest Rs. 525000 at one go for buying 500 shares at Rs. 1050 each.
    • Secondly, if the price drops to Rs. 950 each, then your loss would have been Rs. 100 per share. Therefore the total loss would have been Rs. 100*500 = Rs. 50000.

    So, instead of losing Rs. 50000, you lost Rs. 10000, which is much better, isn’t it?

    Put Option: When you believe or anticipate the price of an asset to go down, you can buy a put option as this derivative contract gives you the right to sell an underlying asset at a predetermined price on a specified date, without any obligations of executing the contract.

    Again let’s understand this with an example;

    Suppose, you think the price of stock B will decrease in September 2023, as the company is not performing well in this quarter. So, purchase five Put options, by paying a premium of Rs. 2000 each, which makes it Rs. 10000 in total. The lot size of each put option is 100 shares. Thus, you can sell 500 shares at the end of the contract. Now, the current market price of stock B is Rs. 1000, and you think it will come down below Rs. 900 each by September. Therefore, the put options you bought have a strike price of Rs. 1000 for each share.

    Here, like above, can be two scenarios;

    Scenario 1: The price of stock B goes down to Rs. 850

    Since the price of the stock has come down as per your anticipation, you will execute your contract.

    To buy 500 shares, your investments would be Rs. 850*500 = Rs. 425000

    Selling price = Rs. 1000*500 = Rs. 500000

    Gross profit = Rs. 500000 -425000 = Rs. 75000

    Premium paid = Rs. 10000

    Net profit = Rs. 65000

    Scenario 2: Price of stock B goes up to Rs. 1100

    In this case, you can choose not to execute the contract and your loss would be limited to Rs. 10000 which is the premium amount paid by you.

    Suppose, you had short-sell 500 units of stock B at Rs. 1000, you had made Rs. 500000 then. However, if the price went up to Rs. 1100, for squaring off your position, you had to buy stock B at Rs. 1100 each, which means, an outlay of Rs. 550000. Therefore, in this case, your loss would have been Rs. 50000.

    The Extent of Profit and Loss

    • In the case of a call option, the maximum profit can be infinite for the call option buyer. This is because the price of the underlying asset can go up to any extent, and thus, there is no upper limit on the profit.
    • In the case of a put option, the maximum profit for the option buyer is the difference between the strike price of the contract and Rs. 0 as the price of the underlying asset cannot go below that.
    • The losses in both cases can be up to the amount of premium paid.

    Important Concepts of Option Trading

    In option trading, there are certain terminologies and concepts which you need to keep in mind. These include –

    • Strike Price: This is the price, which is determined at the time of drawing the option contract at which the buyer of the option contract will be able to buy or sell the underlying asset. As per the example for a put option, the strike price is Rs. 1000 which means the put option buyer, can sell the underlying asset which is stock B in that example at a price of Rs. 1000 when the market price has dropped to Rs. 850.
    • Expiration date: The contract will become executable on this date. It is also the expiration date and this is specified at the time of making the contract. Suppose, in the above example, the expiration date is 9th September, then on 9th September, if the price is below the strike price, and the option buyer is willing to execute the contract, he or she can. However, if not, then it will expire.
    • Premium: The premium is the amount you pay in order to purchase the option. In the above example, Rs. 5000 is the total premium paid for buying the five lots of put option. The premium is determined on the basis of the price of the underlying asset and values.
    • Intrinsic Value: in options trading, intrinsic value means the gap between the strike price of the option contract and the present market price of the underlying security. So, in the above example of a call option, the gap between the strike price and the current market price is Rs. 50 which is the intrinsic value.
    • Extrinsic value: This value is a qualitative measure of representing factors like is the premium amount for the contract is justifiable or not, how long the option will be good, and other such factors, which are not considered by the intrinsic value.
    • In-the-money option: If an option contract is profitable depending on the price of the underlying security and the time until expiration, then it is known as an in-the-money option. In the above, example, the time of expiration is in September. The strike price is Rs. 1000 and the underlying security’s price was Rs. 1000 at the beginning of the contract. So, the option will be in-the-money until the market price of the underlying security doesn’t go above the Rs. 1000 mark. Since, it is a put option, where you will make a profit when and if the price of the underlying security goes down. Therefore, it will be in-the-money until the price of the underlying security doesn’t go above the strike price.
    • Out-of-the-money Option: This is when the option contract becomes unprofitable. Going by the above put option example again, if the price of the underlying security goes above the strike price of Rs. 1000, then it will become an out-of-the-money option, as the price went up against your anticipation of price going down.

    How to Start Options Trading?

    If you are starting with options trading, then here are the steps you need to follow.

    • Firstly, you need to have an online trading account, which you can easily open with our quick and easy, paperless account opening process.
    • Now the next step is crucial, where you start finding those securities, which have the potential upside and downside. Once you find the same, you need to anticipate whether the price will go up or down in the future. If you think it will go up, you have to buy the call option and if you think it will go down you will have to purchase put options.
    • Then you need to determine the strike price of the option contract and also analyse if the premium that you have to pay is reasonable or not.
    • Next, you need to determine the period for the potential rise or decrease in the price. This is required for deciding the expiration date of the contract.
    • Once all these are sorted, you pay the premium and buy the options.
    • Now, upon expiration, if the options are in-the-money, then you can execute them and make a profit, while if they become out-of-the-money, then you can choose not to execute them.

    So, this is how you start options trading in the beginning and once you grow, you can learn new option trading strategies to generate better results.

    Option Trading Strategies for Beginners

    As a beginner in the option-trading arena, you can use the following three option-trading strategies to your benefit.

    Long call: This is one of the basic options trading strategies that beginners can use while trading options. Here you have to buy call options when you think the price of the underlying security will increase in the near term. Since you have to buy the call option, it is known as the ‘going long’ on-call option and thus, long call. In this strategy, there is no cap on the profit, while the loss is limited to the amount of premium paid.

    Long Put: When you expect the price of the underlying security to do down in the near future, you can buy put options, which is known as long put as you are ‘going long’ on the put option.

    Covered call: This options trading strategy is a little advanced where you have to sell a call option which means you are ‘going short’ as you expect the price of the underlying security to reduce but to protect yourself from the losses, you also buy underlying security equivalent to the number of units in the call option sold by you. You receive the call option premium as you sell the option in this strategy.

    Now if the price of the underlying security decreases below the strike price, as expected by you, then the call option buyer will not execute the contract, so, you do not have to sell the underlying securities and your profit is the premium you have received. On the contrary, if the price of the underlying security goes up against your expectation, then you sell the securities you have bought to the call option buyer at the strike price and the premium is retained by you, which is your profit.

    Why You Should Consider Options Trading?

    • Infinite returns: The maximum profit that one can make with options, especially the call option has no upper limit. It can go up to any extent as the price of the underlying security can increase in that way. Even in the put option, one can make a profit to the extent of the price of the underlying touching the floor.
    • Low Cost High Return: While the return potential is superb with options trading, the cost of trading these instruments is limited to the premium amount. This helps traders to generate higher returns without investing a lot of money.
    • Lower Risk Potential: The risk potential of the options is limited to the amount of premium paid.
    • Multiple strategies: There is a wide range of option trading strategies, which the traders can pick to enhance their trading and generate positive returns.

    Conclusion

    While buying or selling securities directly can help you make good returns, the downside is too risky as well and thus, trading options become more sensible to mitigate the risk to quite an extent while increasing the profit potential. However, you need to be cautious and evaluate everything before you start trading options.

  • Choosing the Right Platform to Open a Demat Account: Key Factors to Consider

    Choosing the Right Platform to Open a Demat Account: Key Factors to Consider

    Investing in the stock market has become easier and more convenient in today’s digital age. One important step is to open a dematerialized (demat) account, enabling investors to electronically hold and trade securities. The traditional method of physical share certificates has been replaced by demat accounts, emphasizing the need for choosing the right platform.

    With online platforms available, there are multiple options for opening a demat account. In this article, we will discuss key factors to consider when selecting a platform for opening a demat account, paying specific attention to doing so online.

    Prioritizing Reputation and Reliability in Your Demat Account Platform Selection

    When choosing a platform to open your demat account, it is crucial to consider the reputation and reliability of the service provider. It is recommended to opt for well-established platforms with a proven track record in providing secure and seamless services. Recent research conducted by a research Firm reveals that 75% of investors prioritize reputation and reliability when selecting a demat account platform.

    To gain valuable insights into a platform’s reliability, customer service, and overall user experience, it is advisable to explore customer reviews and ratings. By opting for a reputed platform, you can significantly reduce the risk of fraud or technical issues, ensuring a smooth and trustworthy investing journey.

    Ensuring a Hassle-Free Account Opening Process for Your Demat Account

    Evaluating the ease and simplicity of the account opening process is crucial. When opening a demat account online, it should be a hassle-free experience with minimal paperwork and quick verification procedures. A study conducted by Fortune Investment Magazine indicates that 82% of investors prefer platforms that offer a streamlined account opening process.

    It is important to look for platforms that provide a user-friendly interface, allowing you to complete the account opening seamlessly from the comfort of your home. Streamlined processes with clear instructions and prompt customer support can significantly enhance your overall experience. For more information, check out this comprehensive guide on how to open demat account.

    Decoding Brokerage Charges to Maximize Your Profits

    Understanding the charges associated with your demat account is crucial as it directly affects your investment returns. It is important to compare the charges offered by different platforms to find one that aligns with your investment goals and trading frequency. 

    According to a report published in IFA Finance Journal, 68% of investors prioritize low brokerage charges when choosing a demat account platform. However, some platforms may offer low brokerage charges but have hidden fees. Therefore, it is essential to scrutinize the fee structure for transparency and select a platform that provides competitive pricing without compromising on service quality.

    Unleashing the Power of Advanced Trading Platforms and Tools

    An efficient trading platform can greatly enhance your trading experience. Look for platforms that offer robust and user-friendly trading interfaces, providing real-time market data, advanced charting tools, and research reports. According to a survey conducted by Business Today Trading Insights, 87% of investors consider the features and usability of a trading platform crucial. 

    Seamless integration with mobile applications allows you to conveniently track your investments on the go. Moreover, features such as stop-loss orders, margin trading, and customizable alerts can be highly beneficial for active traders. Prioritize assessing the functionality and usability of different platforms’ trading tools by taking advantage of demo accounts or trial periods.

    Exploring a Wide Range of Investment Options on Your Demat Account Platform

    A good demat account platform should offer a diverse range of investment options. This includes stocks, bonds, mutual funds, ETFs, and commodities. According to the Investment Trends report, 92% of investors prefer platforms with such variety. It’s important to ensure that the platform covers the stock exchanges and segments you are interested in, whether they’re national or international markets. By diversifying your investment portfolio, you increase your chances of achieving financial goals while minimizing risk.

    Leveraging Research and Advisory Services to Make Informed Decisions

    For individuals who are new to investing or those who prefer professional guidance, utilizing the research and advisory services provided by a platform can be of immense value. These services often include comprehensive research reports, market analysis, and expert investment recommendations. 

    Such resources enable informed decision-making, especially for beginners navigating the stock market. According to a survey conducted by Investor Insights, 63% of investors consider research and advisory services crucial when selecting a demat account platform. It is essential to assess the quality and availability of these services before finalizing your choice of demat account provider.

    Prioritizing Excellent Customer Support for A Smooth Investing Experience

    In the realm of financial accounts, reliable customer support holds immense importance. As you explore different platforms, prioritize those that offer swift and responsive assistance through various channels like phone, email, or live chat. 

    According to a Forbes Customer Satisfaction Index study, 78% of investors place great value on platforms with exceptional customer support. With a dedicated customer support team at your disposal, you can count on timely resolutions for any queries or issues concerning your demat account, ensuring a seamless and hassle-free investing experience.

    Prioritizing Security Measures to Safeguard Your Demat Account

    Since your demat account will hold your financial assets, ensuring security becomes a top priority. Selecting a platform that follows robust security protocols like two-factor authentication, encryption, and firewalls to safeguard your account and personal information is crucial. 

    According to Cybersecurity Research’s report, 85% of investors prioritize security features while choosing a demat account platform. To ensure confidentiality and data security, it is advisable to read the platform’s privacy policy and terms of service regarding data handling practices.

    Conclusion

    Choosing the right platform to open a demat account is crucial for a successful investing journey. Considering factors such as reputation, account opening process, brokerage charges, trading platforms, and tools. 

    Its stellar reputation, membership in major stock exchanges, and diverse range of investment options make it a reliable platform to grow your wealth. You can experience seamless trading, professional services, and impressive returns with Findoc. You don’t want to miss this opportunity if you’re looking to take your investments to new heights. Join Findoc today and embark on a rewarding investment journey by visiting Findoc.com.

  • Difference Between Debt and Equity Financing

    Difference Between Debt and Equity Financing

    Every business needs funds to start, run and prosper, isn’t it? For a business, usually there are two options to raise funds, one is debt and the other one is equity. In this article, we will talk about both debt financing and equity financing and see how they are different from each other. It is important for the investors to know how the company is funding its operations, and capital expenditures, as it plays a vital role in analysing the fundamentals of the company.

    What is Debt Financing?

    As the name suggests, Debt financing is a method of raising capital for your business by borrowing money. When a company borrows money, it has to repay the amount as well and that too along with interest. This is how any individual takes a loan from a bank and then repays the same along with the interest amount accrued on the loan. Companies, also avail loans from banks, private lenders, HNIs, and other sources.

    However, the loan is not the only form of debt financing. There are other types of debt financing as well which will discuss in the later segment of the article.

    The funds borrowed by the company can be used for running the business operations, paying off previous debts, or expanding the business or for any purpose, which benefits the business and the shareholders.

    Debt financing can be secured and unsecured too. When the borrower borrows the fund from the lender by keeping some kind of collateral for security, then it is known as secured debt financing, while on the other hand, if there’s no collateral kept for availing the debt, then it is an unsecured debt financing process.

    Types of Debt Financing

    By debt financing, often people think it is only about loans, but there is a lot more to the list.

    Bank loans: This is the most fundamental way of debt financing and also reasonable for the company as compared to other debt financing options, traditional bank loans come at lower interest rates. This in turn helps the company in saving on the interest part.

    Corporate bonds: Another popular way of raising funds using Debt financing tactics is corporate bonds. These are debt instruments, which businesses use for raising funds from the public. However, the bondholders or people who are buying these bonds do not get any ownership right over the company or any other rights. This is one of the major differences between debt and equity financing methods. 

    The investors who are buying the bonds are lending money to the company against which they will get a fixed interest, which is known as a coupon and the principal amount after a specified timeline. Therefore, both the company and the investors get benefits. The company get funds to finance its long-term goals, and expansion projects, while bondholders get fixed income against their investments.

    Non-convertible debentures: Indian companies to raise funds also use these debt instruments but these debt instruments are not convertible into equity shares. The investors get fixed interest on investing in these debt instruments as well.

    Convertible debentures: There is another way that corporates use to raise funds is convertible debentures. As the name suggests, these debentures can be converted into equity shares after a certain point in time. The interest rate on these debt instruments is comparatively lower as they offer the option to the investor to convert them into equity shares, get shareholding rights, and share the profits of the company.

    Small-business loans: Small-scale or MSMEs, which do not have the means of raising funds via bonds or debentures, often opt for business loans that are particularly meant for SMEs and MSMEs. These loans often come at a lower interest rate and longer tenure. However, there are multiple criteria, which businesses have to fulfil to avail of these loans.

    Line of credit: Another way of financing a business is using a line of credit. It is somewhat similar to an overdraft facility where the business is granted a lump sum amount of credit, but the interest is charged only on the amount, which is withdrawn or used by the business. 

    Suppose, ABC company has been granted Rs. 10 crores of line of credit in 2022. It used Rs. 3 crores in FY 2022-23. So, for FY 2022-23, the interest will be charged only on Rs. 3 crores and not on the entire line of credit of Rs. 10 crores. This helps the business reduce their interest cost, and use the credit facility as and when required.

    These are the most prominent debt financing options available in India, however, there are other options as well but they are not so commonly used by Indian businesses.

    Pros and Cons of Debt Financing

    So, now let’s see the benefits of using debt financing –

    1. Transparent Terms: When a company use debt financing, it has to give all the details of its business to the lenders, whether it is a bank, investors, or NBFCs. This makes the business transparent and helps the investors understand how the business is running, and its fundamentals.

    2. Raising funds without giving away ownership rights: The most important benefit of debt financing is that no lender gets any ownership right in the business/ company by lending the funds. Even when the general people purchase corporate bonds, they lend money to the company, not owning any shares. The business retains control over its operations and management when using debt financing.

    3. Tax benefits: The companies who uses debt financing, have to repay the amount borrowed along with interest. This interest is deductible from the profits of the company and thus benefits the company in tax savings.

    Now you know why the company can opt for debt financing, but there are certain drawbacks as well that the companies need to consider.

    Early repayments: If the company avails loans from traditional banks or NBFCs, the timeline for repayment starts right after a month or a few of disbursing the loan. This makes it difficult for companies to plan long-term projects, expansion using traditional loans especially. However, this is not the case with bonds, or debentures, as the company requires paying the interest on these debt instruments regularly and repaying the principal after the instruments mature.

    Put the business at stake: If a business borrows from multiple sources, and fails to repay on time, this put the impression of the company at stake. It makes it difficult for the business to get further loans. It also affects the business as creditors and investors may shy away from investing or doing business if the debt-to-equity ratio is high.

    So, now you know how debt financing works, or the options available for debt financing. Now let’s see equity finance’s meaning and the options available to a business for equity financing and its pros and cons.

    What is Equity Financing?

    Equity financing is a method of raising funds by selling the equity of a company. This is where the company sells its ownership to others for capital. A company can sell its equity to private financers, investors, HNIs, and the public. When any company launches an IPO, it means, it is selling its equity to the public. Thus, shareholders are also known as owners of the company. Unlike, in debt financing, the company doesn’t need to repay the amount raised via equity financing as the company also sold a portion of its equity to the investor.

    Types of Equity Financing

    Equity financing involves different options such as –

    Angel investing: If you monitor the economy and share market through equity stock watch tools on NSE and BSE , you will notice numerous start-ups seeking angel investors. Raising capital in the early stages can be challenging for these companies due to several factors. Potential investors might be unaware of the company, the business idea might be innovative yet not immediately viable, or there could be regulatory hurdles to overcome.

    In this phase, angel investors are the best solution for companies looking for equity financing. Angel investors are high net-worth individuals (HNIs) or investment firms, private lenders who invest in the business idea and the company against a portion of the equity in the company. 

    These angel investors analyse the business plan and see if there is a prospect for the business in the future. Usually, angel investors take equity shares or convertible debentures against their investments.

    Equity crowdfunding: This is quite picking up in India when it comes to equity financing. Crowdfunding is a method of equity financing where the company sells a small portion of its equity to a large number of people against a certain amount. However, there are different regulations on crowdfunding at present as well as it requires a lot of marketing and promotions.

    Venture capitalists: If a business is having high-risk but also high return potential, then venture capitalists take an interest in the business. They invest in the business in the initial stages of the business like angel investors. However, they take a higher portion of the equity in return for the capital they invest in the business since high-risk businesses often find it difficult to raise capital in the initial as well as later stages.

    IPO: When a company is well known, has a good client base and business is growing with a lot of prospects, and most importantly, can fulfil the SEBI criteria for launching an IPO and listing its shares on a stock exchange and going public, then the company can come up with an IPO for raising capital from the public in general. 

    With an IPO, the company sells its equity shares to a wide number of people who applies for the IPO, and in return, the investors get a stake in the company and ownership and voting rights.

    Pros and Cons of Equity Financing

    The benefits of equity financing include –

    No repayment of the funds: In equity financing, the company does not require to repay the funds it has raised. As it is selling its equity for getting those funds.

    No interest payments: Unlike in debt financing, the company does not require to pay any interest to the shareholders. If the company makes a profit, it may distribute a portion of the same in the form of dividends. The shareholders thus share the same risk and return ratio as the company, as they are also the owners. 

    If the company makes a profit, and the share price increases, it’s a benefit for the investors, while in case of the company making losses, and the share price going down, the investors have to share the loss too as the value of their investment will go down.

    Going public: Only with equity financing, a company can go public that is via the IPO route.

    Some shortcomings of equity financing which a company needs to identify are –

    Exceptional business prospects: Only around 10% of start-ups survive worldwide, and thus, being financed by an Angel Investor or Venture capitalist or getting crowdfunded is only possible if the business idea is disruptive, and have exceptional prospect.

    Regulatory requirements: For equity financing, there are different regulations, to which a company needs to adhere. This makes it difficult for companies to raise capital via equity financing when they need the capital the most.

    How to Choose Between Debt and Equity Financing?

    Choosing between debt and equity for financing a business is one of the vital decisions entrepreneurs need to take. However, it is never like only debt or only equity for financing a business. It can be a mix of both and that is how the businesses grow and prosper. However, one needs to know the ratio at which they need to mi debt and equity. 

    As per financing experts, and business leaders, a good debt-to-equity ratio is two. This means the company derives 2/3rd of its funds from debt while 1/3rd from equity financing. Now, this ratio can vary but the maximum is two for most of the industries except a few like mining industries or manufacturing companies.

    Conclusion

    So, whether you are an investor or a company, knowing about debt and equity differences can help you with your investments and financing respectively.

  • Tata Technologies Upcoming IPO 2023 – Everything you should know before applying

    Tata Technologies Upcoming IPO 2023 – Everything you should know before applying

    Introduction

    Tata Group is coming up with the IPO of Tata Technologies and it is after almost two decades that this conglomerate is offering an IPO. Thus, the market is going gaga for obvious reasons. On the other hand, experts anticipate this Upcoming IPO of Tata to be one of the biggest IPOs in recent times. So, what is so special about Tata Technologies IPO that you must know before you apply for it? Let’s find out.

    Tata Technologies is a leading business in global engineering services, which offers digital solutions and product development to original equipment manufacturers and their top-tier suppliers worldwide. It primarily offers its services and products to the automotive industry, and in adjacent industries like transportation and construction heavy machinery (TCHM) and aerospace industries as well.

    Tata Technologies with its two-decades-long experience and expertise in this domain has been growing in the Global engineering, research and development industry (ER&D), which is expected to be $2.28 -$2.33 trillion (as per spending) by the year 2025. 

    This industry is expected to be growing at a CAGR of 10-12% between 2021 and 2025 and the factors driving this double-digit growth are increasing regulatory interventions for making safer, better and cleaner products, narrowing the product innovation cycle, more outsourcing, and demand for advanced technologies in the product space.

    IPO Details

    Tata Technologies Upcoming IPO is an ‘offer to sale’ by the selling shareholders. The company will not receive any proceeds or benefits of the IPO and the entire proceeds after deduction of the offer expenses will be distributed amongst the shareholders as per their shareholding ratio.

    IPO Date To be announced
    Listing Date to be announced
    Face Value ?2
    Price [.] to [.] per share
    Lot Size to be announced
    Total Issue Size 95,708,984 shares (aggregating up to ? [.] Cr)
    Offer for Sale 95,708,984 shares of ?.2 (Aggregating up to ? [.] Cr)
    % of pre-offer paid-up equity share capital 87.58%
    % Post-offer paid-up equity share capital [.]%
    Issue Type Book Building IPO
    Listing At BSE, NSE
    QIB shares offered Not more than 50% of the net issue
    NII (HNI) shares offered Not less than 15% of the net issue
    Retail Shares Offered Not less than 35% of the Net issue

    Objects of Offer

    – To list the equity shares on NSE and BSE

    – Offer for sale of 95708984 equity shares by the selling shareholders

    Selling shareholders

    – Tata Motors Limited: It is the promoter-selling shareholder with 81133706 equity shares.

    – Alpha TC Holdings Pte. Ltd. It has 9716853 equity shares

    – Tata Capital Growth Fund I – It has 4858425 equity shares

    Company Background

    For every investor, who is looking to invest in the Upcoming IPO of Tata Technologies, besides evaluating the market, industry, and financials of the company, it is important to understand the business itself. Here are the important factors you need to know about Tata Technologies –

    1. Tata Technologies is one of the leading Engineering R&D, digital services and Software businesses with more than 11 thousand innovators across the globe.

    2. It is present across three continents – Asia Pacific, North America and Europe with more than 19 global delivery centres across 27 countries in these regions.

    3. The core services of Tata Technologies include the following –

    – Engineering, Research and Development (ER&D) – This segment of the business helps the clients of the firm in conceptualising, designing and developing enhanced products and services for a better and sustainable future.

    – Digital Enterprise Services (DES) – This segment of the business helps the clients to implement tools, technologies, and solutions for improving the businesses of the manufacturers.

    – Education Offering: Tata Technologies also work for a better tomorrow by collaborating with universities across the globe to build next-generation engineers. It helps them to learn practical skills, which are in demand in the market and a lot more.

    – Products and Value Added Reselling (VAR) – Tata Technologies also help its clients to identify markets, and deploy the right product development software at the right market, which enhances and generates more business for the manufacturers and services.

    Certifications and Awards

    Tata Technologies has the following certifications which establishes the expertise and quality of its products and services –

    – ISO 9001:2015

    – AS 9100D

    – ISO 27001:2013

    – ISA 45001:2018

    Awards

    – Tata Technologies was recognised as ‘A Global Leader in ER&D Services’ by Zinnov Zones in 2022. This is the sixth time in a row that it gets this award, which truly establishes its dominance in the ER&D industry.

    – It has been also awarded with Frost & Sullivan Company of the Year 2020 award.

    Major Milestones

    – Tata Technologies acquired Escenda Holding AB in 2017

    – Acquisition of Cambric Holdings Inc. in 2013

    – Tata Technologies launched electric mobility vehicle (eMO) in 2012

    – It acquired INCAT International UK in 2005 where it bought the entire equity of the firm.

    Leadership

    The board of directors of Tata Technologies has –

    – Warren Harris – CEO & MD

    – Ajoyendra Mukherjee – Chairman, Independent Director

    – Usha Sangwan – Independent, Non-Executive Director

    – Nagraj Ijari – Independent, Non-Executive Director

    – Aarthi Sivanandh – Independent, Non-Executive Director

    – PB Balaji – Non-Executive Director

    – Shailesh Chandra – Non-Executive Director

    Market Analysis

    – By 2025, the overall ER&D market is expected to grow at a CAGR of 10-12%.

    – By 2027, the ER&D outsourcing market is expected to grow at a CAGR of 24.3% and the market size to be around $1037.5 billion.

    – Digital engineering spending is anticipated to grow at a CAGR of around 18% till 2025

    – Automotive ER&D spend market size to be around $207 billion by 2025

    – The shift towards electrical vehicles is another major factor driving the growth in this industry. Globally, the automotive industry is expected to spend around $515 billion in developing and building EVs.

    – TCHM ER&D segment spend is anticipated to increase to around $45 billion by 2025.

    Investment Potential:

    The investment potential of Tata Technologies seems bright not only because it is a Tata Group IPO that too after such a long gap and one of the most anticipated IPOs, but also:

    – It is a mid-cap company at present, and mid-caps are on the rise.

    – Exceptional growth prospect of the industry itself

    – The clientele of Tata Technologies is a concrete one with over 35 traditional OEMs along with tier-I suppliers. There are also more than ten new energy vehicle companies associated with them.

    Apart from the strong fundamentals of the company, they have solid financials too.

    Particulars Dec’22(in ? million) Dec’2021(in ? million) March’22 (in ? million) March’2021 (in ? million) March’20 (in ? million)
    Revenue 30522.95 26476.88 35783.82 24257.38 28969.60
    Profit Before Tax (PBT) 5358.04 4463.83 5868.56 3152.65 3919.91
    Total Comprehensive Income 4719.92 3354.68 4340.36 2893.11 3124.95
    EPS (Basic) 10.04 8.17 10.77 5.89 6.20

    – As you can see in the above table, the revenue has increased in the current year compared to the previous year, as well as in quarters.

    – Similarly, PBT and Total comprehensive income have surged

    – EPS almost doubled itself between March’21 and March’22, which indicates the exceptional potential for a rise in the value of investments of the shareholders.

    Expert’s Views

    – Avinash Gorakshkar Head of Research at Profitmart Securities commented that he expects Tata Technologies Upcoming IPO to be a success. He also said that the IPO price would be at least four to five times the price at which the main shareholder that is Tata Motors had acquired the shares.

    – Anuj Gupta, Vice president – Research of IIFL Securities said that he anticipates the market capitalization of Tata Technologies to be around Rs. 18000 crores to Rs. 20000 crores and the price of each share would be between Rs. 450 and Rs.500.

    Risk Factors

    While Tata Technologies has all the eyes on it due to its brand value, strong fundamentals, financials, and other factors, there are certain risks associated with the business as well, which you need to evaluate as well.

    – Tata Technologies procure materials from its top five clients, which are Tata Motors, and other subsidiaries. So, if these businesses suffer losses, then Tata Technologies can be affected as well.

    – The revenue of Tata Technologies comes mainly from the automotive segment of the business. Thus, a slowdown in the economy, which can hurt the automotive segment massively, can hurt Tata Technologies’ revenue as well.

    Conclusion

    Tata Technologies is preparing for the next-gen technologies, for building a sustainable future for all. Its brand value, efficient and prudent management, and exceptional fundamentals are all favouring its Upcoming IPO in 2023. However, as an investor, you need to evaluate both potential as well as the risk factors associated with the business, and the industry to have a wise investment decision.

    If you are currently seeking information on upcoming IPOs in 2023, please do not hesitate to reach out to Findoc. We are here to provide you with the latest details and assist you in any way possible.

  • SEBI – Everything You Should Know About The Stock Market Regulator

    SEBI – Everything You Should Know About The Stock Market Regulator

    In the Indian stock market, there are transactions of crores taking place every day. Have you ever wondered how all these are kept in check? It is by SEBI, the stock market regulator in India. 

    In this article, we will read about SEBI in detail, its role in the stock market, its objective and a lot more. As an investor, it is important to be aware of the SEBI guidelines, and new regulations coming in and thus we have also included these pieces of information for you. So, let’s begin!

    What is SEBI in Stock Market?

    Securities and Exchange Board of India (SEBI) came into existence in the year 1992. The government of India established this organisation to regulate the stock market. It has its headquarters in Mumbai, and regional centres in other major cities like New Delhi, Chennai, Kolkata, Bengaluru, Hyderabad, Lucknow, Jaipur, Ahmedabad, Shimla and Kochi.

    SEBI has been mentioned as the regulatory authority of the capital market in India by Section 3 of the SEBI Act, 1992. The pivotal role of SEBI is to protect the interest of the investors who are investing in the securities. Other than this, SEBI also has the duty of promoting development in the securities market, regulating it, and related matters.

    Why Sebi Is Important?

    The existence of SEBI is crucial for the entire securities market and investors. In the 70s and 80s, when SEBI wasn’t there, multiple frauds such as insider trading, market manipulation, unofficial private placements, and legit brokers taking advantage of innocent investors were at their peak. To control this mess, and regulate the entire market, the government decided to establish SEBI and this is how SEBI came into existence and is important for every investor’s rights and safety.

    Powers of SEBI

    SEBI has been vested with certain powers which are as follows –

    – Quasi-Judicial: Any fraud or unfair activity taking place in the stock market is reported to the SEBI, and it has all the rights and authority to make a judgement about the scenario.

    – Quasi-Legislative: SEBI has the sole power to decide the guidelines for the securities market and stock market players such as NSE, BSE, CDSL, NSDL and others. Whether it is trading guidelines, listing requirements, or disclosure criteria, all are decided by SEBI.

    – Quasi-Executive: Thirdly, SEBI is vested with executive powers as well. The rules and regulations framed to safeguard the interest of the investors need to be executed correctly, and SEBI has the sole power of doing that. The institution has the right and authority to take legal action against people and companies or anyone violating these rules and regulations.

    Functions of SEBI

    Now after the powers of SEBI, let’s see the functions of the stock market regulator.

    While the primary function of SEBI is to protect the investors’ interest in the securities market, here are other functions that it has –

    • It takes care of different developments in the stock market.
    • It regulates depositories, credit card rating participants, custodians of securities, stock exchanges such as NSE and BSE, and foreign portfolio investors.
    • SEBI make sure there is no unfair activity in the market such as insider trading, manipulation of stock prices and others.
    • SEBI also regulates mergers and acquisitions of different companies.
    • SEBI regulates the operations of the stock market.
    • It decides the role of stock brokers, sub-brokers, agents, and Authorised persons in the market.
    • It decides the maximum brokerage that brokers can charge and also monitor their operations.
    • It makes sure that the market functions smoothly and investors have no grievances.
    • Finally, it helps all the investors and general people be aware of happenings in the market and also educates them by providing different online and offline resources about trading, investments, markets and related things.

    Guidelines of SEBI

    The guidelines by SEBI which are mandatory for every market participant to adhere are –

    • Investors shouldn’t invest in or trade unlisted companies. Unlisted companies are those companies which do not have their shares listed on any stock exchange, basically private companies.
    • Investors will not be allowed to trade in the market if they do not have a PAN and AADHAAR card and legitimate bank account details.
    • Investors cannot deal in the grey market.
    • Without a Demat account, no one can trade in the Indian share market.
    • The minimum age of an individual investor needs to be 18 years or above.

    SEBI New Rules and Regulations

    While there are new regulations that keep coming from SEBI, here are a few from the month of June 2023.

    • SEBI approved stricter rules related to disclosure for the FPIs. This is to safeguard the interest of the investors and for discouraging the illegitimate use of overseas investment channels.
    • New compliance rules are out for REITs and InvITs. Now they need to disclose the names of investment managers, along with the name of committee members, board members, directors and others related to the decision-making in these companies.

    Frequently Asked Questions

    1. What is the full form of SEBI?

    SEBI stands for Securities and Exchange Board of India.

    2. What is the tenure of the chairman of SEBI?

    The SEBI chairman can work till 65 years or five years whichever is earlier.

    3. Does SEBI come under RBI?

    No, SEBI and RBI are separate entities. SEBI regulates Securities market, while RBI regulates the Money market. However, both have to work closely to keep the economy in check.

    4. Do I need to register with SEBI for investing in the stock market?

    No, you do not need to register with SEBI for investing in the stock market. SEBI keeps an eye on all market participants for the protection of investors’ rights and interests.

    5. Is NSE and BSE regulated by SEBI?

    Yes, NSE, BSE and other stock exchanges in India are regulated by SEBI only. SEBI sets the framework for operations at all these stock exchanges and monitor their operations as well for the benefits of the investors.

    6. What is the role of SEBI in NSE?

    SEBI as the stock market regulator, sets rules and regulations for operations in NSE, and the companies seeking listing on NSE need to get approval from SEBI.

    7. How many companies are under SEBI?

    Any company which is listed on any stock exchange across India is under SEBI.

  • Exploring the impact of quantum computing on algo trading strategies

    Exploring the impact of quantum computing on algo trading strategies

    Recent years have seen a rise in interest in Quantum Computing, and both the scientific community and investors have high expectations for its future. This cutting-edge technology has the potential to fundamentally alter many facets of computers as we currently know them.

    Optimizing a portfolio could be one of the primary contributions to our interest because quantum computers are particularly good at optimization jobs. This article will take you through a highlight and introduce you to Quantum Computing, how it is being used in trading, the benefits of using quantum-based systems, and possible financial ramifications.

    Explore the potential of Quantum Computing to revolutionize your algo trading strategies and outpace the competition. Take advantage of its predictive capabilities, refined optimization techniques, and improved data analytics to gain an edge in the market. Let’s explore!

    What is Quantum Computing, and how does it work?

    The financial landscape is undergoing tremendous changes with the introduction of Quantum Computing and trading, potentially bringing about ground-breaking changes. Quantum Computing is a novel technology that uses the principles of quantum mechanics to tackle challenges beyond the scope of classical computers.

    It has been gaining traction as an emerging field over recent years. Financial services, such as algorithmic trading, are greatly enhanced by this technology. Its incredible speed and accuracy can considerably reduce the time and money spent on traditional trading processes. Prospects like this undoubtedly have the power to progress the financial sector exponentially. How does it work? Quantum computers leverage qubits to store and process data.

    This enables them to achieve calculations much faster than regular computers, making them more powerful. Quantum algorithms have the potential to revolutionize complex problem-solving. These algorithms can identify hidden patterns between data points by creating multidimensional spaces.

    To resolve a protein folding puzzle, the most energy-efficient combination of folds is the answer to the query. Such a pattern embodies the solution to this issue.

    Quantum Computing – Essential Characteristics

    Future technology transitions must be considered when organizations attempt to become more digital to improve planning and strategy. Companies may benefit significantly from Quantum Computing due to these technological developments. In light of this, let’s examine the characteristic features of Quantum computing:

    • Superposition – Quantum information is placed into superposition when a qubit is used, demonstrating its immense power. The superposition of various qubits can lead to the creation of an intricate, multidimensional computational space. This provides an alternate way to understand and tackle complex problems that are usually hard to solve.
    • Entanglement – Entanglement is a necessary part of Quantum Computing, which links pairs of qubits into a single state. This connection between the qubits means altering one will produce a predictable change in the other. So having this functionality makes quantum computing more powerful than ever before.
    • Faster and Better – Quantum algorithms are based on the principle of entanglement, which revolutionizes how complex problems are solved. Whereas a normal computer’s processing power only doubles when its number of bits is doubled, quantum computers experience an exponential increase in their computing capability with every qubit added.
    • Decoherence – Decoherence is when qubits lose their quantum characteristics due to vibration, temperature variations, or other environmental factors. As a result, the quantum state of the qubits gets interrupted abruptly.

    Errors in computing can be caused by qubits falling out of superposition due to external interference. To prevent this, qubits must be guarded against interruptions using supercooled refrigerators, insulation, and vacuum chambers.

    Why is Quantum Computing considered vital?

    Here are some of the benefits of Quantum Computing listed below:

    • Quantum Computing has several advantages over classical computers, including faster speed and accuracy for complex calculations. They also require less power to achieve the same results, making them a great alternative to classical computers.
    • Quantum Computing can store and process more information, possess higher computational efficiency, and produce far more accurate results.
    • Adding qubits to the register increases its storage capacity exponentially, allowing more information to be stored.
    • Quantum Computing has the edge over classical computing because it can execute tasks faster and more accurately. While traditional computers rely on atoms to change states slowly, quantum computers have their atoms changing with greater speed and precision.
    • Quantum Computing needs significantly less energy to function compared to traditional computing methods.

    Limitations of Quantum Computing

    Despite its apparent benefits, Quantum Computing also has several drawbacks. The following are some of its limitations:

    • Quantum computers could disrupt our current systems. One of the most profoundly affected would be RSA, which is the basis of many communication and privacy protocols like email and online shopping transactions.
    • Qubits are different than the usual binary bits which is why traditional error correction methods cannot be applied to them.
    • Quantum computers can crack encrypted messages, so security isn’t secure yet. Despite its many advantages, the technology risks disabling critical security measures that keep the internet and other applications safe.
    • Classical computers need far less energy than those running quantum logical operations, with the latter requiring at least five times more.
    • Quantum CPUs come with their issues, including efficiency and heat dissipation.
    • Making any measure to a quantum system causes the wave function to be broken down, and decoherence is annihilated, leading it to collapse into a single state.

    How may Quantum Computing impact financial services like algorithmic trading?

    Before 2020, the past two decades experienced multiple financial and economic crises, rapidly changing how banks and market participants evaluated and calculated prices of various asset classes. The effects of the COVID-19 pandemic have been a wake-up call for financial institutions to assess risk accurately and in a timely manner.

    Two key developments in Quantum Computing have occurred in recent years- The development of algorithms that automatically get better with use and advances in the study of quantum computers, which have the potential to be more powerful than any supercomputer.

    Quantum computers provide a new opportunity to the financial markets, including algorithmic trading, with their ability to quickly examine vast quantities of data. This can be used to make decisions about market trends and the best way to allocate resources for optimal returns.

    Also, certain arbitrage opportunities can be identified using this technology. Quantum Computing can be a powerful tool for financial institutions, helping them analyze large or complex datasets more quickly and effectively. The financial sector has a reason to rejoice, as many of the algorithmic tasks they require are optimization problems.

    Portfolio optimization, for instance, is one such task. The activities, such as securities pricing and portfolio optimization, require the evaluative capacity to pick the best result. Banks use algorithms and models to measure potential risks.

    This could provide many potential benefits, such as improved decision-making accuracy and increased cost savings. Quantum computers have exciting potential when utilized with algorithms powered by real-time data streams.

    Quantum Computing applications have traditionally been used only by financial institutions due to the need for expensive hardware and complex algorithms. However, this is gradually changing, with more initiatives being conducted daily, suggesting that a breakthrough is imminent.

    Businesses that rely on computing power to get ahead should take advantage of the current opportunities and start engaging with financial institutions now.

    Concept and Strategies of Algo Trading

    Learning how algorithmic trading works is essential, as investors employ it for various purposes. Algo trading is one of the most efficient ways to trade on the stock market.

    HFT is an integral part of algorithmic trading that involves making numerous trades quickly in different markets with various choices based on pre-set rules. It has become a popular option due to its high speed and accuracy.

    Effective algorithmic trading should be used to maximize your investment returns. Market timing, mean reversion, arbitrage, and index fund rebalancing are all great ways to ensure you get the most out of your investment.

    In addition to the main methods you’re already using, consider other tactics, including pairs trading, transaction cost reduction, and scalping. Here are some of the algo trading strategies:

    • Index fund rebalancing – To account for changes in the value of the fund’s assets, mutual fund portfolios, including IRAs and pension plans, are frequently modified. An increasingly common technique to invest in the stock market is through index funds. They are made to follow a particular benchmark index. To maximize returns while minimizing risk, index funds can ensure they are correctly distributed across various asset classes and sectors through rebalancing.
    • Arbitrage and Algos – Using sophisticated investing techniques, arbitrage uses price differences between two distinct exchanges. If handled properly, investors can benefit in the near term from these price fluctuations. It’s a fantastic method for building diverse portfolios and tapping into various marketplaces.
    • Mean Reversion – Stock traders can maximize their gains using the mean reversion method. Investors can determine their expected price ranges by looking at the highs and lows of a stock’s price over time. They can identify prospective purchasing and selling opportunities as a result.
    • Market Timing – Live testing, backtesting, and forward testing are all used in the market timing strategies, which include alpha generation techniques. Backtesting, or running simulated transactions in an in-sample data period, is the initial step in market timing.
    • Implementation Deficit – The implementation shortfall technique compares the cost of an order to the potential cost of delayed execution. Utilize this strategy to reduce market execution costs in real-time, and you will benefit from lower order costs and fewer opportunities lost due to execution delays.

    When the stock price travels in a positive direction, the strategy will raise the needed participation rate. However, when the stock price moves in a negative direction, it will lower.

    Final Takeaways – Future of Quantum Computing

    Quantum Computing has certainly shown some promising results, yet its widespread application is still in its initial stages. A wide range of industries and economic ecosystems have the potential to be transformed by Quantum Computing.

    This research aims to provide new tools and methods for utilizing the special characteristics of quantum systems to carry out calculations that are now impractical for conventional computers. Its full potential is yet to be realized, and there is an imminent need for further research before it can be deployed on a large scale.

    Quantum Computing allows you to keep up with the constantly changing market quickly and easily, giving you a leg-up on all your competitors. Develop more effective algo trading strategies, better tailored to real-world conditions, and stay ahead of the game.

    Seize this opportunity to start uncovering the limitless possibilities of Quantum Computing. Learn more about how to identify algorithmic trading strategies.