BSE or NSE which is better, NSE or BSE for beginners

How to choose between NSE and BSE, comparison between BSE and NSE.

The BSE is the oldest Stock exchange in India founded on July 9, 1875, in Dalal Street of Bombay: now Mumbai. The NSE, established in 1992, is the first electronic Stock Exchange in India. The NSE was the first Stock Exchange in India to have all computerised, screen-based electronic trading system. BSE also has an all-digital screen-based electronic trading system now. We will compare BSE an NSE from an individual investor’s point of view.

The short answer to ‘which is better BSE or NSE?’ is that both are excellent choices. Buying or selling shares in either the BSE or NSE is very easy and they both have good online services. So both NSE and BSE are perfect.

How many companies are listed in BSE and NSE

There are many more companies listed on BSE than in NSE. BSE has about 6000 listed Companies compared to less than 2000 listed Companies in the NSE as at the end of 2016. The market capitalisation of listed companies in BSE at the end of 2016 was about US$ 2 trillion compared to about US$ one trillion in the NSE.

Thus you will find many new Companies listed only on BSE and not listed on the NSE. For the individual investor in India, who wants to invest in shares of new companies, the BSE is a better choice. It will be very rare to find a Company that is only listed on the NSE and not listed in the BSE.

Difference between BSE and NSE

The main difference between BSE and NSE is that the trading volume of individual stocks in NSE is much higher than in BSE. The NSE is a better choice for those who want to do ‘Day Trading’ and risk doing Share Trading with Derivatives, Futures and Options. The NSE has better software for these high-risk online transactions. The BSE is for the more conservative investor who likes to invest and sit and watch his investments grow. It is for people with a more relaxed attitude to investing in shares.

About NSE, National Stock Exchange of India

The National Stock Exchange of India (NSE) is India’s largest Stock Exchange by value of shares traded per day and the third largest in the world. The NYSE: New York Stock Exchange is the biggest in the world.

The NSE main office is in Mumbai (Bombay) and incorporated in November 1992 as a tax-paying company. The promoters of NSE are some of India’s top financial institutions, banks and insurance companies.

NSE trading hours are from 9:00 am to 3:30 pm, Indian Standard Time, Mondays to Fridays except on holidays declared by the NSE or by the Government of India.

You can do trading on the NSE in the following:

  • Shares
  • Futures and Options
  • Retail Debt Market
  • Wholesale Debt Market
  • Currency Futures
  • Mutual Funds

NSE has set up one of the best online trading systems in the world. The main index of the NSE is the NIFTY. The full form of NIFTY is ‘S&P CNX Nifty’ a short-form or abbreviation for ‘Standard & Poor’s CRISIL NSE Index 50’.

The NIFTY value is an Index – just a numerical value. The NIFTY value is worked out by computers almost every second by using a formula which takes into consideration the share price and the market capitalisation of the 50 NIFTY Companies. Each of the 50 NIFTY Companies contributes a value to the NIFTY Index depending upon its Weightage or its free-floating market capitalisation. RIL: Reliance Industries Ltd. being the largest Company by market capitalisation contributes most to the NIFTY Index- about 11%.

The 50 Companies in the NIFTY are selected from leading Companies from 21 sectors of the Indian economy like Auto, Banking, Cement, Engineering, IT, etc. The NSE NIFTY is at its highest value ever in 2017 and hovering around 10,000. The market trend is more positive than ever.

NSE has also set up an index services firm known as India Index Services & Products Limited (IISL) and they manage the following Major NSE Indexes or indices of the NSE:

  • S&P CNX Nifty
  • CNX Nifty Junior
  • CNX 100
  • S&P CNX 500
  • CNX Midcap
  • Nifty Midcap 50
  • S&P CNX Defty
  • CNX IT Index
  • CNX Bank Index
  • CNX FMCG Index
  • CNX PSE Index
  • CNX MNC Index
  • CNX Service Sector Index
  • CNX Energy Index
  • CNX Pharma Index
  • CNX Infrastructure Index
  • CNX PSU BANK Index
  • CNX Realty Index
  • S&P CNX Nifty Shariah / S&P CNX 500 Shariah
  • S&P ESG India Index

What is SIP investing in Mutual Fund and SIP benefits

What is SIP investing in Mutual Fund and SIP benefits

SIP in Mutual Funds means Systematic Investment Plan in Mutual Funds. This is a special type of invest scheme for the salaried people of India to invest monthly on a regular basis in a Mutual Fund scheme.

Every time an investor pays the monthly SIP instalment, he gets some mutual fund units at the NAV: Net Asset Value of the mutual fund he is investing into. Thus every month Units are being added to his holdings of the Mutual Fund. This gradually builds up a fortune for the investor.

SIP in Mutual Funds advantages

The advantage of SIP investment in mutual funds is that it encourages people to make regular investments in small amounts. SIPs are flexible in that if in any month the investor cannot pay the monthly SIP instalment, he can stop investing in SIP plan at any time, and then restart investing in the same SIP plan when he can afford to pay the SIP amount.

The SIP plans also allow a person to increase or decrease his SIP monthly plans. You can pay SIP monthly payments with a standing instruction in your Bank Account. SIP investments also have tax exemptions, and this encourages a lot of people to start SIP investments in Mutual Funds.

Different types of mutual fund schemes in India

Which is better mutual fund or shares

For a new individual Investor, investing in Mutual Funds (MF) is better because it is much easier and safer than trying to pick Shares from the Stock Market. Experts manage mutual Funds and normally do not have negative returns. This means that capital invested in a Mutual Fund is safe with steady growth. New investors must get advise from experts on how to choose best mutual fund to invest in India.

What is a mutual fund and its types

Mutual Funds are a managed fund where many people put in money into the fund. The Mutual Fund (MF) with the money collected, will buy financial instruments like Shares and Bonds which are known as the Assets of the Mutual Fund. The Mutual Fund will have expert managers who will buy and sell these financial instruments, almost on a daily basis, to make profits.

Every day at the end of trading hours they will have computers to calculate the total value of their Assets which are the total value of all their holdings in Share, Bonds, etc. This Total Asset Value minus any liabilities the MF (Mutual Fund) Company has (for example salaries, rent, etc.) gives the Total Net Asset Value of the MF Company. This Total Net Asset value divided by the number of shares or units issued by the MF Company provides the Net Asset Value per Unit or Share. This is called the Net Asset Value per unit or NAV.

How mutual funds work and make money

Let us take for example a Mutual Fund (MF), which has a capital of Rs.100 Million or Rs.10 Crores. The Rs.10 Crores is divided into one crore Units of Rs. 10 each. An individual investing Rs.1000 in the MF will receive 100 Units in the MF Company. The MF invests its capital of Rs.10 crores in Shares of different Companies and Government and other reliable Bonds. In the course of time these investments will gain in value. In our example let us say the total investments or ‘Assets’ of MF increased to Rs.12 Crores, then the value of each Unit becomes Rs.12. This value is known as the ‘Net Asset Value’ or ‘NAV’ of the unit. Mutual fund Companies declare their NAV daily at the end of business hours. Daily NAV of Indian Mutual Funds are usually declared after 5PM every working day.

The Units or Shares of the MF Company can be bought from or sold to the Unit Holders directly by the MF Company at the latest NAV price. The Units of MF can also be bought and sold in a Stock Exchange. There are mainly three types of Mutual Funds: Open-End Funds, Closed-End Funds and Exchange Traded Funds – ETF.

Examples of mutual fund types in India

These are the types of mutual funds available in India with examples

Open-End Mutual Funds in India

Open- End Mutual Funds sell their Units to anyone, or buy their Units from their Unit Holders (redemption), at the prevailing declared NAV price. If the demand is more with more and more people wanting to buy into their Fund, they will keep on selling and increase their Capital. The Capital of the MF will vary daily based on share purchases, share redemptions and the daily NAV price. Thus Open Ended Mutual Funds have no restrictions on their Capital and the number of Shares or Units issued.

Closed-End Mutual funds in India

Closed-end funds issue shares to the public only once at the time of their IPO (Initial Public Offering). The prices quoted on the stock exchange will most likely vary from the declared NAV. This is due to the perception of the investors as to how good or bad the fund is, and how it will perform in the future. Investors cannot sell their shares back to the fund. They can only sell their shares in the Stock Exchange same way as selling ordinary Stocks.

ETF or Exchange Traded Mutual Funds in India

ETF or Exchange Traded Funds are those Mutual Funds whose shares or Units are quoted on the Stock Exchanges and are traded on these exchanges just like if it were a Stock. Closed End Funds described above would qualify to be an ETF.

Value Mutual Fund in India

Mainly buy Stocks of Companies whose value determined by a low Price to Earning (P/E) Ratio and paying regular dividends. The aim of the fund is that these undervalued Companies will gain in value and thus making profits for the investor.

Growth Mutual Fund in India

Invests in Stocks of firms with good steady performance over many years, and having good growth prospects and thus increase in value of their shares

Large, Mid, and Small Cap Mutual Funds in India

Invests in Stocks of Companies according to the relative size or Capital of the Companies. The market cap of such companies varies from country to Country. In India for example, a Capital of Rs.6,000 crores ($1 billion) and above may be classified as large caps. Companies with a market capitalisation between 1,500 crores ($200 million) and 6,999 crores ($1 billion) are classified as mid caps. Companies with a market capitalization of less than 1,500 crores ($200 million) may be classified as small caps. Whereas in the USA a large Cap Company would be having a Capital of over $2 Billion; between $2 and $1 Billion for midcap and below $1 billion for small cap.

Income Mutual Fund in India

The fund aims to create regular income for the investor and invests in Stocks or Financial instruments paying good dividends or interest.

Index Mutual funds in India

These funds invest in the same Stocks as those in the particular index. For example, a ‘NIFTY’ Index Fund will invest in the 50 shares which make up the ‘NIFTY’ index of India’s NSE.

Balanced Mutual funds in India

Balanced funds aim to get healthy growth but at the same time at a reduced risk. Therefore it invests about half its Assets in very secure securities like Government Bonds and only with the other half, invests in the more riskier Equities or Stocks of Companies.

Tax Saving Mutual Funds in India

Tax saving Funds are mutual funds schemes where investments are in tax incentive schemes like special Government Bonds, etc. The idea is for the bondholder to claim tax rebates.

Sectoral Industries Mutual Funds in India

Here the MF aims to invest in Stocks of a particular sector. Thus a ‘Banking Sector Fund’ would invest in stocks of Banks and similarly, you will have other sectoral Funds like ‘Real Estate Sectoral Fund’ or ‘Auto Industries Sectoral Fund’ or ‘Infrastructure Development Sectoral Fund’, etc.

How to buy Mutual Funds online in India

Once you have a Savings bank account and a PAN card you can buy Units of the best Mutual Fund Companies in India. On the Internet, the latest NAV of Indian Mutual Funds are published daily, and you can know in advance at what price you can get the MF units. So far the best Indian Mutual Funds performance has been much better than either the BSE or NSE Sensex.

Advantages and disadvantages of investing in mutual funds in India

The benefits of investing with MF funds are first: the MF invests in many different Companies and different types of Financial instruments thus spreading any risks in the investments. Secondly, the MF Companies are managed by experts who have had many years of experience and exposure in the Stock and Financial Markets and are thus much more qualified investor. Also, the mutual fund industries in the various countries are run by leading Banks and even Government owned Companies. For example, in India the State Bank of India’s Mutual fund is known as SBI Mutual Fund. The Government Company, Unit Trust of India or UTI and SBI Mutual Fund are leading Mutual fund players. In many countries, Pension Funds are some of the leading investors in Mutual funds.

Mutual funds can invest in many kinds of financial instruments or securities. The investment objectives of the MF are declared in the fund’s prospectus. The investment objective describes the type of securities the MF will be investing into, for example, a ‘Growth Fund’ would try to get its returns by the increase in the market price of the securities it holds. A ‘Dividend Yield Fund’ on the other hand invests in Stocks of Companies who are known to pay out handsome dividends regularly while at the same time their share value also appreciates. A ‘Balanced Fund’ invests about half its Assets in very secure securities like Government Bonds and only with the other half invests in the more riskier Equities or Stocks of Companies.

Also finally it is very easy to invest in Mutual funds. How to invest in Mutual Funds in India online is very easy. All you have to do is to go to the website of the MF Companies like UTIMF.Com or SBIMF.Com, create an account online and payments for the units can also be made online through your account with a Bank.

What is government gold bond scheme in India

Government gold saving scheme in India 2019

Indians love gold and have been in the habit of saving in gold whenever they have spare cash. But this traditional way of savings by collecting gold in the form of jewellery or gold coins is changing. To encourage this trend, Indian Government launched three new Gold schemes in November 2015. A Gold Coin bearing Ashok Chakra, a Gold Monetisation Scheme and the Sovereign Gold Bond Scheme. Besides these new Gold schemes in India, there is the old trusted Gold ETFs or Gold Exchange Traded Funds. Many now consider these new gold investment plans in India to be the safest and best way to invest in gold in India. So we will explain the details of all these gold saving schemes in India.

Government of India Gold Monetisation Scheme

Under India Gold Monetisation Scheme, any resident Indian can surrender Gold, in any form, to any of the special Gold Collection and Purity Testing Center in India. The purity and content of gold is checked in front of you and a certificate issued mentioning the amount of gold surrendered. This is the Indian Gold Monetisation Scheme certificate. The Certificate mentions the weight of gold surrendered and a value based on the market price of gold on the date of the certificate. On this value of gold, you will get simple interest at the rate of 2.5% per annum. These Gold certificates have fixed scheme periods, Short Term (1-3 years), Medium Term (5-7 years) or Long Term (12-15 years). At the end of the scheme period, you will get back the same weight of Gold in the certificate in the form of pure gold bars. You can also opt to get paid in cash for the value of the gold based on the actual market price on the maturity date.

The advantages of the Indian Gold Monetisation scheme

You can rest easy when all your physical gold is in the form of legal Government Gold Certificates. The advantages of the Indian Gold Monetisation scheme are as follows:

  1. No need to be afraid of robbers stealing the gold or be scared of income tax raids.
  2. Interest is paid for the value of gold at the time of conversion plus you get back the same amount of gold at the appreciated value at the date of maturity of the Gold Monetisation Certificate.
  3. You can surrender gold in any form or purity. Even broken or damaged jewellery is accepted by the special Gold Collection and Purity Testing Centres.
  4. Tax-free: Interest got from the Gold Monetisation scheme are exempt from capital gains tax, wealth tax and income tax. Also no capital gains tax on the Gold value appreciation.
  5. You can convert any quantity of Gold under the Government of India Gold Monetisation Scheme, there is no maximum limit on the weight of gold.
  6. The details of the Gold Monetisation Scheme in India are explained on the Government website about the Indian Gold Monetisation Scheme.

What is Gold Bond scheme in India

The Sovereign Gold Bond Scheme in India is a Government of India Gold savings scheme. The official name is ‘Sovereign Gold Bonds Scheme’. Each Sovereign Gold Bond is equal to 1 gram gold and you buy at the market price of gold whenever the Government issues notification of its sale. It is possible to buy sovereign gold bond online from leading bankers in India.

Investing in gold bonds in India will have the same benefits as if you are holding physical gold. Gold bonds investment in India can be used as security for obtaining gold loans from Banks. How to invest in gold bonds India is simple and can be got from any of the leading Banks in India. Selling Indian Gold Bonds is easy. It can be done through the stock exchanges in India and you can usually get the money in your bank in 24 hours.

Advantages of Sovereign Gold Bond investment in India

Robbers will not try to steal Gold Bonds. The benefits of buying Sovereign Gold Bonds in India are:

  1. The price of Sovereign Gold Bond is the same as the price of gold daily. You can buy sovereign gold bond online from leading banks in India.
  2. The Sovereign Gold Bond value increases same as the value of gold.
  3. You get 2.5% interest on the value of your initial investment in the gold Bond.
  4. Even though Sovereign Gold Bonds in India has a lock-in period of 8 years, with options to exit in the 5th, 6th and 7th years, it can still be sold in the Stock Exchanges in India, anytime and at the price of gold on the day you are selling.
  5. The Government of India issues a sovereign guarantee for payment of the Gold Bonds in India.
  6. The Gold Bonds in India are tax-free: No capital gains tax will be levied on gains from sovereign gold bonds in India.
  7. Whenever you want a gold loan, it will be a quick process, because the Banks giving the gold loan does not have to check whether the gold is real or fake
  8. Anytime you want to sell the gold bonds it can be sold in the share market and money in your bank account, usually within 24 hours

What is Gold ETF and how does it work in India

ETF is an abbreviation and means “Gold Exchange Traded Fund”. This is how the NSE (National Stock Exchange of India) explains what ETFs are:

“Gold Exchange Traded Funds (ETFs) are simple investment products that combine the flexibility of stock investment and the simplicity of gold investments. ETFs trade on the cash market of the National Stock Exchange, like any other company stock, and can be bought and sold continuously at market prices.
Gold ETFs are passive investment instruments that are based on gold prices and invest in gold bullion. Because of its direct gold pricing, there is a complete transparency on the holdings of an ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.”

So when you invest in a gold ETF for every gram of gold you invest you get a unit in ETF. The value of the ETF unit is the open market price for a gram of gold which is published in all newspapers daily. Anytime you want you can sell the ETF units, it can be sold online at market price, and the money will come into your bank within 24 hours in most cases. So Gold ETFs are a very safe investment and a very liquid asset because you can sell it whenever you want and get money quickly.

Gold ETF Vs Gold Bonds

We list below the difference between Indian Sovereign Gold Bonds and Gold ETFs and also the advantages and disadvantages of Indian Gold Bonds and Gold ETFs:

  1. Indian Gold Bonds are guaranteed by the Government of India whereas the Gold ETFs have the backing of physical Gold.
  2. Gold ETFs are open-ended mutual funds traded on a stock exchange just like a share or stock of a Company. Whereas Indian Sovereign Gold Bonds are closed-end funds with fixed maturity periods. Even though a closed-end fund, they can still be traded on the stock exchange like a commodity.
  3. Each unit of both Gold Bond and Gold ETF are based on one gram gold, and the daily value is determined by the daily market price of gold.
  4. There are small charges associated with Gold ETFs like expense for managing the fund and brokerage costs which total about 1% and is lower than costs for regular stock-based mutual funds.
  5. The big advantage of Indian Gold Bonds over the Gold ETF is that the Government pays an interest rate of 2.75% annual simple interest paid every 6 months.
  6. There is a cap of 500 grams investment in Indian Gold Bonds per financial year. Gold ETFs, on the other hand, have no limits on purchase.
  7. The advantage of both Gold Bonds and Gold ETFs are that they are paper gold and risk-free to hold, unlike physical gold where you are always at risk of being robbed and target of thieves.
  8. Tax advantages are better on Gold Bonds than Gold ETFs. The latest Indian budget has exempted redemption of Gold Bonds on maturity from capital gains tax and income tax on the interest earned from Sovereign Indian Gold Bonds. But Gold ETFs are considered as non-equity investments and subject to short-term capital gains on units held for less than 36 months.

How to find Multibagger stocks in India

Future multibaggers in Indian stock market

Finding multibagger stocks in India depends on your research skills. You need to find the stocks that are fundamentally good but are priced very cheap because of some negative news or because of the perception that the company has high debt. You need to find out if the company has products which are, or will be, in high demand. Also, you will need to do some research on the key persons managing the operations. Do a check on their background and find out if they have a history of performing well.

Investing in penny stocks in India

What is a Penny stock in India? The name Penny Stocks in India comes from the American stock market. A Penny in a Dollar is like a paisa in a Rupee. 100 penny makes a Dollar, and 100 paisa makes a Rupee. In the old days, most American stocks had a face value of one dollar. Shares of companies that were doing good used to trade for pennies. Thus the name ‘Penny Stock’ became associated with cheap stocks.

I recommend that everyone should invest a portion of their investment money in at least two shares with the aim hitting a multibagger share. You should not invest more than 5 to 10% of your money kept aside for investment. This is a gamble for multibaggers.

Some penny stocks can give very high returns. Most investor Gurus will tell you to stay away from penny stocks. But if you do your research well, you may be able to pick some Multibaggers from penny stocks. If say you choose a penny stock at Rs.2- and it becomes Rs.4, then it is a multi-bagger. Your investment has multiplied by two times. There will always be some stocks in India which are driven down by negative news, even though the fundamentals of the company are good. If you can grab such shares at their lowest price during the fall, and hold onto it for some time, then you could have a multi-bagger in your hand.

My picks of Multibagger Shares in India

I thought I will share with you my experience in trying to hit multibaggers. Below are some of the cheap stocks I bought and still holding, in the hope that it will become multi-baggers. Out of the five shares I invested in the hope of getting multibagger shares, three have gained. One share, V2 Retail has multiplied by almost 25 times. These are the shares I have gambled in:

3i Infotech: I bought this share at about Rs.2.50, now it is about Rs.4-. My reason for buying this share is because I felt that it has some good products like an ERP software called ‘Orion’, Insurance Management software ‘Premia’, Banking solution software called ‘Kastle’ and some other software solutions. I feel that in a few years that this company should do good. The problem is that I bought this share may be, three years back and it is still struggling, but I plan to hold onto it.

8K Miles Software Services Ltd: This stock was trading near Rs.1000- at he beginning of 2018, but towards the midde of the year it got into controversies like the Auditor of 8K Miles Media Ltd. resigning and shares of the chief promoter of 8K Miles group being sold. The share dropped to below Rs.100. As usual, I did my research on Companies whose shares hit 52 week lows. I found out that basically 8K Miles Software Services Ltd is a very good Company in the Cloud business and that they have partnerships with Amazon Web Services, Google and Microsoft. I did a lot more research and I was convinced that this Company would get back to its Rs.1000- level share price. So I invested heavily at around Rs.100- per share. Today it is at Rs.159- and climbing. Hope it gets to my target price of Rs.1000-.

Morepen Labs: I do not remember the exact date I bought this share, but it was more than four years ago at a price of under Rs.6-. Now it is trading at about Rs.18-. Already a multi-bagger at three times, but I plan to hold on to it hoping it will go much higher. The reason for my buying this stock is that I was impressed by their product lines. They have USFDA approved manufacturing facilities for some important bulk drugs, and they have a retail line ‘Dr Morepen’ for home self-care medical instruments like BP machines. They also own ‘Burnol’ a famous medicine for burns.

Opto Circuits: I bought this share at a price of Rs. 12- about three years ago. Now it is down at about Rs.9-, but I am betting that it will go up soon. Opto Circuits is an Indian Company with operations all over the world. Their product line includes internationally approved small medical devices and implants like Stents.

V2 Retail: V2 retail shares were purchased by me around four years ago at a price of Rs.16-. I sold majority of my shares at above Rs.400. Now it has dropped to Rs.270-. I plan to buy some more if it drops further. I have been fortunate with this share. V2 retail has a chain of department stores, and they are expanding rapidly.

Meaning of margin in share trading in India

Learn share trade in India, share market trading basics

This web page is about how to learn share market trading in India. Before starting Share Trading, you must have an account with a registered Share Broker in the National Stock Exchange of India NSE or the Bombay Stock Exchange BSE. Online Commodity Trading in India, which includes trades in Gold, Silver and Currency derivatives, are possible on MCX, the only Commodity Exchange in India.

There are two types of Share trading. The first type of share trading is by Share Cash Trades. Cash share trading is straightforward, you pay money and buy a stock, or you get cash and sell a share. The second type of Share trading called ‘Futures Trading’ involves trading in Share Derivatives. A Derivative is just a numerical value which is derived from, or which is based on, the market value of the underlying share.

Futures & Options: F&O Trading Wiki

Futures & Options: F&O Share trading involves your paying a margin, say about 10 to 20% of the value of the shares you want to trade in. Shares in F&O are sold in Lots, and each lot of shares contain a number of shares. You can hold this ‘Lot’ of shares and sell at any time before the expiry of the settlement date, which usually falls on the last Thursday of every month. You can also ‘Short Sell’ which means that you ‘Sell first’ and ‘buy later’. Short Selling is usually resorted to when you feel that the price of that share is going to fall. Again the trading has to be in Lot sizes.

What are Derivatives in Share Market in India

When you are trading in F&O shares, you are not trading any physical shares or assets, but you are only trading in ‘Derivatives’. A Derivative in share market is just a numerical value derived from something else. In the case of Share Trading, it is called ‘Futures’, and it is a derivative, the value of which is based on the underlying stock (equity or share). In the case of an Index Option, its value is based on the underlying index. So in Share Trading, you are only trading Numerical Values, no physical shares or assets are involved.

What is Margin Trading in Share Market

Margin Trading in Share Market is the facility to buy and sell shares by paying a small margin as security to the share broker. You can purchase more shares with margin money because you only pay a small percentage of the cost of the full value of the share. You do this because you plan to sell the shares shortly and make money by the difference in the buying and selling price. Because you pay only a margin, say 20% as security to buy the shares temporarily, you can buy and sell shares worth 5 times more than the value of the margin money. You can make a lot of money or lose a lot of money in Margin Share Trading. Share Trading Strategy is a skill, an art and science all combined. It takes a lot of learning and experience to master it. Stock trading science is an advanced subject, here we only discuss the basic concepts and prepare you to take up advanced share trading practices.

To make profits you should look for shares that are somewhat volatile; this means the price of the stock keeps going up and down quite often. When you trade in such shares, you hope that you can buy it at the lower end of the price range and sell it when the price goes up.

Futures Trading in Indian Share Market

Futures Trading in the NSE is a contract between you and the NSE with a registered broker, to buy or sell a specified derivative of either the Share of a Company or the value of one of the NSE Indexes, at a specified value on or before a given date.

The NSE acts as a Futures Exchange and sets a premium or discount to the buying and selling prices of the derivatives. The premium depends on the supply and demand factors, that is, it depends on the difference between the quantity of buy and sell orders at that particular moment. The settlement date for all futures and options contracts on the NSE falls on the last Thursday of every month.

To give an example, say you buy on 4th of May 2017, a May 2017 Futures Contract of one lot of Reliance Industries (the lot size for Reliance is 250) at a price of Rs.1000-. You sold it before the expiry date, the last Thursday of every month, at a price of say Rs.1100-; then your profit will be (1100-1000)x250 = Rs.25,000-. If the buy price was 1100 and sold at 1000, then loss will be Rs.25,000-.

In Futures Trading, the risks depend on your buy-sell or sell-buy prices. Whatever this price difference, multiplied by the number of units, is your profit or loss. When the share prices increase or decrease substantially, then your profit or loss can also be substantial.

Setting Stop-Loss to Futures Trading

To limit the losses in Share Trading, traders and brokers, normally put a ‘Stop-loss’ order at preset values. Stop-loss is a software-based online, sell or buy order, set at pre-determined values. When the share or index value reaches this preset value, the software automatically sells or buys online to limit losses. Brokers may insist on these stop values, to ensure that their clients do not mount up losses more than the margin money kept with them. Normally ‘Futures Trading’ can be done by maintaining a margin. For ‘Options trading’, because of the lower values involved, there will be no margin monies, but you will have to pay full amount in advance

Margin Money for Futures Trading in India

In Futures trading, the broker usually allows you to trade with a margin, that is a certain percentage of the total value of the futures you are buying. Make sure you tell the broker to put stop-losses at pre-determined values in the online systems, to limit losses, in case things don’t go as you expect. The following site has information as to which shares can be traded in futures and what the margin money is with respect to each of this. The site is http://www.ventura1.com/pdf/Derivatives/SpanPdf.pdf

Options trading on NSE India

Options Trading is almost the same as Futures trading with one big difference. You are buying or selling an Option at a set price. You have the right, but not the obligation, to sell or exercise your Option before the expiry date. If you do not use the option, then your maximum loss is the amount you paid to purchase the option. Examples given below will explain this concept of Option trading.

You can take Options on any of the NSE indexes or the authorized shares of the NSE listed Companies. In options trading, the terms used are ‘Put’ and ‘Call’. When you expect the value of an option to go down you buy a ‘Put Option’ and when you expect the value of the option to go up, you buy a ‘Call Option’. The Put and Call Options are easier to explain by the use of the following examples.

Call Option in Share trading

Suppose the NIFTY index is at about 9000 on the 4th of May 2017, and you feel that it will go up to 9500 before the end of May 2017, then you buy a ‘May NIFTY 9500 Call Option’ expiring on the last Thursday of the month in May 2017. The price of this option depends on the NIFTY index at the moment of your purchase. The closer the NIFTY index gets to your NIFTY call of 9500, the more expensive it becomes. You can exercise your option on any working day, at any time during trading hours before the expiry date in May 2017.

For instance, the price for your NIFTY-9500 May call, when the NIFTY is at 9300 could be Rs.100-; and when the NIFTY is at 9250, it could be Rs.60-. The values are constantly changing every fraction of a second and is being calculated by the NSE computers on real time values and depending on the supply and demand situation.

NIFTY options are in lots , where one lot is 50 units. Thus in this example, you buy the NIFTY 9500 call option when NIFTY index is at 9200 at a price of Rs.30-. Thus the cost for one lot NIFTY 9500 call option will be (50×30)=Rs.1500-. If the NIFTY index reaches 9300, your Call Option has a value of Rs.100-, and if you decide to exercise your option, then you will be getting (50×100)=Rs.5000-. Your profit in this example is 5000-1500=3500 less brokerage of about Rs.300-. Thus your nett profit works out to Rs.3200-. These sort of gains are entirely possible intraday or in a ‘day-trade’ – in a single day, but remember, it can also go the opposite way when your loss is 3200+300=3500.

In the above example, if the NIFTY Index goes above your call of 8500, then the value of your call increases with every increase of the NIFTY index. At 8550 it could be Rs.150-, and your profit increases dramatically.

Put Option in Share Trading in India

Put option is the opposite of a Call option. As in the above example, the NIFTY index is at about 9200 on the 4th of May 2017, and you feel that it will go down to 9000 before the end of May, then you buy a ‘May NIFTY 9000 Put Option’ expiring on the last Thursday of the month. The price of this option depends on the NIFTY index at the moment of your purchase. The closer the NIFTY index gets to your NIFTY call of 9000, the more expensive it becomes.

For instance, the price could be Rs.70- for your NIFTY-9000 Put, when the NIFTY is at 9120 and it could be Rs.15- when the NIFTY is at 9080. The values are constantly changing every fraction of a second and is being calculated by the NSE computers in real-time values and depending on the supply and demand situation. NIFTY options are in lots, where one lot is 50 units. Thus in this example, you buy the NIFTY 9000 put option when NIFTY index is at 9080 at a price of Rs.15-, thus the cost for one lot NIFTY 9000 put option will be (50×15)=Rs.750-. If the NIFTY index reaches 9020, your Put Option has a value of Rs.70-, and if you decide to exercise your option, then you will be getting (50×70)=Rs.3500-. Your profit in this example is 3500-750=2750- less brokerage of about Rs.300-. Thus your nett profit works out to Rs.2450-. These sort of gains can be achieved by intraday trading, that is in a single day trade. The opposite is also quite possible when your loss will be 2750+300=3050. When the NIFTY keeps on going below your Put call, the value of your earnings keeps going up.

Going Long and Short in Share Trading in India

If you think the value of a share or index will go up and you buy a derivative in the hope of selling it at a profit at a later date, then it is known as ‘Going Long’.

In case you think the value of a share or Index is going to go down below its present value, then you can sell the derivative first. When the value goes down, you hope to buy the same derivative at a later date and a lower price, then it is known as ‘Going Short’ or ‘Short Selling’. ‘Going Short’ or ‘Short Selling’ is the process of selling first and then buying later.

Always remember the famous saying “Don’t put all your eggs in one basket”. So never enter the stock market trading with all your capital. Start with a minimum amount and then graduate up to higher levels. When you have more experience you can go with higher values. Always remember that it is quite possible to lose all the money you invest in share trading.

One Strategy is to trade in higher volumes and take low margins of profit. This high volume low margin trading strategy will require more of your capital input. With such a strategy you do the trading activity more frequently, sometimes more than once in a single day and sometimes multiple trades of the same share on the same day. These sort of traders are known as ‘Day Traders’ and such trading is known as ‘Day trades’ or ‘Day Trading’.

Hedging in Indian share market

Hedging is the strategy you adopt to protect against losses, in the event the prices of the shares you bought moves in the opposite direction. For example you buy shares of a Company ‘A’ hoping to sell it at a higher price. You hedge your risk by short selling the shares of another Company ‘B’ whose share you know will lose much more, in the event the market goes down. In case of an upwards trend, the value of ‘B’ does not move as much as that of ‘A’. You are taking opposing positions, and if your prediction on ‘A’ gaining in price proves correct, you make money here, but you will lose in ‘B’. If your prediction of ‘A’ going up in price is wrong, then you will lose money on ‘A’ but will make a profit on your short sell of ‘B’. In these situations, you have to fine tune the quantities of shares of ‘A’ and ‘B’ to make a profit or limit your losses in either eventuality.

Some traders do ‘call and put hedging’ in Options trading by taking a ‘Call’ and ‘Put’ position in the same share at the same time. Others follow a hedging strategy of taking a long position in Futures and taking put options of the same share or index at the same time.

Hedging is a high-end skill and science, and it will take some time to master this art.

The Golden Rule of Share Trading

The golden rule in share trading is to always keep a watch on what your total risk exposure is. That is, if you are doing margin trading, calculate your total risk exposure in case of a sudden market crash. Suppose the Share Market crashes and all shares drop 50% in value, due to some calamity, natural or man made. In this case, you will become liable for an amount of more than the margin you have kept, unless you had entered stop-losses in the online systems. Also, beware!! Stop-Loss on online systems sometimes fails to work, when there is a mad rush on the online systems, especially when markets are crashing in a downward spiral.

Crashes in the Markets do happen – say for example, China makes an incursion into India and there is a threat of war. Other situations can also cause share of a company to crash. For example, if the CEO of the Company you have invested into dies in a car accident. In such cases, the value of your investments will drop dramatically, and you may be liable for more than the margins you have kept as a guarantee with your broker. You should not become broke in such an eventuality – You should be careful and not be exposed at any time while trading, to a total risk exposure of more than 20% of your nett assets.

The Scenario we are talking about here is Share trading on margin money and with set expiry dates. Such dealings have a time limit to settle your dealings, like the last Thursday of every month. It is a different scenario if you are purchasing the shares for cash and getting them transferred to your Demat account as long term investments. In this case, a market crash will dent the value of your holdings during the crisis, but share prices have its intrinsic value, and the price of the shares always bounce back when the crisis goes away.

Trend of Indian Share Market

Share Market trend is about the mood of the Market. Whether the mood is positive or ‘Bullish’ or a ‘bull market’, meaning that the prices of the Shares are moving up. If the mood is negative, it is a ‘bear market’ or ‘Bearish’, and the prices are going down.

If you can predict the movement of the market correctly, it can help you to time your buy and sell orders and make money in the process. There are very many formulas and methods by which some experts try to forecast the Market trends. They publish values like ‘Support and Resistance levels’. These values are relevant guidelines and are correct most of the times, but unfortunately, not always.

The easiest way to get an idea of the market sentiment is to watch one of the TV channels dedicated to news and reviews about the Indian Stock Market. TV channels like ‘UTV Bloomberg’, ‘NDTV Profit’ or ‘CNBC TV18’ or ‘ET Now’ have almost 24×7 broadcast of stock markets news. These channels have a lot of experts telling you about the markets and individual companies. After watching any of these channels for some time, you get a better understanding of the Stock market and also an idea of the current market trends.