Achintya Commodities Pvt Ltd

Although past performance cannot guarantee future market results, Stocks, historically have outperformed all other long-term financial assets. They are the only financial asset that has significantly outpaced inflation over time. Investors buy stock to potentially increase their return on investment in one or both of two ways:

1. Dividend Payments - Many companies pay portions of their annual profits to stockholders in the form of dividends. Stocks with consistent track record of paying attractive dividends are known as income stocks because investors often buy these stocks to receive the income by way of dividends in addition to being invested in the company's future growth prospects.

2. By Selling the stock for more than they originally paid - Some companies reinvest most of their profits back into the business in order to expand. Stocks of companies with sales and earnings that are expanding faster than the general economy and faster than the average company are called growth stocks because investors expect the company to grow and expect the stock price to grow with it. When such increase in the stock price is witnessed, investors can sell their shares for an amount greater than their purchase price, thus pocketing the difference as profit.

Modes of Stock Purchase Stocks can be purchased individually (meaning you purchase shares of stock in one particular company) or as part of a pool investments, such as mutual funds.

Mutual funds are baskets of stocks that are available for the fraction of the price you would need to buy the same stocks individually. That's because a large number of investors pool their money together and invest in the entire portfolio of stocks. Professional money managers direct the investments within mutual funds, choosing each of the individual investments based on the mutual fund's investment goals. For example, some equity mutual funds invest in well-established companies that pay regular dividends. Others invest in younger, more growth-oriented firms or companies that have been operating below expectations for several years. Note: As with the purchase of individual stocks, your investment return and principal value of an investment in mutual funds will fluctuate. Your shares may be worth more or less than your original investment when redeemed.

Risk in investments can be of the following types:

• Market Risk or Volatility: This refers to the fluctuation in the value of inv e s tme nts due to ch anges in the price of t he s tocks incl uded in an inv e s tor’s portfolio which could be caused by a variety of factors such as performance of the company, policy announcements, political factors etc. Even a portfolio of well-diversified assets cannot escape all risk.

• Inflationary risk: Also known as purchasing power risk, this is the decline in the purchasing power of money over time, so that even the "safest" investments can leave investors with substantially less purchasing power. For example, assuming an inflation rate of 4% for the next 10 years, if you have Rs.100 today, 10 years from now inflation will have eroded that Rs.100 so that it is worth only Rs.68.

• Investment or credit risk: This is the possibility that a company in which an investor is invested in may not be sufficiently profitable to remain in business.

Another manner of classifying risk in securities is as follows:

• Unsystematic Risk: Unsystematic risk affects a very specific group of securities or an individual security. Internal risks such as strikes, management policies, etc. are to a large extent controllable and are examples of nonsystematic risks. An investor can easily manage such non-systematic risks by having a well-diversified portfolio spread across the companies, industries and groups so that a loss in one may easily be compensated with a gain in other.

• Systematic Risk: The risk inherent to the entire market or entire market segment is called Systematic Risk. It is also known as "un-diversifiable risk". Such risks are external and beyond the control of the company. Examples of such risks are economic, political and sociological changes. Their impact is on prices of all individual stocks and they move together in the same manner. Therefore quite often the stock prices may be falling despite good company performance and vice versa.

Since higher returns are associated with higher risks, you, as an investor, need to understand your risk tolerance level and certain principles of investing which can help you diversify and mitigate this risk. Before venturing into the world of stock investments, consider:

• Are you conservative, aggressive or speculative in your approach to investing?

• Are you comfortable owning aggressive stocks?

• Are you looking for a steady stream of income, long-term returns from growth or very high returns from risky short-term trading?

Factors affecting Investment Decisions

Before you begin investing, it's helpful to understand some of the factors that will affect your investment decisions, such as:

• Risk
• Liquidity
• Time Horizon
• Total Return
• Diversification
• Tax Consequences
• Rupee Cost Averaging

Risk : Risk in investments can take various forms.

Liquidity : A "liquid" investment is one that can be readily turned into cash if you need the funds on short notice. Investments can vary greatly in their degree of liquidity. Shares can be traded on any business day at their current market value, which may be more than, equal to or less than the amount initially invested.

Time Horizon : Different investors have different time frames in which to achieve their investment objectives. Generally, young investors with long time horizons should be able to assume greater risks because they have more time to offset any losses with the higher return potential of investments with greater risk. Older investors, however, often choose to reduce risk because they have less time to recoup losses.

Total Return : All investments provide one or a combination of two different types of returns to investors - income or growth. Income is the dividend earned from stocks. Growth is the price appreciation of the security. The total return of an investment is the combination of income and growth realized over a given time period. In selecting investments based upon their expected total return, you should understand which portion is generated from income and which from growth. Usually, the greater the reliance on income, the lower the market risk but the greater the long-term purchasing power (or inflationary) risk.

Diversification : Building a diversified portfolio with securities spread across different investment classes can help you avoid the risk of having all of your eggs in one basket. By mixing industries and types of assets, you spread your risk. A particular market condition may have less impact if your portfolio consists of a wide assortment of securities than if you purchase only one type of security.

Most beginning investors don't have sufficient capital to properly diversify their portfolio by purchasing individual securities. Investing in mutual funds allows you to buy a professionally managed, diversified portfolio with relatively small rupee amounts. In addition, many mutual funds allow you to take advantage of rupee cost averaging by investing at regular intervals.

Note: Mutual fund investing involves risk. Your principal and investment return in a mutual fund will fluctuate in value. Your investment, when redeemed, may be worth more or less than the original cost.

Tax Consequences : Not all investment returns are subject to the same taxation. Short term and long term returns are taxed at different capital gains rates or even taxed as business income. The taxation policy should be kept in mind while deciding which investments to make.

Rupee Cost Averaging : Rupee cost averaging, the practice of committing a fixed amount of money to an investment program on a regular basis, is a popular practice with many long-term investors. By investing a set amount regularly (usually monthly or quarterly), investors are able to avoid the pitfalls of trying to time market peaks and valleys. Also, because the amount of the investments is set, investors who practice rupee cost averaging buy more shares of a stock or mutual fund when they are less costly and fewer shares when they are more expensive. Like any investment strategy, rupee cost averaging doesn't guarantee a profit or protect against loss in a declining market. Because rupee cost averaging requires continuous investment regardless of fluctuating prices, you should consider your financial and emotional ability to continue the program through both rising and declining markets.

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

Option Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer/holder of the option purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc. Under Securities Contracts (Regulations) Act,1956 options on securities has been defined as "option in securities" means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities. An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price. Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame. As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract.

Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index. Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date. An index, in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy. Indices that represent the whole market are broad based indices and those that represent a particular sector are sectoral indices. In the beginning futures and options were permitted only on S&P Nifty and BSE Sensex. Subsequently, sectoral indices were also permitted for derivatives trading subject to fulfilling the eligibility criteria. Derivative contracts may be permitted on an index if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index. The index is required to fulfill the eligibility criteria even after derivatives trading on the index has begun. If the index does not fulfill the criteria for 3 consecutive months, then derivative contracts on such index would be discontinued. By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on Expiry.

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

With the amendment in the definition of "securities" under SC(R)A (to include derivative contracts in the definition of securities), derivatives trading takes place under the provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992. Dr. L.C Gupta Committee constituted by SEBI had laid down the regulatory framework for derivative trading in India. SEBI has also framed suggestive bye-law for Derivative Exchanges/Segments and their Clearing Corporation/House which lays down the provisions for trading and settlement of derivative contracts. The Rules, Bye-laws & Regulations of the Derivative Segment of the Exchanges and their Clearing Corporation/House have to be framed in line with the suggestive Bye-laws. SEBI has also laid the eligibility conditions for Derivative Exchange/Segment and its Clearing Corporation/House. The eligibility conditions have been framed to ensure that Derivative Exchange/Segment & Clearing Corporation/House provide a transparent trading environment, safety & integrity and provide facilities for redressal of investor grievances.

Some of the important eligibility conditions are :-

• Derivative trading to take place through an online screen based Trading System.
• The Derivatives Exchange/Segment shall have online surveillance capability to monitor positions, prices, and volumes on a real time basis to deter market manipulation.
• The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades, quantities and quotes on a real time basis through atleast two information vending networks, which are easily accessible to investors across the country.
• The Derivatives Exchange/Segment should have arbitration and investor grievances redressal mechanism operative from all the four areas / regions of the country.
• The Derivatives Exchange/Segment should have satisfactory system of monitoring investor complaints and preventing irregularities in trading.
• The Derivative Segment of the Exchange would have a separate Investor Protection Fund.
• The Clearing Corporation/House shall perform full novation, i.e. the Clearing Corporation/House shall interpose itself between both legs of every trade, becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades.
• The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both.
• The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The concept of value-at-risk shall be used in calculating required level of initial margins. The initial margins should be large enough to cover the one-day loss that can be encountered on the position on 99% of the days.
• The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments.
• In the event of a Member defaulting in meeting its liabilities, the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions.
• The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his client. The Clearing Corporation/House shall hold the clients’ margin money in trust for the client purposes only and should not allow its diversion for any other purpose.
• The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange / Segment.

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

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

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

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

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

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

• Liquid Networth Requirements: Every clearing member (both clearing members and self-clearing members) has to maintain at least Rs. 50 lakhs as Liquid Networth with the Exchange/Clearing Corporation.

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

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

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

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

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

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

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

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

• The stock shall be chosen from amongst the top 500 stocks in terms of average daily market capitalisation and average daily traded value in the previous six month on a rolling basis.

• The stock’s median quarter-sigma order size over the last six months shall be not less than Rs.1 Lakh. A stock’s quarter-sigma order size is the mean order size (in value terms) required to cause a change in the stock price equal to one-quarter of a standard deviation.

• The market wide position limit in the stock shall not be less than Rs.50 crores. A stock can be included for derivatives trading as soon as it becomes eligible. However, if the stock does not fulfill the eligibility criteria for 3 consecutive months after being admitted to derivatives trading, then derivative contracts on such a stock would be discontinued.

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

You can do both. All the exchanges have both systems - cash and delivery mechanisms. The choice is yours. If you want your contract to be cash settled, you have to indicate at the time of placing the order that you don't intend to deliver the item. If you plan to take or make delivery, you need to have the required warehouse receipts. The option to settle in cash or through delivery can be changed as many times as one wants till the last day of the expiry of the contract.

You will require a bank account. And separate commodities demat account from the National Securities Depository Ltd to trade on the NCDEX just like in stocks.

Daily financial newspapers carry spot prices and relevant news and articles on most commodities. Besides, there are special magazines on agricultural commodities and metals available for subscription. Information easiest to access is from websites. Though many websites are subscription-based, a few also offer information for free. You can surf the web and narrow down you search.

The exchanges are regulated by the Forward Markets Commission. Unlike the equity markets, brokers don't need to register themselves with the regulator. The FMC deals with exchange administration and will seek to inspect the books of brokers only if foul practices are suspected or if the exchanges themselves fail to take action. In a sense, therefore, the commodity exchanges are more selfregulating than stock exchanges. But this could change if retail participation in commodities grows substantially.

The commodities market will have three broad categories of market participants apart from brokers and the exchange administration - hedgers, speculators and arbitrageurs. Brokers will intermediate, facilitating hedgers and speculators. Hedgers are essentially players with an underlying risk in a commodity - they may be either producers or consumers who want to transfer the price-risk onto the market. Producer-hedgers are those who want to mitigate the risk of prices declining by the time they actually produce their commodity for sale in the market; consumer hedgers would want to do the opposite. For example, if you are a jeweler with export orders at fixed prices, you might want to buy gold futures to lock into current prices. Investors and traders who want to benefit or profit from price variations are essentially speculators. They serve as counterparties to hedgers and accept the risk offered by the hedgers in a bid to gain from favourable price changes.

Though the government has essentially made almost all commodities eligible for futures trading, the nationwide exchanges have earmarked only a select few for starters. While the NMCE has most major agricultural commodities and metals under its fold, the NCDEX, has 10 commodities (gold, silver, castor, soya, rape/mustard oil, crude palm oil, RBD palm oil and cotton). MCX offers futures trading in gold, silver and castor seed, rubber.

As of now, there is no stamp duty applicable for commodity futures that have contract notes generated in electronic form. However, in case of delivery, the stamp duty will be applicable according to the prescribed laws of the state the investor trades in. This is applicable in similar fashion as in stock market.

As in stocks, in commodities also the margin is calculated by (value at risk) VaR system. Normally it is between 5 per cent and 10 per cent of the contract value. The margin is different for each commodity. Just like in equities, in commodities also there is a system of initial margin and mark-to-market margin. The margin keeps changing depending on the change in price and volatility.

Yes the exchanges have circuit filters in place. The filters vary from commodity to commodity but the maximum individual commodity circuit filter is 6 per cent. The price of any commodity that fluctuates either way beyond its limit will immediately call for circuit breaker.

A Spot Market is any market that deals in the current price of a financial instrument. Futures markets, such as the Chicago Mercantile Exchange (CME), National Stock Exchange (NSE), MCX' SX, BSE offer currency futures contracts whose delivery dates may span several months into the future. Settlement of Forex spot transactions usually occurs within two business days.

There are two main groups that trade in currencies. About 5-10% of daily volume is from companies and governments that buy or sell products and services in a foreign country and must subsequently convert profits made in foreign currencies into their own domestic currency in the course of doing business. This is primarily hedging activity. The other 90-95% consists of investors trading for profit, or speculation. Speculators range from large banks trading 10,000,000 million currency units or more and the home-based operator trading perhaps 10,000 units or less. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders, and hedge funds all use the FOREX market to pay for goods and services, to transact in financial assets, or to reduce the risk of currency movements by hedging their exposure in other markets. The speculator trades to make a profit by purchasing one currency and simultaneously selling another. The hedger trades to protect his or her margin on an international sale from adverse currency fluctuations. The hedger has an intrinsic interest in one side of the market or the other. The speculator does not.

Any resident Indian or company including banks and financial institutions can participate in the futures market. However, at present, Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) are not permitted to participate in currency futures market.

Currency prices are affected by a variety of economic and political conditions, but probably the most important are interest rates, international trade, inflation, and political stability. Sometimes governments actually participate in the foreign exchange market to influence the value of their currencies. They do this either by flooding the market with their domestic currency in an attempt to lower the price or, conversely, buying in order to raise the price. This is known as Central Bank Intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market make it impossible for any one entity to drive the market for any length of time.

• Trade Balance – This refers to imports and exports, and is probably the most important determinant of a currency's value. When imports are greater than exports, you have a trade deficit. When exports are greater than imports, you have a surplus. A shift in the trade balance between two countries tends to weaken the currency of the country with greater deficit.

• Wealth – Wealth is a country's reserves, in the form of gold, cash, natural resources, and so on. Any factor that affects a country's ability to repay loans, finance imports, and affect investments affects the market's perception of its currency and the currency's value.

• Internal Budget Deficit or Surplus – A country running a current account deficit has, on balance, a weaker currency than one that runs a budget surplus. This is tricky, however, in that the direction of the surplus or deficit affects perceptions and currency valuations too.

• Interest Rates – Funds travel globally in electronic format responding to changes in short-term interest rates. If three-month interest rates in Germany are running 1% less than three-month rates in the United States, then all other things being equal, ‘hot money’ flows out of Euro into the Dollar.

• Inflation – Inflation in each country and inflationary expectations, affect currency values.

• Political factors – Taxes, stability and other factors that affect the international trade of a country or the perception of ‘soundness’ of the currency affect its valuation.

Mutual funds are popular investments, primarily because of their numerous benefits:

Diversification: Mutual funds help you diversify your portfolio, or spread your money over a number of different investments that are handpicked and tracked by professional money managers. This strategy can help decrease risk to your portfolio because when your investment return isn't dependent on any single investment, the impact of one poor performer on your portfolio is reduced.

Convenience: Mutual funds make investing easy and flexible by emphasizing convenience to the investor in several ways:

• Low minimum investment: Most mutual funds require low minimum investments making it easy for investors to build a diverse portfolio fairly quickly.

• Easy liquidity: You can cash in any or all of your mutual fund shares on any business day. The value of your shares is based on the closing market price (net asset value, or NAV) of the underlying securities.

• Automatic reinvestment: You can automatically purchase more mutual fund shares by reinvesting your dividends and capital gains distributions.

• Systematic withdrawal: You can request that regular payments from systematically selling shares be sent directly to you.

Professional Management: Experienced, full-time money managers manage each mutual fund. These professional money managers:

• Research general market and economic trends. Using the information they gather, the fund's professional money managers decide when to buy or sell securities to increase return potential and keep constant tabs on individual holdings and the overall performance of particular markets, adjusting the portfolio for the strongest possible performance.

• Strive to achieve specific objectives: Because each fund has a specific investment objective, such as long-term growth or aggressive growth, managers can focus on the strategic goals of their funds.

Financial benefits: These include:

• Mutual fund unit holders can earn dividends on their mutual fund units.
• Unit holders can also profit from the sale of their units if they sell them for more than their original value.*
• Unit holders can receive their dividend payments directly or reinvest them back into the fund and purchase additional units.

( * An investment in mutual funds will fluctuate such that an investor's shares when redeemed may be worth more or less than the original investment)

Systematic Investment Plans

Investing regularly through a Systematic Investment Plan (SIP) in an equity fund is one strategy that can ensure success to a large extent for those who are looking to build up their capital over the longer term and are not familiar with equity markets. It is a proven fact that a steady saving and investing plan helps pursue financial goals. What SIP really means is that you invest a fixed sum every month. When you invest a fixed amount, such as Rs.10000 a month, you

Some of the Benefits of SIPs are as follows:

• Rupee Cost Averaging - SIP makes market timing irrelevant. In other words, you can invest a certain amount of money every month at various entry prices buying fewer units when the share prices are high and more units when the share prices are low. Besides, you take advantage of the fact that over a period of time stock markets generally go up, so your average cost price tends to fall below the average NAV. This "averaging" ensures that you buy at different levels, not just the top.

• Benefit of Compounding - The profits you earn from your investments get reinvested. Therefore you earn returns on your primary investments and reinvested profits.

• Cost Effective Method of Investment - Instead of blocking your money by making a one-time investment, in an SIP, you can spread the same amount over a certain period of time and maintain liquidity .

• Building for the Future - SIP is an effective method of ensuring regular savings and achieving your short-term or long-term financial goals. It is also an excellent method of utilizing your funds, which may be, otherwise, lying idle.

Step-wise Approach to an SIP

• Choose the amount you want to invest at each interval. (The amount must be such that you will be comfortable investing regularly over the long term)
• Choose the frequency of your investment - every month, every quarter, every six months.
• Continue investing the same amount each period irrespective of whether the market falls or rises.
• Maintain a long-term perspective. Ignore the day-to-day fluctuations in the market. Keep investing over a long period of time to give your money a chance to grow.

Significance of Mutual Fund Offer Document: There is no doubt that reading a 100-odd pages Mutual Fund Offer Document is a cumbersome and time-consuming process. However, the importance of this document for any potential investor should not be undermined at any point of time. The significance of the Offer Document is emphasized by the line “Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing”, which accompanies all Mutual Fund advertisements. Thankfully, Sebi has made the investor’s job easier by evolving an abridged version, the Key Information Memorandum.

The Mutual Fund Offer Document is the fund's selling document and contains valuable information, such as the fund's investment objectives or goals, principal strategies for achieving those goals, principal risks of investing in the fund, fees and expenses, and past performance. The prospectus also identifies the fund's managers and advisers and describes how to purchase and redeem fund shares. This document can be obtained from fund companies directly, through mail, email, phone or from their websites or from a financial advisor. While they may seem daunting at first, mutual fund prospectuses contain a treasure trove of valuable information. Here's some of what you'll find in a mutual fund prospectus:

• Date of Issue: It is mandatory for mutual funds to update their prospectus at least once a year. You must always ensure that you have received the most recent version of the same.

• Minimum investments: Check the minimum initial investment and minimum amount for subsequent investments specified in the Offer Document, since these vary from one fund to another.

• Investment Objectives: The Offer Document specifies the investment objectives of the fund, whether it is a growth-oriented, income-oriented or balanced fund. You need to decide whether your personal investment goal is long term capital appreciation with a higher risk exposure or a lower risk, regular income flow. Only if your investment objective matches with that of the fund, should you invest in it.

• Investment Strategy: The general investment strategies (equity/debt) that the fund managers intend to adopt to achieve the pre-specified goals, are outlined in the Offer Document. Minimum bond ratings and types of companies considered appropriate for a fund, may also be mentioned.

• Risk Profile: Do not be under the misconception that mutual funds are free from risk. While risks vary depending on the fund, the potential danger is the same - loss of principal and income. You must determine your own risk tolerance level based on your investment goals. Risks that may be acceptable for a long-term investor seeking capital appreciation may not be suitable for an investor seeking income and principal protection. It is essential for you to refer to the Offer Document to understand the various kinds of risks (eg. credit risk, market risk, interest-rate risk etc.) associated with the fund and how they fit into the balance of risk in your overall portfolio.

• Financial Highlights: This section contains audited data concerning the fund's financial performance for different time periods since the fund's inception. Here you'll find net asset values (for both the beginning and end of each period), total returns, and various ratios, including the ratio of expenses to average net assets, the ratio of net income to average net assets, and the portfolio turnover rate. Such performance data listed in an Offer Document are based on standard formulas established by Sebi and enable investors to make comparisons with other funds.

  While past performance does not necessarily predict future returns, it can tell you how volatile (or stable) a fund has been over a period of time. Generally, the more volatile a fund, the higher the investment risk. If you'll need your money to meet a financial goal in the near-term, you probably can't afford the risk of investing in a fund with a volatile history because you will not have enough time to ride out any declines in the stock market. So, you must read the historical performance of the fund critically, looking at both the long and short-term performance. When evaluating performance, you must look at the track record of a fund over a time period that matches your own investment goals.

• Fees and Expenses Structure: As with any business, running a mutual fund involves costs — including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors by imposing fees and expenses (eg. Entry loads, exit loads, switching charges, annual recurring expenses, management fees, investor servicing costs). The Offer Document lists the limits on these fees and also shows the impact these have had on the fund investment historically. Be sure to review carefully the fee tables of any funds you are considering. Even small differences in fees can translate into large differences in returns over time.

• Tax Benefits: The offer document gives the tax benefits enjoyed by the fund. This can help you plan your taxes better and help you enhance your post tax returns.

• Fund Managers & other Key Personnel: The offer document gives details on the education and work experience of the key management of the fund company, including the CEO and the Fund Managers.

• Additional Investor Services: This section describes any specific services which the investors can enjoy, such as automatic reinvestment of dividends and systematic investment/withdrawal plans and how one can take advantage of them.

All the information mentioned above will help you get a fair idea of the mode of functioning of the fund, and enable you to take the crucial decision – Is this fund suitable for my portfolio?

There are two types of IPOs

“Book Building” means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicit and built up and the price of the security is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer. This method provides an opportunity to the market to discover the price for securities. In case of a fixed price issue the issue price is fixed.

• One needs to have a demat account
• Make available the copy of PAN card
• Other basic essentials such as address proof, bank details and the contact details.

In order to start placing an order in IPO’s online, you will have to become a registered client of Achintya. All you have to do is open an online account with us. Once your account is activated, you can place your orders completely online.

“Dematerialization” is a process by which physical certificates are converted into electronic form.

Rematerialisation is the process of converting securities held in a demat account in electronic form back in physical certificate form.

When securities of a company are held in physical form by an investor, Name of the investor is recorded in the books of the company as a ‘Registered Owner of the Securities. Each certificate is identified by Folio number, certificate number and distinctive range numbers.

When physical shares are converted in to electronic form, the depository becomes ‘Registered owner” in the books of the company and investors name is removed from books of the company. Depository is holding shares in its records on behalf of the investors who have opened a demat account with the depository. Hence all benefits are given to the actual investor who is called as a “Beneficial Owner” (BO) of the securities.

A “Depository Participant” (DP) is an agent of the depository who is authorized to offer depository services to investors. Financial institutions, banks, custodians and stockbrokers complying with the requirements prescribed by SEBI/ Depositories can be registered as DP.

“Issuer” means any entity such as corporate / state or central government organizations Issuing securities which can be held in depository in electronic form.

An RTA i.e. Registrar and Transfer Agent is an agent of the issuer. RTA act as an intermediary between the issuer and depository for providing services such as Dematerialization, Rematerialisation, Initial Public Offers and Corporate actions.

“ISIN” is a unique 12 digit alphanumeric code given to a security, shares, Debentures, Bonds etc. when the security is admitted in the depository system. First two digits of the ISIN code indicate country of registration for the security. All securities registered on depository in India, first two digits of the ISIN code are ‘IN’.

No, different securities issued by the same issuer will have different ISIN code.

Depository provides following services to the investors through a DP:

• Opening a demat account.
• Dematerialization, i.e. converting physical securities into electronic form.
• Rematerialisation, i.e. converting electronic securities balances held in a BO account into physical form.
• To maintain record of holdings in the electronic form.
• Settlement of trades by delivering / receiving underlying securities from / in BO accounts.
• Settlement of transactions between BOs entered outside the Stock Exchange.
• Receiving electronic credit in respect of securities allotted by issuers under IPO or otherwise on behalf of demat account holders.
• Receiving non cash corporate benefits, such as, allotment of bonus and rights shares or any other non cash corporate benefits given by the issuers in electronic form on behalf of its demat account holders.
• Pledging of dematerialized securities & facilitating loans against shares.
• Freezing of the demat account for debits, credits, or both.
• Internet facilities “easi” and “easiest”, if the DP is registered for the same with CDSL.