Everything You Need to Know About Derivatives

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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.

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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.

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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.

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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

Image result for choose the right mutual fund imagesEveryone 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.

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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.

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).

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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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

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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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.