Everything You Need to Know About Derivatives

Derivatives are a class of instruments that have held the investor’s interest over the years. This is a security with a price that depends on one or more underlying assets; they have no independent value. The value is determined by the fluctuations in the underlying asset. The underlying assets could be currencies, bonds, interest rates, market indexes, and commodities. So, whether you are a long-term investor or a short-term speculator, derivatives market is the best place for you. Therefore, before trading in derivatives, we need to understand them carefully and make the best use of them:

Types of Derivatives:

1. Futures: Futures are contracts that represent an agreement to buy or sell a set of assets at a pre-defined time and price. In case of futures, conditions are standardized, such as price, quantity and time.
2. Forward: The owner has the obligation to sell or buy a contract at a pre-defined time. Forwards are basically futures, which are not standardized.
3. Option: These contracts are very much similar to futures and forwards. The owner has the option to buy or sell something at a pre-defined time. Although, there is one key difference. Once you buy the options contract, thereafter you are not obligated to hold the terms of the agreement.

Benefits of Derivatives:

1. It acts as a very good hedging tool against the volatility of price.
2. It is a big plus point for margin traders as it offers huge time leverage.
3. You can take a high exposure on a share by paying a small margin. For example, if the stocks are priced at Rs. 8 Lakhs and you only have 2 Lakhs in hand, then this product will still help you to take a position.

Use of Derivatives:

1. You can earn money on stocks that are lying idle: If you don’t want to sell the shares you bought for long term, but want to take benefits of price fluctuations in short term. Then you can use derivative as an instrument. It helps you to conduct transactions without even selling your shares.
2. Risk Transfer: The most important use of these derivatives is the transfer of risk from risk-averse investors to risk-loving investors. Those with an appetite for risk conduct risky trades to improve profits while risk-averse investors use derivatives to enhance safety. So by this way, risk is transferred.
3. Benefit from arbitrage trading: When we buy low in one market and sell high in another market, it is called as arbitrage trading. Thus, you are taking benefit of differences in prices in the two markets.

Henceforth, these above mentioned points will empower you with the knowledge of derivatives. Also, for those who want to trade in derivatives, get started with Reliance Securities.

Should You Invest In A Balanced Fund?

A mutual fund uses invested money of various individuals and invests them into various pre-set allocations. These allocations are equity, debt or any other asset class as prescribed by the fund. A balanced fund is a type of mutual fund which invests a portion of the fund into equities and the rest into debt instruments. The equity debt allocation is often 65:35 or more depending upon the fund’s mandate.

This fund is an excellent choice for newcomers or risk-averse investors. Here are a few reasons.

One, this fund by design has a safety mechanism. While the major allocation of the fund may be in the equities, the 35% allocation into debt instruments acts as a safety valve during volatile market periods. Even if the equities generate poor returns at the time, the debt instruments ensure the invested money does not go to waste and returns are generated on a consistent basis.

Two, the debt allocation ensures stability during volatile market periods and the equity allocation during bull runs generate excellent returns. Since the fund’s major allocation is into equities, an investor has a good chance to see her or his investment into the fund deliver quite the returns.

Three, the fund’s major allocation into equities may cause apprehension into one or two investors who may feel the market volatility will deliver poor returns. However, like all mutual funds, a balanced fund comes with the expertise of a fund manager. He or she will decide whether to invest into mid-cap or large-cap funds, how much to invest, and when to invest. The invested money is in safe hands.

Four, mutual funds that invest at least 65% into equities qualify as equity funds. This means any capital gains after one year of holding are tax exempt. Therefore, fund managers always keep the 65:35 allocation ratio intact. If an investor held two different funds—equity and debt, a short-term capital gains tax would be levied on the debt fund for any holding less than three years.

A balanced fund was designed keeping the mix of capital appreciation and safety from market volatility in mind. It is recommended for newcomers to invest in them.

Basics of A Savings Account

Now a days, keeping hard-earned cash in a gunny sack is not the smartest or the safest way to manage your finances. Today, we safely store our money in banks, which has enabled us to track our transactions, balance, etc. So, when an person with some money approaches a bank and requests for a secure place to store that money, then the bank offers the individual its most basic product, a savings bank account.

• What are the different types of Savings Account?

Below-mentioned are the few different types of savings account available today:

• Regular Savings Account: These accounts basically don’t see regular deposits nor do they see regular withdrawals. These facilitate the common form of virtual savings that are not touched, unless absolutely necessary.
• Salary based savings account: These accounts are generally opened by banks on the request of large companies. Also, banks offer companies preferential rates for these accounts. Well, it should be noted that most of the salary accounts do not have a minimum balance requirement, but once your salary stops being credited for three consecutive months, then these accounts are changed into regular savings account.
• Savings account for senior citizens: These accounts are specially created for senior citizens. Savings accounts for senior citizens work in the same way as regular savings account, but they offer a higher rate of interest as compared to other savings accounts and exclusive banking advantages.
• How to apply for savings account?

In order to apply for a savings bank account in India, applicants should meet the following eligibility criteria:

• A savings account can be opened by Indian residents, non-Indian residents, and foreign nationals.
• Usually, banks allows only those to open an account who are 18+. Although, a savings bank account can be opened for minors by their guardian/parents.
• Unlike other financial or banking products, there is almost no restriction on who can open a savings account.

Apart from this, here is the list of documents that a customer must submit along with his/her application in order to open a savings account:

• Age and Identity Proof
• Address proof
• Photographs
• Income proof
• Senior Citizen Card
• Step-by-step guide on how to open a savings account:

If you want to open a savings account, you need to follow these steps:

• First of all, do a proper research of different banks and their interest rates. Then find the one that matches your specific requirements, and the type of bank account that you wish to open.
• Take a copy of your photograph, identity proof, income/employment proof, and age proof and then head to the nearest branch of the bank.
• Once at the bank, you need to fill an account opening form.
• Fill out the form as required and submit it along with the copies of essential documents.
• Thereafter, your application will be submitted for processing and your account will be opened.

How to choose the right mutual fund

Everyone has various goals that one aims to accomplish. These goals may be sending your child abroad for higher education, buying your dream car, purchasing a family home etc. These goals require finances and in order to attain such large sums of money you can either save or invest. Saving is an important financial habit that you should develop regardless of your needs. However, investments are carried out for the sole purpose of wealth accumulation.

One such common investment instrument is mutual funds. They are considered as one of the more popular mutual fund investments. If you are planning to accumulate some excess wealth over and above your income, then here is your guide to how mutual funds work:

A mutual fund is an investment vehicle that pools in funds from investors who share the same investment objective. According to the stated objective, the funds are then invested in various assets. Such investments are usually carried out by Asset Management companies.

In accordance with your mutual fund objective, you can choose from the following common mutual funds:

• Equity Funds
• Debt Funds
• Money Market Funds
• Index Funds
• Fixed Income Funds
• Balanced Funds
• Speciality Funds

In order to understand the flow of the money in a mutual fund investment, refer to the diagram below.

Today, there are close to 40 organisations handling mutual fund investment worth Rs 10 lakh crore. With multiple options, it can become difficult to choose which fund you want to invest in. By following our 5-step guide, we can help you decide your next investment venture.

Step 1

Check Past Performance – While analysing the funds one sure shot way to find out how your fund will perform is by looking at its past performances. Not just that, checking the credit history of the scheme, the fund manager, investment decisions etc will all add to an informed choice.

Step 2

Risk Analysis – Before investing make sure, you have demarcated your room for rick and investment horizon. Choose a fund that matches the same amount of risk. Do not get lured by trying to diversify your portfolio too much.

Step 3

Diversification – Check to see whether your mutual fund offers a certain level of diversification to your portfolio. This is essential because diversification ensures that the risk propensity is reduced.

Step 4

Know your fund manager – Before choosing your fund manager make sure you do a thorough research of his/her past investment decisions. Evaluate the performance of the funds that the manager has handled.

Step 5

Costs – A fund that costs higher should also yield higher benefits than lower priced mutual funds. Small differences in the fee can translate into large discrepancies in returns.

Bank Accounts To Be Blocked If Not Self – Certified Before April 30: All You Need To Know

The Income Tax Department of India has said that all bank account holders who opened their accounts between July 1, 2014, and August 31, 2015, need to provide self-certification of compliance under Foreign Account Tax Compliance Act (FATCA) by April 30, 2017, or else their accounts will be blocked.

The announcement which came on Tuesday was a step taken to comply with FATCA – a pact signed between India and the US. It was signed in 2015 and allows both countries to share data on tax evaders.

Account owners will have to submit Know Your Customer (KYC) and Aadhaar details to the banks. It is a move which will enable Aadhaar links to all accounts (government’s aim for digital India) to honour the pact with the US as well.

The Tax department said in a statement, “The account holders may be informed that, in case self-certifications are not provided till April 30, 2017, the accounts would be blocked, which would mean that the financial institution would prohibit the account holder from effecting any transaction with respect to such accounts,”.

Here are a few more things about this recent development:

• India entered into an agreement with the US for the implementation of FATCA with effect from August 31, 2015.
• Earlier, financial institutions had to obtain self-certification from account holders by August 31, 2016, with regard to all accounts opened from July 1, 2014-August 31, 2015.
• Keeping in mind the difficulties faced by the stakeholders, the tax department had to extend the deadlines.
• It’s not just savings account and current accounts; mutual funds and other financial institutions have asked their customers to comply with the rule as well.
• If account holders fail to self-certify within the stipulated timeline, banks will block their accounts and no transaction can take place.
• However, once customers self-certify and verification is complete, account holders will get back access to the blocked account.

Tax evasion is a serious crime and should be nipped in the bud. The move is aimed to improve data sharing so that tax evasion becomes harder. Make sure you provide your Aadhaar and KYC details before April 30.

If you are Beginner in Share Trading, Here Are Few Useful Tips

As a beginner, it is vital that you make a smooth entry into the markets for early losses can discourage one from entering the markets again. The above points will ensure you are ready to make your debut in the share markets. The share markets are one of the best places to invest your money. You see higher returns compared to mutual funds or other investment options such as Public Provident Fund (PPF) or National Pension Scheme (NPS).

For young professionals, indulging in online share trading is an excellent move to create wealth and set themselves up for the future. If you are interested in trading, here are a few useful tips for beginners in the share markets.

1. Get A Trading and Demat Account

A trading account and a Demat Account. These two are paramount for beginners who wish to enter the share markets.

One can visit a Depository Participant (DP) (find the list of registered DPs at the websites of NSDL or CSDL) to open these accounts. The procedure to open them is simple and will not cost you much.

2. Choose A Broker

You can choose between a full-service broker and discount broker.

A full-service broker is a traditional one who offers a gamut of services such as placing your trades, investment advice, portfolio management, financial planning, and retirement planning among others.

A discount broker is the new age broker. He or she offers high-end trading platforms where you place your trades. It’s online trading at its best.

3. Know Your Risk Profile

You invest money to make more money. How much to invest? That is the golden question. As a beginner, you should know how much risk you are willing to take on.

It is unwise to invest all your savings because there is a possibility of you losing every penny of it, thanks to market volatility. Start small, invest little by little and grow step by step. That is the key to success.

4. Understand The Workings

You cannot understand advanced quantum mechanics if you do not understand basic Physics. The same is for share trading. How do you expect to make millions when you do not know the workings of the markets?

Invest time and effort into the learning the market mechanics. Things to learn include:

• How market prices fluctuate?
• Different buy and sell strategies
• Market jargons
• How to read balance sheets?

As you learn more, you will understand better, and take sharper decisions.

5. Trade With Your Money

This is one tip every trader needs to know. Any amount you invest, it needs to be yours. You cannot risk going into debt because repayment is hard. You can win or you can lose in the markets but make sure you do so with your own money.

5 Benefits Of Applying For An Online Personal Loan

Consumers often apply for a personal loan when they are in need of cash. From emergency monetary needs to unforeseen expenses, a personal loan is a lifesaver for many.

Many banks these days have an online presence and customers are embracing the digital way of banking. More and more people are applying for online personal loans too after understanding the benefits. It’s time saving and easier compared to the traditional method of applying for a personal loan.

Here are some of the best benefits you can enjoy when you go online and apply for a personal loan.

1. It is convenient

The most appealing benefit of applying for a personal loan online is convenience. You visit the bank’s website, fill out the application form, and attach the requisite documents. There is no need to visit the banks n number of times, for all the details are available on the website. You can apply for a personal loan from the comforts of your home or office or wherever you want. It’s time-saving and convenient.

2. You get low rates of interest

Applicants who apply for their personal loan online enjoy low rates of interest as well. Increased use of a bank’s online offerings reduces the bank’s dependence on physical assets such as office space, storage rooms, electricity, and even staff. It’s cost-effective and banks, therefore, offer lower interest rates for loans.

3. Instant EMI calculation

EMI stands for Equated Monthly Instalment. It is the set amount (principal + interest) of the loan you pay back to the bank. When you apply for an online personal loan, bank websites offer a tool called EMI calculator. It’s a useful tool where you enter a few details and calculator displays the EMI you will need to pay.

4. Easy Comparison

The internet has made easy the process of applying for loans and even comparing them. You can visit website aggregators which list different banks’ personal loan offerings along with their details such as –tenure, EMI, the rate of interest, etc.  Compare different banks and make an informed choice.

5. Freedom from pesky agents

You visit a bank to enquire about a personal loan. The bank takes down your contact number while collecting customer information. In the next few days, you get lots of messages and phone calls from many banks regarding a personal loan. It’s annoying, to say the least.

When you apply for a personal loan online, the details you enter are secure. There’s no risk of pesky agents calling you every now and then.

The internet has changed the way people apply for loans. It’s quick, hassle free, and offers a lot of benefits; something traditional banking lacked. Such benefits are drawing more and more customers towards digital banking.

6 tips on how to get the best deal on a car loan

A few years back, buying a car was a luxury not everyone could afford to have but, with growing pace of time, purchasing a car is no longer a luxury. Cars are now an important part of our lives and to own a car has become relatively easier with a number of auto loans offered by the companies. To live without a car hinders our social as well as professional life. Thus, emerging car loan lenders have made it easy for us to purchase a car by paying loans through installments or EMIs.

Although, we need to take care of below mentioned points before seeking a car loan:

• Shop around to get the best rate: Usually, you shop around to find the best car for yourself likewise, to get the best possible bank loan for your car, you need to do the same. Car buyers are discouraged by the dealers to buy a loan from other banks, they often pick loans from the bank with which car dealers have tied up. In this case, you must talk to other banks regarding car loans and you are more likely to get attractive offers than what your dealer was offering you. Therefore, before purchasing a car, you must do proper homework in order to get the best results.

• Always negotiate the price of car: The car price should always be negotiated in order to bring down the cost of a car loan. Hence, this is the best possible way of doing so. Car dealers have usually fixed some sizeable margin on every car and possibly, you can get some discount on them. You must speak to multiple dealers for your car loan to get a brief knowledge on various offers and discounts available. At the end, if the price of your car will go down similarly, the amount of your car loan will drop too.

• Go for shortest loan tenure, which you can afford: Never ever make the tenure of your loan needlessly long. You should always try to repay the amount as early as possible. Longer tenure means your EMIs are low but, if you can afford then make sure it lasts for a period of 3-5 years, which means your total interest rate would be fairly low. No need to opt for long tenure loans if you desire to buy an expensive car. A car loan for eight years makes no sense, as it will significantly increase the total cost of the car.

• Keep a check on your credit reports: Well, before getting a loan, you must check your credit card reports. Any inconsistency in your credit card report may affect your credit card profile. Also, this can lead to higher car loan interest rates. You must get in touch with the rating agencies, in case you find any problem with your credit card.

• Must avoid the extras by dealers: Buying is not the end always. Sometimes, dealers charge extras on cars by adding a number of accessories, which include central locks, gear locks to audio systems. Never buy the accessories from a dealer shop because their rates are significantly high. You have to buy them from a good accessory shop at reasonable prices.

• Do not forget to read the document: You must not forget to read the documents carefully at the end. The documents will include prepayment charges, interest rates and other terms and conditions. Thus, this is to make sure that you read the whole document carefully before signing it.

So, if you are planning to buy your own dream car, opt for the right car loan.

Five Tips Which Will Help You Buy The Right Child Insurance Plan

The only wish of parents is to see their child happy and be the best in everything. Along with rearing duties, financial planning for the child’s future is important as well. With rising inflation, the cost of education, health expenses, and the standard of living is being affected.

Under such changing times, the best way to secure a child’s future is through a child insurance plan. To buy the right plans is vital for your child’s future. We list out five points to consider while buying such an insurance plan.

1. Buy A Plan As Early As Possible

Most insurance firms design these plans where the maturity date coincides with a child turning 18 years of age. Many offer payouts at regular intervals after the child turns 18 and maturity benefits too. To buy such plans early, when your child is still an infant, is prudent. It gives you a long investment period to build a healthy corpus.

2. Look For Plans With Premium Waiver Option

In case of a parent’s death, the insurer waives off the remaining premiums and the insurer continues to fund the insurance policy until its maturity. That’s the benefit of a premium waiver option. This feature ensures the child insurance plan remains uninterrupted and provides the maturity benefit in spite of the death of the parent. Thus, the child’s financial future isn’t interrupted.

3. Option Of Partial Withdrawals

There are times when an emergency arises with regard to your child without any premonition. You may need to withdraw some funds from the insurance policy and that’s when partial withdrawals are most helpful. Plans with such a feature are helpful as you can meet the sudden expenses without going in debt and the insurance plan continues without any interruptions.

4. Choose A Plan Which Offers Cover As Well As Good Investments

There are many plans offered by insurers. An ideal child insurance plan will invest in a good mix of debt and growth funds to gain good returns in the long run. Another aspect is to find a plan which gives a substantial cover in case of the parent’s death so that the child’s future is secure.

5. Compare

In the age of the internet, it’s easy to compare insurers and their offerings. There are many aggregator websites which offer a listing of child insurance policies, their features, and benefits. Go through them, and go through the user comments too as to get an idea about various plans, and then make a choice.

A child insurance plan is your best bet when it comes securing your child’s future. Go for insurers such as Aegon Life and HDFC Life which offer great plans with features aimed to give your child the best cover for his future.

A Handy Guide To Bank Accounts in India

A bank account is a financial account offered as a service by banks to the public to deposit money for savings, business, and investment purposes. In India, there are four types of bank accounts which are most popular and used by all.

Savings Bank Accounts:

This is one of India’s most popular accounts. As the same suggests, the aim of savings account is to encourage a savings habit among the public. These accounts can only be opened in the name of individuals.

When one opens such an account, the owner of the account is presented with a passbook, an ATM card, and a chequebook. There are a few restrictions on the amount of transactions that can be done per day on these accounts.

One of the most attractive features of such an account is the interest earned on the money in the account. The rate of interest differs from bank to bank.  The Reserve Bank of India (RBI) till 2011 regulated the rate of interest given by banks. However, after October 2011, the RBI deregulated the interest rates and banks were given freedom to decide on the interest rate. This has led to a completion among many banks from some offering 4% to some going up to 6-7%.

When opening such accounts, one has to enquire about minimum balance. Some banks require the account holder to always have a minimum balance in the account, but the RBI has stated that banks are required to provide zero balance accounts where if the minimum balance reaches zero, you won’t be levied a fine by the bank.

Current Account:

Such an account is meant for businesses and business related transactions. These accounts can be opened under the name of a firm or a company. They are opened to business conduct their transactions in a smooth manner.

A chequebook facility is given to all account holders. Current accounts, unlike savings accounts, do not have a restriction on the number of withdrawals or deposit or usage of cheques. Banks do not pay interest on such accounts. However, in recent times, some banks have introduced special current accounts where interest is paid according to the bank’s own criteria.

There is a minimum balance requirement when it comes to current accounts. Most banks require the minimum balance to be INR 5,000 or INR 10,000.

Recurring Deposit Account:

A Recurring Deposit or RD as they are popularly known are for people who can deposit a small amount of money every month and want to earn a decent interest on it.

These accounts can be opened under single or joint names. Under such accounts, a person deposits a fixed sum of money every month, the amount has to be deposited every month without fail, a default attracts a penalty. However, certain banks allow variable payments where the deposit amount can vary, the account holder can deposit higher amounts too up to a certain upper limit.

The maturity period ranges from six months to 10 years. A default in monthly payments reduces the interest earned. Premature withdrawal of the account balance is allowed, however, you need to pay a penalty for it. The account holder is given a passbook to keep a check on the balance and interest earned. The people who open an RD are often those who intend to save money for a particular goal. (Children’s education, marriage, car etc.)

Fixed Deposit Accounts:    

They are popularly known as FD accounts. They are mainly used by people who want to deposit a lump sum amount of money for a certain period of time and earn interest on it. The maturity period ranges from seven months to 10 years.

The rate of interest is high on FDs which attracts a lot of people. It’s a great investment tool and very popular across India. Account holders are permitted to withdraw the amount before maturity, it will attract a penalty, though. Account holders have the option of directing the interest paid to be deposited into their savings account or current account.

Today, many banks have developed new accounts keeping in mind the needs of the people. However, most people still use the above-mentioned bank accounts and look for banks which offer these services with minimum documentation and attractive interest rates. Banks like Axis Bank are a good bet, they are known for good customer services and great offers.