Commodity FAQ

What is a commodity market?
Commodity market is a place where trading in commodities takes place. It is similar to an Equity market, but instead of buying or selling shares one buys or sells commodities.

How old are the commodities market?
The commodities markets are one of the oldest prevailing markets in the human history. In fact derivatives trading started off in commodities with the earliest records being traced back to the 17th century when Rice futures were traded in Japan.

What are commodity exchanges?
Commodity exchanges are institutions, which provide a platform for trading in 'commodity futures' just as how stock markets provide space for trading in equities and their derivatives. They thus play a critical role in robust price discovery where several buyers and sellers interact and determine the most efficient price for the product. Indian commodity exchanges offer trading in `commodity futures' in a number of commodities. Presently, the regulator, Forward Markets Commission allows futures trading in over 120 commodities. There are two types of commodity exchanges in the country- 3 national level and 21 regional.

What are the different types of commodities that are traded in these markets?
World-over one will find that a market exits for almost all the commodities known to us. These commodities can be broadly classified into the following:
- Precious Metals: Gold, Silver, Platinum etc
- Other Metals: Nickel, Aluminum, Copper etc
- Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds, etc.
- Soft Commodities: Coffee, Cocoa, Sugar etc
- Energy: Crude Oil, Natural Gas, Gasoline etc

What are the characteristics of the Exchange Traded markets?
The exchange-traded markets are essentially only derivative markets and are similar to equity derivatives in their working. I.e. everything is standardized and a person can purchase a contract by paying only a percentage of the contract value. A person can also go short on these exchanges. Also, even though there is a provision for delivery most of the contracts are squared-off before expiry and are settled in cash. As a result, one can see an active participation by people who are not associated with the commodity.

What is a Derivative contract?
A derivative contract is an enforceable agreement whose value is derived from the value of an underlying asset; the underlying asset can be a commodity, precious metal, currency, bond, stock, or, indices of commodities, stocks etc. Four most common examples of derivative instruments are forwards, futures, options and swaps/spreads.

What is a forward contract?
A forward contract is a legally enforceable agreement for delivery of goods or the underlying asset on a specific date in future at a price agreed on the date of contract.  Under Forward Contracts (Regulation) Act, 1952, all the contracts for delivery of goods, which are settled by payment of money difference or where delivery and payment is made after a period of 11 days, are forward contracts.

What are standardized contracts?
Futures contracts are standardized. In other words, the parties to the contracts do not decide the terms of futures contracts; but they merely accept terms of contracts standardized by the Exchange.

What are customized contracts?
Forward contracts (other than futures) are customized. In other words, the terms of forward contracts are individually agreed between two counter-parties.

What is a futures contract?
Future Contract is a type of forward contract.  Futures are exchange - traded contracts to sell or buy standardized financial instruments or physical commodities for delivery on a specified future date at an agreed price.  Futures contracts are used generally for protecting against adverse price fluctuation (hedging).  As the terms of the contracts are standardized, these are generally not used for merchandizing propose.

What are the commodities suitable for futures trading?
All the commodities are not suitable for futures trading and for conducting futures trading. For being suitable for futures trading the market for commodity should be competitive, i.e., there should be large demand for and supply of the commodity ¿ no individual or group of persons acting in concert should be in a position to influence the demand or supply, and consequently the price substantially. There should be fluctuations in price. The market for the commodity should be free from substantial government control. The commodity should have long shelf-life and be capable of standardization and gradation.

Is delivery mandatory in futures contract trading?
The provision for delivery is made in the Byelaws of the Associations so as to ensure that the futures prices in commodities are in conformity with the underlying.  Delivery is generally at the option of the sellers. However, provisions vary from Exchange to Exchange. Byelaws of some Associations give both the buyer and seller the right to demand/give delivery.

How are futures prices determined?
Futures prices evolve from the interaction of bids and offers emanating from all over the country - which converge in the trading floor or the trading engine.  The bid and offer prices are based on the expectations of prices on the maturity date.

How professionals predict prices in futures?
Two methods generally used for predicting futures prices are fundamental analysis and technical analysis.  The fundamental analysis is concerned with basic supply and demand information, such as, weather patterns, carryover supplies, relevant policies of the Government and agricultural reports.   Technical analysis includes analysis of movement of prices in the past. Many participants use fundamental analysis to determine the direction of the market, and technical analysis to time their entry and exist.

How is it possible to sell, when one doesn't own commodity?
One doesn't need to have the physical commodity or own a contract for the commodity to enter into a sale contract in futures market. It is simply agreeing to sell the physical commodity at a later date or selling short. It is possible to repurchase the contract before the maturity, thereby dispensing with delivery of goods.

What are long positions?
In simple terms, long position is a net bought position.

What are short positions?
Short position is net sold position.

What is bull spread (futures)?
In most commodities and financial derivatives market, the term refers to buying contracts maturing in nearby month, and selling the deferred month contracts, to profit from the wide spread which is larger than the cost of carry.

What is bear spread (futures)?
In most of commodities and financial derivatives market, the term refers to selling the nearby contract month, and buying the distant contract, to profit from saving in the cost of carry.

What is ‘Contango'?
Contango means a situation, where futures contract prices are higher than the spot price and the futures contracts maturing earlier.

What is ‘Backwardation'?
When the prices of spot or contracts maturing earlier are higher than a particular futures contract, it is said to be trading at Backwardation.

What is ‘basis’?
It is normally calculated as cash price minus the futures price. A positive number indicates a futures discount (Backwardation) and a negative number, a futures premium (Contango). Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.

What is cash settlement?
It is a process for performing a futures contract by payment of money difference rather than by delivering the physical commodity or instrument representing such physical commodity (like, warehouse receipt)

What is offset?
It refers to the liquidation of a futures contract by entering into opposite (purchase or sale, as the case may be) of an identical contract.

What is settlement price?
The settlement price is the price at which all the outstanding trades are settled, i.e. profits or losses, if any, are paid. The method of fixing Settlement price is prescribed in the Byelaws of the exchanges; normally it is a weighted average of prices of transactions both in spot and futures market during specified period.

Can one give delivery against futures contract?
Futures contract are contracts for delivery of goods. But most of the futures contracts, the world over, are performed otherwise than by physical delivery of goods.

Why the proportion of futures contracts resulting in delivery is so low?
The reason is, futures contracts may not be suitable for merchandising purpose, mainly because these are standardized contracts; hence various aspects of the contracts, viz., quality/grade of the goods, packing, place of delivery, etc. may not meet the specific needs of the buyers/sellers.

Why delivery of good is permitted when futures contract by their very nature not suitable for merchandising purposes?
The threat of delivery helps in dissuading the participants from artificially rigging up or depressing the futures prices. For example, if manipulators rig up the prices of a contract, seller may give his intention to make a delivery instead of settling his outstanding contract by entering into purchase contracts at such artificially high price.

Can a buyer demand delivery against futures contract?
The Byelaws of different Exchanges have different provisions relating to delivery. Some Exchanges give the option to seller, i.e., if the seller gives his intention to give delivery, buyers have no choice, but to accept delivery or face selling on account and/or penalty. Some Exchanges, particularly the northern Exchanges trading contracts in “gur”/jaggery provide the option both to buyer and seller. In some Exchanges, if the sellers do not give intention to give delivery, all outstanding short and long position are settled at the “Due Date Rate”.

What is “Due Date Rate”?
Due Date Rate is the weighted average of both spot and futures prices of the specified number of days, as defined in the Byelaws of Association

What is delivery month?
It is the specified month within which a futures contract matures.

What is Warehouse Receipt?
It is a document issued by a warehouse indicating ownership of a stored commodity and specifying details in respect of some particulars, like, quality, quantity and, sometimes, indicating the crop season.

Are futures markets “satta” markets?
Participants in futures market include market intermediaries in the physical market, like, producers, processors, manufacturers, exporters, importers, bulk consumers etc., besides speculators. There is difference between speculation and gambling. Therefore futures markets are not “satta markets”.

Why do we need speculators in futures market?
Participants in physical markets use futures market for price discovery and price risk management. In fact, in the absence of futures market, they would be compelled to speculate on prices. Futures market helps them to avoid speculation by entering into hedge contracts. It is however extremely unlikely for every hedger to find a hedger counter party with matching requirements. The hedgers intend to shift price risk, which they can only if there are participants willing to accept the risk. Speculators are such participants who are willing to take risk of hedgers in the expectation of making profit. Speculators provide liquidity to the market; therefore, it is difficult to imagine a futures market functioning without speculators.

What is the difference between a speculator and gambler?
Speculators are not gamblers, since they do not create risk, but merely accept the risk, which already exists in the market. The speculators are the persons who try to assimilate all the possible price-sensitive information, on the basis of which they can expect to make profit. The speculators therefore contribute in improving the efficiency of price discovery function of the futures market.

How is over-speculation curbed?
In order to curb over-speculation, leading to distortion of price signals, limits are imposed on the open position held by speculators. The positions held by speculators are also subject to certain margins; many Exchanges exempt hedgers from this margins.

How should a futures contract be designed?
The most important principle for designing a futures contract is to take into account the systems and practices being followed in the cash market. The unit of price quotation, unit of trading should be fixed on the basis of prevailing practices. The “basis” – the standard quality/grade – variety should generally be that quality or grade which has maximum production. The delivery centers should be important production or distribution centers. While designing a futures contract care should be taken that the contract designed is fair to both buyers and sellers and there would be adequate supply of the deliverable commodity thus preventing any squeezes of the market.

What are the benefits from Commodity Forward/Futures Trading?
Forward/Futures trading performs two important functions, namely, price discovery and price risk management with reference to the given commodity. It is useful to all segments of the economy. It enables the ‘Consumer' in getting an idea of the price at which the commodity would be available at a future point of time. He can do proper costing and also cover his purchases by making forward contracts. It is very useful to the ‘exporter' as it provides an advance indication of the price likely to prevail and thereby helps him in quoting a realistic price and secure export contract in a competitive market It ensures balance in supply and demand position throughout the year and leads to integrated price structure throughout the country. It also helps in removing risk of price uncertainty, encourages competition and acts as a price barometer to farmers and other functionaries in the economy.

What is hedging?
Hedging is a mechanism by which the participants in the physical/cash markets can cover their price risk. Theoretically, the relationship between the futures and cash prices is determined by cost of carry.  The two prices therefore move in tandem.  This enables the participants in the physical/cash markets to cover their price risk by taking opposite position in the futures market.

How does futures market benefit farmers?
World over, farmers do not directly participate in the futures market.  They take advantage of the price signals emanating from a futures market.  Price-signals given by long-duration new-season futures contract can help farmers to take decision about cropping pattern and the investment intensity of cultivation. Direct participation of farmers in futures market to manage price risk –either as members of an Exchange or as non-member clients of some member - can be cumbersome as it involves meeting various membership criteria and payment of daily margins etc. Options in goods would be relatively more farmer-friendly, as and when they are legally permitted.

Can the loss incurred on the futures market be set off against normal business profit?
Loss incurred in futures market by entering into contracts for hedging purposes can be set off against normal profit. The loss incurred on account of speculative transactions in futures market cannot be set off against normal business profit. This loss is however allowed to be carried forward for eight years, during which it can be set off against speculative profit.

Who can be a member of the Exchange?
The Bye-laws and Articles of the Association prescribed the criteria for being a member of the Exchange.  Any person desirous of being a member of the Exchange may approach the contact persons whose names, telephone numbers, fax numbers, email addresses etc. are available on the website of fmc: www.fmc.gov.in. They may also refer to the Bye-law and Articles of Association of the concerned Exchange, which contain various criteria for the membership of the Exchange.

Who are the participants in forward/futures markets?
Participants in forward/futures markets are hedgers, speculators, day-traders/scalpers, market makers, and, arbitrageurs.

Who is hedger?
Hedger is a user of the market, who enters into futures contract to manage the risk of adverse price fluctuation in respect of his existing or future asset.

What is arbitrage?
Arbitrage refers to the simultaneous purchase and sale in two markets so that the selling price is higher than the buying price by more than the transaction cost, so that the arbitrageur makes risk-less profit.

Who are day-traders?
Day traders are speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.

Who is floor-trader?
A floor trader is an Exchange member or employee, who executes trade by being personally present in the trading ring or pit floor trader has no place in electronic trading systems.

Who is speculator?
A trader, who trades or takes position without having exposure in the physical market, with the sole intention of earning profit is a speculator.

Who is market maker?
A market maker is a trader, who simultaneously quotes both bid and offer price for a same commodity throughout the trading session.

What is credit risk?
Credit risk on account of default by counter party: This is very low or almost zeros because the Exchange takes on the responsibility for the performance of contracts.

What is liquidity risk?
Liquidity risks is the risk that unwinding of transactions may be difficult, if the market is illiquid

What is Legal risk?
Legal risk is that legal objections might be raised; regulatory framework might disallow some activities.

How many recognized/registered associations engaged in commodity futures trading?
At present 21 Exchanges are recognized/registered for forward/ futures trading in commodities

Why are associations required to get recognized?
Under the Forward Contracts (Regulation) Act, 1952, forward trading in commodities notified under section 15 of the Act can be conducted only on the Exchanges, which are granted recognition by the Central Government (Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution).

What is “National” Commodity Exchange?
Government identified the best international systems and practices in respect of trading, clearing, settlement and governance structure and invited applications from associations – existing and potential – to set up National Commodity Exchanges by introducing such systems and practices. The term,  "National" used for these Exchanges does not mean that other Exchanges are restricted from having nationwide operations

How do National Commodity Exchanges differ from other Commodity Exchanges?
National Commodity Exchanges would be granted recognition in all permitted commodities; the other exchanges have to approach the Government for grant of recognition for each futures contract separately. Also, National Commodity Exchanges would be putting is place the best international practices in trading, clearing, settlement, and governance.

What is the role of an Exchange in futures trading?
An Exchange designs a contract, which alone would be traded on the Exchange. The contract is not capable of being modified by participants, i.e., it is standardized. The Exchange also provides a trading platform, which converges the bids and offers emanating from geographically dispersed locations. This creates competitive conditions for trading. The Exchange also provides facilities for clearing, settlement, arbitration facilities. The Exchange may also provide financially secure environment by putting in place suitable risk management mechanism (margining system etc.), and guaranteeing performance of contract through the process of novation.

What is initial/ordinary margin?
It is the amount to be deposited by the market participants in his margin account with clearing house before they can place order to buy or sell a futures contracts.  This must be maintained throughout the time their position is open and is returnable at delivery, exercise, expiry or closing out.

What is Mark-to-Market margin?
Mark-to-market margins (MTM or M2M or valan) are payable based on closing prices at the end of each trading day.  These margins will be paid by the buyer if the price declines and by the seller if the price rises.  This margin is worked out on difference between the closing/clearing rate and the rate of the contract (if it is entered into on that day) or the previous day's clearing rate. The Exchange collects these margins from buyers if the prices decline and pays to the sellers and vice versa.

Why is Mark-to-Market margin collected daily in commodity market?
Collecting mark-to-market margin on a daily basis reduces the possibility of accumulation of loss, particularly when futures price moves only in one direction. Hence the risk of default is reduced. Also, the participants are required to pay less upfront margin – which is normally collected to cover the maximum, say, 99.9%, of the potential risk during the period of mark-to-market, for a given limit on open position. Alternatively, for the given upfront margin the limit on open position would have to be reduced, which has the effect of restraining the trade and liquidity.

What is Volatility?
It is a measurement of the variability rate (but not the direction) of the change in price over a given time period.  It is often expressed as a percentage and computed as the annualized standard deviation of percentage change in daily price.

What is a Client Account?
Client Account is an account maintained for any individual or entity being serviced by an agent (broker, members), for a commission.   A customer's business must be segregated from the broker's/member's/principal's own business and clients' money should be kept in segregated accounts.

What is a client agreement?
It is a legal document entered into between the broker and the client setting out the conditions of their relationship and meeting the requirements of the relevant self-regulatory organization and the Regulator.

What is the role of Clearing House?
Clearing House performs post trading functions like confirming trades, working out gains or losses made by the participants during the course of the clearing period – usually a day-collecting the losses from the members and paying out to other who have made gains.

Do a member / broker need to register with the Forward Markets Commission?
No; but the Forward Contracts (Regulation) Act, 1952 is proposed to be amended to provide for registration of brokers with the Forward Markets Commission.

At what rate does the Forward Markets Commission charge its fee on the turnover of the members/brokers?
Forward Market Commission does not charge any regulatory fee from the Exchanges or its members and users. It is an office of the Government of India and sources its finances from the budget.

Can a member enter into the options in goods?
Options in goods are presently prohibited under Section 19 of the Forward Contracts (Regulation) Act, 1952. No exchange or no person – whether he is a member of any recognized association or not - can organize or enter into or make or perform options in goods; it constitutes cognizable offence, which is punishable under section 20(e) of the Act.

What is the present system of regulation in commodity forward/future trading in India?
At present, there are three tiers of regulations of forward/futures trading system exists in India, namely, Government of India, Forward Markets Commission and Commodity Exchanges. The FC(R) Act, 1952 prohibits options in commodities. For the purpose of forward contracts in certain commodities can be regulated by notifying those commodities u/s 15 of the Act; forward trading in certain other commodities can be prohibited by notifying these commodities u/s 17 of the Act.

What is the need for regulating futures market?
The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions.  The regulation is needed to create competitive conditions.   In the absence of regulation, unscrupulous participants could use these leveraged contracts for manipulating prices.  This could have undesirable influence on the spot prices, thereby affecting interests of society at large.  Regulation is also needed to ensure that the market has appropriate risk management system. In the absence of such a system, a major default could create a chain reaction.  The resultant financial crisis in a futures market could create systematic risk.  Regulation is also needed to ensure fairness and transparency in trading, clearing, settlement and management of the exchange so as to protect and promote the interest of various stakeholders, particularly non-member users of the market.

What is Forward Markets Commission and where is it located?
Forward Markets Commission is a regulatory body for commodity futures/ forward trade in India. This was set up under the Forward Contracts (Regulation) Act of 1952. It is responsible for regulating and promoting futures/ forward trade in commodities. The Forward Markets Commission's Head Quarter is located at Mumbai and Regional Office at Kolkata.  The Address of the contact person is as follows: -  
     The Chairman, Forward Markets Commission, Ministry of Consumer Affairs, Food and Public Distribution, (Department of Consumer Affairs), Government of India, “Everest”, 3rd floor, 100, Marine Drive, Mumbai – 400 002. Tel :  (022) 22811262/22811429, Fax : (022) 22812086, E-mail :- fmc@bom5.vsnl.nic.in , Web-site :- www.fmc.gov.in

What are the functions of the Forward Markets Commission ?
FMC advises Central Government in respect of grant of recognition or withdrawal of recognition of any association.
It keeps forward markets under observation and takes such action in relation to them as it may consider necessary, in exercise of powers assign to it.

It collects and publishes information relating to trading conditions in respect of goods including information relating to demand, supply and prices and submits to the Government periodical reports on the operations of the Act and working of forward markets in commodities.

It makes recommendations for improving the organization and working of forward markets.It undertakes inspection of books of accounts and other documents of recognized / registered associations.

What are the legal and regulatory provisions for customer protection?
The F.C(R) Act provides that client's position cannot be appropriated by the member of the Exchange, except a written consent is taken within three days' time. Forward Markets Commission is persuading increasing number of Exchanges to switch over to electronic trading, clearing and settlement, which is more customer-friendly. Commission has also prescribed simultaneous reporting system for the Exchanges following open out-cry system. These steps facilitate audit trail and make it difficult for the members to indulge in malpractices like, trading ahead of clients, etc. The Commission has also mandated all the Exchanges following open outcry system to display at a prominent place in Exchange premises, the name, address, and telephone number of the officer of the Commission who can be contacted for any grievance. The website of the Commission also has a provision for the customers to make complaint, send comments and suggestions to the Commission. Officers of the Commission have been instructed to meet the members and clients on a random basis, whenever they visit Exchanges, to ascertain the situation on the ground, instead of merely attending meetings of the Board of Directors and holding discussions with the office-bearers

What types of contracts are illegal?
Forward Contracts in the permitted commodities, i.e., commodities notified under S.15 of the Forward Contracts (Regulation) Act, 1952, which are entered into other than: a) between the members of the recognized Association or b) through or c)with any such members.
Forward contracts in prohibited commodities, i.e., commodities notified under S. 17 of the Forward Contracts (Regulation) Act, 1952  (Presently no commodity has been notified under S. 17 of the Act.

Forward Contracts in contravention of the provisions contained in the Bye-laws of the Exchange, which attract S. 15(3) of the Act. Forward Contracts in the commodities in which such contracts have been prohibited Options in goods.

What is bucketing?
Broker is said to be indulging in bucketing, when he takes directly or indirectly, the opposite side of a customer's order either on his own account or into on account in which he or she has an interest, without executing the order on an Exchange. Appropriation of clients' trade without written consent constitutes contravention of S. 15(4) of the Act and is punishable under S. 20(e).

IPO FAQ

What is an IPO ?
An Initial Public Offer or IPO is the first sale of a company’s shares to investors on a public stock exchange. While IPOs are effective at raising capital, being listed on a stock exchange imposes regulatory compliance and reporting requirements.

When a shareholder sells shares it is called a “secondary offering” and the shareholder, not the company who originally issued the shares, retains the proceeds of the offering. To avoid confusion, it is imporatnt to remember that only a company which issues shares can make a “primary offering”. Secondary offerings occur on the “secondary market”, where shareholders (not the issuing company) buy and sell shares to each other.

What are the different types of IPOs ?
There are two types of IPOs. These are listed below :
Fixed Price Issue – In this case, the issue price is pre ascertained by the issuer.
Book Building – In this case, an indicative price range is declared by the company for a public offer of its equity shares. Interested investors place bids within this price range for the quantum of securities they want to subscribe to. Prospective investors can revise their bids at anytime during the bid period, that is, the quantity of shares or the bid price or any of the bid options. Usually, the bid must be for a minimum of 500 equity shares and in multiples of 100 equity shares thereafter. By recording the bids (quantum of shares ordered and the respective prices offered) received in a “book”, the issuer makes an assessment of the demand for the securities proposed to be issued. After the bid closing date, the book runner and the company fix the issue price and decide the allocation to each syndicate member. Thus, book building method helps in optimum price discovery for the security.

What is meant by Primary Market and Secondary Market ?
Primary Market refers to a market which provides the channel for creation and sale of securities. Primary market provides an opportunity to investors to apply & own stocks issued by the corporate (as well as the government) through an IPO (Initial Public Offer). A corporate raises capital from the public to meet its expansion plans or discharge financial obligations. 

The resources in this kind of market are mobilized either through the public issue in which anyone can subscribe for it, or through the private placement route in which the issue is made available only to a selected group of subscribers such as banks, FIs, MFs and high net worth individuals. In private placement, the stringent public disclosure regulations and registration requirements are relaxed since these securities are allotted to a few sophisticated and experienced investors,. The Companies Act, 1956, states that an offer of securities to more than 50 persons is deemed to be public issue.
Secondary Market refers to a market where shares are traded after being initially offered to the public in the primary market. It is a market in which an investor purchases shares from another investor through stock exchange. Majority of the stock trading is done in the secondary market. The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs. 

When is the payment for the shares made ?
The bidder has to pay the maximum bid price at the time of bidding based on the highest bidding option of the bidder. The bidder has the option to make different bids like quoting a lower price for higher number of shares or a higher price for lower number of shares. The syndicate member may waive the payment of bid price at the time of bidding. In such cases, the issue price may be paid later to the syndicate member within four days of confirmation of allocation. Where a bidder has been allocated lesser number of shares than he or she had bid for, the excess amount paid on bidding, if any will be refunded to such bidder.

What is the procedure for applying for an IPO ?
We will soon be starting the facility of online IPO application which will enable you to enjoy a hassle-free experience with no botheration to fill tedious, lengthy forms, no requirement to sign cheques or physically deliver the form to the collection centre. 

Currently, to apply for an IPO, you can collect the IPO Application Form directly from our nearest branch or apply online. 

The completed form, along with the bank cheque, has to be submitted at any of our collection centres. The shares allotted to you will be directly credited to your demat account and any excess application money will be refunded by a direct credit to your bank account.

What are the necessary details to be mentioned in the IPO Application ?
To apply for an IPO, the applicant needs to mention the details of his Bank account, Pan Card and Demat Account along with his other personal details in the IPO Application Form.

Derivatives FAQ

What are derivatives ?
Derivatives are financial contracts, which derive their value off a spot price time-series, which is called "the underlying". The underlying asset can be equity, index, commodity or any other asset. Some common examples of derivatives are Forwards, Futures, Options and Swaps. 

Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. From a market-oriented perspective, derivatives offer the free trading of financial risks.

What is the importance of derivatives ?
There are several risks inherent in financial transactions. Derivatives are used to separate risks from traditional instruments and transfer these risks to parties willing to bear these risks.

Who are the operators in the derivatives market ?
Hedgers - Operators, who want to transfer a risk component of their portfolio. 
Speculators - Operators, who intentionally take the risk from hedgers in pursuit of profit. 
Arbitrageurs - Operators who operate in the different markets simultaneously, in pursuit of profit and eliminate mis-pricing.

What are Forward contracts ?
A forward contract is a customized contract between two parties, where settlement takes place on a specific date in future at a price agreed today.

What are Futures ?
Futures are exchange traded contracts to sell or buy financial instruments or physical commodities for Future delivery at an agreed price. There is an agreement to buy or sell a specified quantity of financial instrument/ commodity in a designated Future month at a price agreed upon by the buyer and seller. The contracts have certain standardized specifications.

What do you mean by Closing out contracts ?
A long position in futures, can be closed out by selling futures while a short position in futures can be closed out by buying futures on the exchange. Once position is closed out, only the net difference needs to be settled in cash, without any delivery of underlying. Most contracts are not held to expiry but closed out before that. If held until expiry, some are settled for cash and others for physical delivery.

What is the concept of Basis ?
The difference between spot price and Futures price is known as basis. Although the spot price and Futures prices generally move in line with each other, the basis is not constant. Generally basis will decrease with time. And on expiry, the basis is zero and Futures price equals spot price.

What is the difference between Commodity and Financial Futures ?
The basic difference between commodity and financial Futures is the nature of the underlying instrument. In a commodity Futures, the underlying is a commodity which may be Wheat, Cotton, Pepper, Turmeric, corn, oats, soybeans, orange juice, crude oil, natural gas, gold, silver, pork-bellies etc.
​In a financial instrument, the underlying can be Treasuries, Bonds, Stocks, Stock-Index, Foreign Exchange, Euro-dollar deposits etc. As is evident, a financial Future is fairly standard and there are no quality issues while a commodity instrument, quality of the underlying matters.

Mutual Fund FAQ
Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the world, has a long and successful history. The popularity of the Mutual Fund has increased manifold. In developed financial markets, like the United States, Mutual Funds have almost overtaken bank deposits and total assets of insurance funds. As of date, in the US alone there are over 5,000 Mutual Funds with total assets of over US $ 3 trillion (Rs. 100 lakh crores). In India,the Mutual Fund industry started with the setting up of Unit Trust of India in 1964. Public sector banks and financial institutions began to establish Mutual Funds in 1987. The private sector and foreign institutions were allowed to set up Mutual Funds in 1993. This fast growing industry is regulated by the Securities and Exchange Board of India (SEBI).

​What Is a Mutual Fund?
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investable surplus of as little as a few thousand rupees can invest in Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy the money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

What Are The Types of Mutual Fund Schemes?
There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectations. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals.

A. By Structure
Open-Ended Schemes
These do not have a fixed maturity. You deal directly with the Mutual Fund for your investments and redemptions. The key feature is liquidity. You can conveniently buy and sell your units at net asset value ("NAV") related prices.
Close-Ended Schemes
Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close-ended schemes. You can invest directly in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unitholders' expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows. Some close-ended schemes give you an additional option of selling your units directly to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor.
Interval Schemes
These combine the features of open-ended and close- ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

B) By Investment Objective
Growth Schemes
Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short- term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the short-term. Ideal for:

- Investors in their prime earning years.
- Investors seeking growth over the long-term

Income-Schemes
Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Ideal for:

- Retired people and others with a need for capital stability and regular income.
- Investors who need some income to supplement their earnings.

Balanced-Schemes
Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. Ideal for:

- Investors looking for a combination of income and moderate growth

Money Market Schemes
Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter- bank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for:

- Corporate and individual investors as a means to park their surplus funds for short periods or awaiting a more favorable investment alternative.

Other Schemes
Tax Saving Schemes
These schemes offer tax rebates to the investors under tax laws as prescribed from time to time. This is made possible because the Government offers tax incentives for investment in specified avenues. For example, Equity Linked Savings Schemes (ELSS) and Pension Schemes. Recent amendments to the Income Tax Act provide further opportunities to investors to save capital gains by investing in Mutual Funds. The details of such tax savings are provided in the relevant offer documents. Ideal for:

- Investors seeking tax rebates.

Special Schemes
This category includes index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50, or industry specific schemes (which invest in specific industries) or sectoral schemes (which invest exclusively in segments such as 'A' Group shares or initial public offerings).

Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. Sectoral fund schemes are ideal for investors who have already decided to invest in a particular sector or segment. Keep in mind that any one scheme may not meet all your requirements for all time. You need to place your money judiciously in different schemes to be able to get the combination of growth, income and stability that is right for you. Remember, as always, higher the return you seek higher the risk you should be prepared to take. A few frequently used terms are explained here below:

Net Asset Value ("NAV") 
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.

Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption Price
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load
Is a charge collected by a scheme when it sells the units. Also called, 'Front-end' load. Schemes that do not charge a load are called 'No Load' schemes.

Repurchase or 'Back-end' Load
Is a charge collected by a scheme when it buys back the units from the unit holders.

Why Should You Invest In Mutual Fund?
The advantages of investing in a Mutual Fund are:
Professional Management.
You avail of the services of experienced and skilled professionals who are backed by a dedicated investment research team which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification.
Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks declare at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration.
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.
Return Potential. Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities
Low Costs.
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

Liquidity.
In open-ended schemes, you can get your money back promptly at net asset value related prices from the Mutual Fund itself.

With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically.

Transparency.
You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility.
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Choice of Schemes.
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated.
All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

How Do You Understand And Manage Risk?
All investments whether in shares, debentures or deposits involve risk: share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy; generally, however, longer the term, lesser the risk; companies may default in payment of interest/ principal on their debentures/bonds/deposits; the rate of interest on an investment may fall short of the rate of inflation reducing the purchasing power. While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales, help them to build a diversified portfolio that Minimizes risk and maximizes returns.

How To Invest In Mutual Funds?
Step One - Identify your investment needs.Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses among many other factors. Therefore, the first step is to assess your needs. Begin by asking yourself these questions:

What are my investment objectives and needs?
Probable Answers: I need regular income or need to buy a home or finance a wedding or educate my children or a combination of all these needs.

How much risk am I willing to take?
Probable Answers: I can only take a minimum amount of risk or I am willing to accept the fact that my investment value may fluctuate or that there may be a short-term loss in order to achieve a long-term potential gain.

What are my cash flow requirements?
Probable Answers: I need a regular cash flow or I need a lump sum amount to meet a specific need after a certain period or I don't require a current cash flow but I want to build my assets for the future. By going through such an exercise, you will know what you want out of your investment and can set the foundation for a sound Mutual Fund investment strategy.

Step Two - Choose the right Mutual Fund.
Once you have a clear strategy in mind, you now have to choose which Mutual Fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager.
Some factors to evaluate before choosing a particular Mutual Fund are:
- the track record of performance over the last few years in relation to the appropriate yardstick and similar funds in the same category.
- how well the Mutual Fund is organized to provide efficient, prompt and personalized service.
- degree of transparency as reflected in frequency and quality of their communications.

Step Three - Select the ideal mix of Schemes
Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals. The charts could prove useful in selecting a combination of schemes that satisfy your needs

Step four - Invest regularly
For most of us, the approach that works best is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. With many open-ended schemes offering systematic investment plans, this regular investing habit is made easy for you.

Step Five - Keep your taxes in mind
If you are in a high tax bracket and have utilized fully the exemptions under Section 80L of the Income Tax Act, investing in growth funds that do not pay dividends might be more tax efficient and improve your post-tax return. If you are in a low tax bracket and have not utilized fully the exemption available under Section 80L, selecting funds paying regular income could be more tax efficient. Further, there are other benefits available for investment in Mutual Funds under the provisions of the prevailing tax laws. You may therefore consult your tax advisor or Chartered Accountant for specific advice.

Step Six - Start early
It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.

Step Seven - The final step
All you need to do now is to get in touch with a Mutual Fund or your advisor and start investing. Reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor-whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking.

What Are Yours Rights As A Mutual Fund Unit holder?
As a unit holder in a Mutual Fund scheme coming under the SEBI (Mutual Funds) Regulations, ("Regulations") you are entitled to:
- Receive unit certificates or statements of accounts confirming your title within 6 weeks from the date of closure of the subscription or within 6 weeks from the date your request for a unit certificate is received by the Mutual Fund;
- Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme;
- Receive dividend within 42 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase;

Vote in accordance with the Regulations to:
- Either approve or disapprove any change in the fundamental investment policies of the scheme which are likely to modify the scheme or affect your interest in the Mutual Fund; (as a dissenting unit holder, you would have a right to redeem your investments);
- Change the asset management company;
- Wind up the schemes.
- Inspect the documents of the Mutual Funds specified in the scheme's offer document.

In addition to your rights, you can expect the following from Mutual Funds:
- To publish their NAV, in accordance with the regulations: daily, in case of most open ended schemes and periodically, in case of close-ended schemes
- To disclose your schemes' portfolio holdings, expenses, policy on asset allocation, the Report of the Trustees on the operations of your schemes and their future outlook through periodic newsletters, half- yearly and annual accounts;
- To adhere to a Code of Ethics which require that investment decisions are taken in the best interests of the unit holders?

Currencies FAQ
The world has a wide number of currencies in circulation such as USD, GBP, INR etc. While one would purchase another currency (other than home currency) for specific needs such as travel, education, international remittance etc., there is a large market where one can trade and hedge in the global currency markets the prices of which are driven by geo political, economic and other global factors. Such trading and hedging is carried out through Futures trading system of BSE or NSE

What is BSE-CDX?
The Currency Futures Trading System of Bombay Stock Exchange Ltd. is called BSE-CDX (BSE Currency Derivatives Exchange)

What are Currency Futures?
Currency Futures traded on BSE-CDX
     - are standard contracts of a specified quantity 
    - to exchange one currency for another 
    - at a specified date in the future called settlement date 
     - at a price that is fixed on the purchase date called futures price.

Why trade in Currency Futures?
Currency Futures allows investors to take a view on the movement of the Indian Rupee (INR) against other currencies.

What is the other Currency Derivatives traded on BSE-CDX?
Currently, only Currency Futures are allowed to be traded by SEBI.

What do we mean by Currency Forward?
A currency forward contract is traded in the over-the-counter market usually between two financial institutions or between a financial institution and its client.

How does the Indian Forex market work?
The Foreign Exchange Management Act is the law which regulates the Forex market. The regulatory authority for the Indian Forex market is the Reserve Bank of India (RBI). However, the Exchange Traded Currency Futures market is regulated by SEBI through the recognized stock exchanges.

What volatility have we observed in the Indian Forex market?
The period beginning 1993, when the Indian Rupee moved away from an administered exchange rate, was a period of low currency volatility. This was followed by a period of high volatility during the Asian crisis after which the period again witnessed low volatility, followed yet again by a high volatility period.

What is Counter-party or Credit Risk?
The ICCL (the Clearing Corporation of Bombay Stock Exchange Ltd.) gives an unconditional guarantee for the net settlement obligations of all clearing members in the currency derivative segment. As such, in case of default of a clearing member, ICCL becomes counter-party for his net settlement obligations and thus other market participants remain unaffected.

Who can trade in the Currency Futures Market?
Except FIIs and NRIs, every individual/corporate/institution/bank etc. is allowed to trade in the Currency Futures market.

Which currencies are allowed to trade on BSE-CDX?
To begin with, only US Dollar ($) futures is being traded against the Indian Rupee (INR). The contract for say the month of September will be called USDSEP2018.

How many contracts are available for trading in BSE-CDX?
There are 12 near calendar months contract available for trading along with spread contracts for every combination.

How can I sell a Futures Contract before I own it?
You do not need to own the underlying currency when you enter into a futures contract. The contract simply represents a commitment to either sell or buy the asset on the set expiry date.

Which day will be the Settlement Day?
The Currency Futures contract would expire on the last working day of the month.

Depository FAQ

What is a ‘Depository’ ?
A depository is an organization where the securities of an investor are held in electronic form. A depository can be compared to a bank. To avail of the services of a depository, an investor has to open an account with the Depository through a depository participant, just as he opens an account with the bank. Holding shares in the account is akin to holding money in the bank.

Why should I prefer to buy shares in the depository mode?
Why should I have a demat account?
As an investor you will enjoy many benefits if you buy and sell shares in the depository mode. The following are some of the benefits you will enjoy: -
- No bad deliveries.
- No risk of loss, mutilation or theft of share certificates
- No stamp duty for transfer of shares.
- Reduced paper work.
- Fast settlement cycles.
- Low interest rates on loans granted against pledge of dematerialized securities by banks.
- Low margin on securities pledged with banks.

Increase in liquidity of your securities because of faster transfer and registration of securities in your account.
Instant disbursement of non-cash benefits like bonus and rights into your account.
Regular account status updates available from MODES at any point of time.

How many depositories are there in India ?
At present, India has only two depositories—National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL). NSDL is the first depository to have started in India, whereas CDSL followed them. However, most of the services offered by both these depositories are similar. Today almost all the companies listed in dematerialized form with NSDL are available with CDSL.

Who is a depository participant ?
A Depository Participant (DP) is an agent appointed by the Depository and is authorized to offer depository services to all investors. An investor cannot directly open a demat account with the depository. An investor has to open his account through a DP only. The DP in turn opens the account with the Depository. The DP in turn takes up the responsibility of maintaining the account and updating them as per the instructions given by the investor from time to time. The DP generates and provides the holdings statement from time to time as required by the investor. Thus, the DP is basically the interface between the investor and the Depository.

Example- Dhanayoga is a DP of both CDSL. For the purpose of Internet Trading, you will have to open a demat account with Dhanayoga  who is authorized to offer you this service. We will be opening your demat account with CDSL. The balances in your account are maintained with the depository and are available to you through us. You can find the status of your holdings or transactions from time to time.

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Who is a Beneficiary Owner (BO) ?
The person who holds a demat account is a beneficiary owner. In case of a joint account, the account holders will be beneficiary holders of that joint account.

What is a BO Id ?
The demat account number of the beneficiary holder(s) is known as the BO Id.

What is a DP Id ?
A DP Id is the number of the depository participant allotted by the depository.

NRI FAQ

Who is a non-resident Indian (NRI)?
An Indian Citizen who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. (Persons posted in U.N. organizations and officials deputed abroad by Central/State Governments and Public Sector undertakings on temporary assignments are also treated as non-residents). Non-resident foreign citizens of Indian Origin are treated on par with non-resident Indian citizens (NRIs) for the purpose of certain facilities.

What is an OCB?
Overseas Corporate Bodies (OCBs) are bodies predominantly owned by individuals of Indian nationality or origin resident outside India and include overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent of at least 60% by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons. Such ownership interest should be actually held by them and not in te capacity as nominees. The various facilities granted to NRIs are also available with certain exceptions to OCBs so long as the ownership/beneficial interest held in them by NRIs continues to be at least 60%

What are the various facilities available to NRIs/OCBs?
NRIs/OCBs are granted the following facilities:
Maintenance of bank accounts in India.
Investment in securities/shares of, and deposits with Indian firms/ companies.
Investments in immovable properties in India.

Can NRI's invest in companies in India?
NRIs are permitted to make direct investments in proprietary/partnership concerns in India as also in shares/debentures of Indian companies. They are also permitted to make portfolio investments i.e. purchase of shares/debentures of shares/debentures of Indian companies. They are also permitted to make portfolio investments i.e. purchase of shares/debentures of Indian companies through stock exchanges in India. These facilities are granted both on repatriation and non repatriation basis.

Is permission of Reserve Bank required for NRIs to invest in proprietary/partnership concerns on non- repatriation basis?
No. Reserve Bank has granted general permission to non- resident individuals of Indian nationality/origin to invest by way of capital contribution in any proprietary or partnership concern in India on non- repatriation basis provided the investee concern is not engaged in any agricultural/plantation activity or real estate business. This facility is, however, not available to OCBs.

Is permission of Reserve Bank required for making investments in new issues of Indian companies on non- repatriation basis?
No. Indian companies have been granted general permission to accept investments on non-repatriation basis, in shares/convertible debentures by way of new/rights/bonus issue provided the investee company is not engaged in agricultural /plantation activity or real estate business(excluding real estate development i.e. development of property and construction of houses).

Are any formalities required to be completed by NRIs for getting the benefit of the above general permission?
No. However, the firms/companies concerned are required to file declarations with Reserve Bank in form DIN giving particulars of the investments made. Within ninety days from the date of the investment.

Can NRI individuals make investments in domestic public/private sector Mutual Funds or Money Market Mutual Funds floated by commercial banks and public/private sector financial institution on non/repatriation basis?
Yes.

Can Overseas Corporate Bodies make similar investments in mutual funds on non-repatriation basis?
OCBs can make such investments only in domestic public/ private sector Mutual Funds. They can also make investments in Money Market Mutual Funds.

Can NRIs make investments in non-convertible debentures of Indian companies?
Yes. Applications for necessary permission should be made to Reserve Bank (Central Office) by the concerned Indian Company in form ISD.

Can NRIs purchase existing shares/debentures of Indian companies by private arrangement?
Yes. Reserve Bank permits NRIs on application in form FNC 7, to purchase shares/debentures of existing Indian companies on non-repatriation basis. An undertaking about non-repatriation is to be given in form NRU.

Is it necessary for a resident, holding securities in Indian companies, to secure any approval from Reserve Bank on his becoming a non-resident for holding such securities?
No. Reserve Bank has granted general permission to companies in India to enter the overseas addresses of the shareholders in their books in such cases provided the companies obtain undertakings from the holders that they will not seek repatriation of any income or sale proceeds of the security.

Volatility Index FAQ

What is India VIX?
India VIX* is India’s first volatility Index which is a key measure of market expectations of near-term volatility.

* “VIX” is a trademark of Chicago Board Options Exchange, Incorporated ("CBOE") and Standard & Poor’s has granted a license to NSE, with permission from CBOE, to use such mark in the name of the India VIX and for purposes relating to the India VIX.

How is India VIX computed?
India VIX is computed by NSE based on the order book of NIFTY Options. The best bid-ask quotes of near and next-month NIFTY options contracts which are traded on the F&O segment of NSE are used for computation of India VIX.

What does India VIX signify?
India VIX indicates the investor’s perception of the market’s volatility in the near term i.e. it depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher the expected volatility and vice-versa.

What is the value of India VIX?
In the year 2013 the India VIX values were in the range of 13 to 32. Since India VIX signifies volatility, the values will be computed upto 4 decimal places as market participants may like to analyse impact on prices due to small changes in volatility.

How India VIX helps investors?
Volatility implies the variation in price of a financial instrument. Thus when the markets are highly volatile, market tends to move steeply up or down and during this time volatility index tends to rise. Volatility index declines when the markets become less volatile. Volatility indices are sometimes also referred to as the Fear Gauge because as the volatility index rises, one should become careful as the markets can move steeply into any direction. Investors use volatility indices to gauge the market volatility and make their investment decisions.

Is India VIX similar to that of market indices like NIFTY?
Volatility Index is different from a market index like NIFTY. NIFTY measures the direction of the market and is computed using the price movement of the underlying stocks whereas India VIX measures the expected volatility and is computed using the order book of the underlying NIFTY options. While Nifty is a number, India VIX is denoted as an annualized percentage.

Who started the concept and computation of VIX first?
VIX was first introduced by the Chicago Board of Options Exchange (CBOE) as the volatility index for the US markets in 1993 and it was based on S&P 100 Index option prices. The methodology was revised in 2003 and the new volatility index was based on S&P 500 Index options. CBOE also introduced VIX futures in 2004 and options in 2006.

Is India VIX methodology similar to CBOE VIX?
India VIX uses the computation methodology of CBOE, with suitable amendments to adapt to the NIFTY options order book using cubic splines methodology, etc.

What shall be the use of futures on India VIX?
India VIX derivatives can be used to hedge the risk of market volatility. Participants can use India VIX futures for portfolio diversification and for volatility trading.

Can all types of participants trade in India VIX futures?
Equity investors, mutual funds may use India VIX futures to hedge or diversify the equity portfolio. Options traders may use India VIX futures for hedging the vega risk or take exposure on volatility.

What are the key product specifications of India VIX futures?
The contract symbol is INDIAVIX and 3 weekly futures contract shall be made available for trading. The contracts shall expire on every Tuesday. The tick size is 0.25. The contract specification can be downloaded from www.nseindia.com

How is price quoted for India VIX futures?
For ease of trading the India VIX futures price shall be quoted as expected India VIX index value *100. If trader wants to buy 1 contract of India VIX futures at 18.1475, then the price to be quoted shall be Rs.1814.75. The contract value shall be Rs.10,88,850. {No. of contracts (1) * Lot size (600) * Quoted price (1814.75)}

(Note: Lot size is assumed to be 600 for this example. Exchange shall subsequently inform the lot size through circular)

What is the impact of 1 tick change on India VIX portfolio?
The underlying India VIX has a tick value of 0.0025 and the future on India VIX has tick value of 0.25. Using the above example change in 1 tick will have following impact.

India VIX Value India VIX Futures Price Contract Value
Current Price 18.1325 1814.75 Rs.10,88,850
1 tick change 18.1350 1815.00 Rs.10,89,000
Impact 0.0025 0.25 Rs.150
As it may be seen, change in 1 tick will change value of 1 contract of India VIX futures by Rs.150

Why do India VIX futures have 3 weekly contracts?
Indian markets are observed to predict expected volatilities for up to two months (60 days). India VIX futures represent expected volatility over the next 30 calendar days from the expiration of the contract. Three weekly India VIX futures contracts will predict the volatility till 51 (21 + 30) days from the current date.

Why does India VIX futures contract expire on Tuesday?
On the last Tuesday that is thirty days prior to the last Thursday of the next month, the Nifty option expiring in exactly 30 days, accounts for all of the weight in the India VIX calculations. India VIX value on this day will project expected volatility over the time period that mirrors the time period of derivative contracts on Nifty..

What is the settlement mechanism for India VIX futures?
Like other equity derivatives contract, India VIX futures shall be marked-to-market (MTM) on a daily basis. The MTM shall be netted along with other equity derivatives contract at the clearing member level. The contracts shall be cash settled.

What is the settlement price for India VIX futures?
The daily settlement price of India VIX futures shall be the weighted average price for last 30 minutes of the respective futures contract. If the contract does not trade, then theoretical futures price shall be used for computation. 
The final settlement price will be the closing value of the India VIX index on the expiry day. The closing value of the India VIX index is the average of the index values for last 30 minutes of trading.

Is there any additional infrastructure cost for the trading member to trade in India VIX futures?
The contracts on India VIX futures shall be available for trading in the F&O segment of NSE. Therefore all members of NSE F&O segment shall be able to transact in India VIX futures. The margins shall be blocked from the deposits placed in the F&O segment.

SLB (Securities Lending and Borrowing) FAQ

Which securities are available for SLB transaction ?
Securities available for Futures & Options are available for SLB transactions

Who can participate in SLB segment ?
Retail, HNI, Mutual Funds, Insurance Company, FIIs & DIIs

What is tenure for SLB transactions ?
The tenure of SLB transactions is 12 months.

In SLB, does lending amount to transfer under clause (47) of section 2 of income tax act ?
As per Income Tax circular number 2/2008, dated 22-2-2008 transactions under SLB shall not be regarded as a transfer.

What is the counterparty risk in SLB transaction ?
NSCCL is the central counterparty providing financial settlement guarantee for SLB transactions.

Are transaction charges and STT applicable for SLB ?
At present there are no transaction charges. As per income tax department circular STT is not levied for SLB transactions.

What form of collaterals can be provided towards margin requirements for borrowing ?
Participants can provide collaterals in the form of cash, fixed deposit or bank guarantee.

What are the position limits for SLB transactions ?
Client wise position limits is 1% of market wide position limits. Market wise position limits is 10% of free float of the company.

Does Corporate Action benefit accrue to Lender?
Yes corporate action benefits accrue to lender. Dividends are collected from borrower and passed on to lender at the time of book closure / record date. Borrower’s obligation is revised as stock split details and passed on to lender on reversal date. For any other corporate action transactions are foreclosed 2 days prior to ex-date or as prescribed by NSCCL from time to time.

FAQ - Fixed Income Instrument

What is a bond?
A bond represents a contract under which a borrower promises to repay interest and principal on specific dates to holders of the bond.

Who can issue bonds?
Bonds are issued by a variety of organizations. The principal issuers of bonds in India are the central government, state governments, public sector undertakings, and private sector companies. Bonds issued by the central government are called Treasury Bonds.

What is par value?
Par value is the value stated on the face of the bond. It represents the amount the firm borrows and promises to repay at the time of maturity.

What is Coupon Rate?
A bond carries a specific interest rate which is called the coupon rate. The coupon is the amount the bondholder will receive as interest payments.

What is Maturity Date?
The maturity date is the date in the future on which the investor's principal will be repaid.

What is Yield?
Yield is the return you get on a bond.

What is Current Yield?
Current Yield relates the annual coupon interest to the market price. It does not consider the capital gain (or loss) that an investor will realize if the bond is purchased at a discount (or premium) and held till maturity.

Current yield is calculated by dividing the annual interest by the market price of the bond.

What is Yield to Maturity?
Yield to Maturity (YTM) is the rate of return you will earn if you buy the bond and hold it to maturity. YTM considers the current coupon income as well as the capital gain or loss the investor will realize by holding the bond to maturity.

What is the relationship between the price of the bond and yield?
A basic property of the bond is that its price varies inversely with the yield. They behave like two sides of a see-saw. This is because, as the yield decreases, the present value of the cash flows increases, hence the price increases. Conversely, when the yield increases, the present value of the cash flow decreases.

What is Duration?
Duration is a measurement of how long, in years, it takes for the price of a bond to be repaid by its internal cash flows. It is a measure of the sensitivity of the asset's price to interest rate movements. Bonds with high Duration factors experience greater increases in value when rates decline, and greater losses in value when rates increase, compared to bonds with lower duration.

What is Modified Duration?
Modified Duration is a measure of the price sensitivity of a bond to interest rate movements. Modified duration follows the concept that interest rates and bond prices move in opposite directions. This formula is used to determine the effect that a 100-basis-point (1%) change in interest rates will have on the price of a bond.

What is the benchmark in bond market?
The benchmark in bond market is the 10 year Government Security the rates for which are published in RBI Website at https://rbi.org.in/Scripts/BS_NSDPDisplay.aspx?param=4  (ref FIMMDA)

FAQ - Real Estate

I want to invest into Real Estate, what are the options available to me?
If you want to invest in Real Estate, you have the following options:
- Residential: houses, apartments, duplexes... generally safest, usually returning around 2-5% as Cap Rate plus capital appreciation.
- Commercial: factories, shops, offices... usually provides higher returns around 7-10% with tenants paying out-goings... often much more expensive, banks more choosy about lending.
- Agricultural: Land used for farming is another option you can explore if you are looking for an income generating Real Estate Investment.
- Real Estate Funds: Many alternate Asset Managers have come out with real Estate based funds for investment into Real Estate which range from joint ownership of properties by the Unit holders to complex deals which may provide for guaranteed returns, or equity participation or other structured products.
 
What Is Typically Involved In Beginning Real Estate Investing?
Buying an investment property is no more or less complicated than buying your own home.
The process is basically the same:
1. Pre-qualify:your offer is a much stronger one if the seller knows your financing is readyto go.

2. Choose your investment: use the help of your team of experts toadvise you, when needed.

3. Make an offer: if you are purchasing in a development, pricingmay be pre-determined. But if you are purchasing a single family home, for example, there is some room to bargain. Don’t "low-ball”. Sellers may be insulted and not look at any other offer from you, just based on that. 

4. Purchase Agreement: The contract you and the seller will sign,listing out the specific agreements. Here are some common elements:
- Amount of deposit/earnest money 

- Specifically states you the price & terms of the agreement, proposed financing you have chosen 

- Rescission period – the amount of time you have to change your mind for any reason. This is different from state to state and varies on the type of investment property you purchase.

- State the intended closing time that you and the seller agree upon.
 
5. Closing: On this date you will finalize your purchase and officially "take title” to the property. At this time, the balance of your arranged down payment will be due.For example you and your lender agree that putting 10% down is the best option for you and you put 2% down for your earnest money already, you will need to bring a cashiers check for the additional 8% to closing. Your lender will give you the exact amount plus any closing costs you are paying for upfront.
 
 How do I decide whether buying a particular property a good use of my Money?
In India, historically, Real Estate has given good returns to the investor. However, the picture is not always rosy for the average investor.  A good guide is to consider the 10 year G-Sec Rate and long term equity returns.  The expected return should be atleast mid way between the two.
 
Are there any ratios I can look at to decide the profitability of the Building?
Yes, you can look at the following ratios to make a financially sound Real Estate investment decision:
 
Cap Rate: Cap rate is the ratio between what a building costs and what it makes, something similar to the PE Ratio of a stock.  Itis mathematically defined as Net Operating Income / Purchase price.
 
Thus, a property paying a monthly rent of Rs 30,000 (=Yearly income of Rs. 3.6 L) and costing Rs 1 Cr will have a Cap Rate of 3.6%.
 
Gross Rent Multiplier: An important ratio to the seller, it measureshow many times the property is valued in relation to the rent received and is inverse of Cap Ratio.
 
Debt Service Ratio: If you have taken a loan to buy a property,this is an important ratio for you.  It is arrived at by dividing the Net Operating Income of the property by Its debt obligation.  If the ratio is more than 1,it means that the rent you receive is higher than your EMI and the property is covering up for its loan.
 
Return on Investment(ROI): It is the most important ratio for you as it helps you understand what the property is paying to you.  It is arrived at by dividing the Net Income of the property by the total investment. Thus, if you get a rent of Rs 30,000 on a 1 Cr property, and pay an EMI of Rs 12,000, your ROI is 2.16%.
 
How do I make sure that my property pays for itself?
We buy Property to make money for us, but the truth about Real Estate investing is that the rental yields are very low and thus, the major return from an investment comes from the Capital Appreciation at the time of the sale. As, Real Estate Investments being a long term in nature, it becomes important that we do not get into a debt trap and should not have a negative cash flow.  The most important thing to note is that the total outgoings on a property are much lower than the Income it generates.
 
Is it prudent to take a loan while buying a property or should I try and finance the purchase myself?
Taking a loan can be good financial decision while buying a house for both Residential as well as Investment Needs, as you get tax breaks for the same.  However, you have to keep in mind that the amount of your EMI should not be substantially higher than the rent you paid living in a rented accommodation.
 
If you are buying for investment make sure that the Debt Service Ratio is at least above 1.25 so that you can cover all the costs of the owning the property.
 
What are the tax benefits on offer for taking loans on Real Estate?
If you have taken a loan for buying a house, you can deduct Rs 1 lac of principal repayment u/s 80c and you can deduct the interest upto Rs 1.5 lacs per annum

Should I have different parameters for buying a House for Residence and one forinvestment?
There are obviously different parameters which you need to focus on for buying a House for Residence and one for investment.  While considering the returns on the property, Rental Income plays the differential in a property purchased of Investment and self residence.  Therefore, other things being equal you can buy an expensive property if you want to put it on rental, as the rent received, will help you offset sum cost on a regular basis.

What are the different criterion to look at while comparing a Residential and Commercial Property for investment purposes?
Although, Commercial Real Estate has a much higher Cap Rate and the quality of Earnings is better than those in a Residential Property, it requires a much higher professional Property management skills and is not everyone’s cup of tea.  Therefore, the most important criterion while choosing between the two is to consider the level of involvement and professional skills of the buyer

What is Fee-for-Service Financial Planning?
Fee for Service financial planning is a subset of Fee Only financial planning. We charge a fee for the amount of time we spend with clients or working on their financial affairs. The fee is based on an hourly amount. It is not tied to the size of a client's net worth or the size of their investment account.

What is Financial Planning?
The term Financial Planning has caught on in the last few decades. To some it means reducing the income tax that they pay. To others it means getting a better return on their investments. Many think financial planning is just the sale of mutual funds or insurance.

We feel Financial Planning is what you do with your money. Individuals have been practising financial planning for centuries. Every individual who received money had to make a decision about the best way to use it. Typically, the decision was either spend it now or save it to spend later. You have to make the same decision every time you receive money. Do you spend it now or do you save it to spend it later?

We think that financial planning is a process that you go through to find out where you are now (financially), determine where you want to be in the future, and what you are going to do to get there. We believe that everybody does financial planning (some are more successful than others).

Our role is to help you create your own financial plan, what we might call a "Roadmap To Your Financial Security", whatever you describe that financial security to be. The financial plan may be written or verbal, but it does need to be articulated.

The Institute of Advanced Financial Planners (a professional association of personal financial planners) believes that "Personal Financial Planning is a client oriented process focusing on all the financial and psychological factors which have an impact on a person's life." The six step process in creating your financial plan as below.

Clarify your present situation,
Identify your financial and personal goals and objectives,
Identify financial problems or opportunities,
Determine recommendations and alternative solutions,
Implement the appropriate strategies to achieve your goals,
Review and update your plan periodically.

We follow the above six step process in creating your financial plan.

What or Who is a Financial Planner?
Basically a financial planner is an individual who will help you with your financial plan. The title "financial planner" is not regulated. Anybody can call themselves a financial planner. In fact many product salespersons call themselves financial planners to add credibility to their sales process. To sell certain financial products (like stocks, mutual funds, or insurance) the salesperson must be licensed by the province in which they sell. Many so-called financial planners jump to step 5 of the financial planning process and want to implement your "plan" by selling you their investment product.

We feel that you should go through the first four steps of the financial planning process before you buy any investment. We do not sell any financial products, we only provide advice. When it comes to implementing your financial plan, we work with other professionals (accountants, lawyers, investment counselors, investment advisors, bankers and brokers) to find the best solution to your needs.

Do you need a Financial Planner?
Many people find the world of finance a confusing place. Do you have the time and desire to sort through all the opportunities out there? Do you understand how those opportunities can apply to your situation? Can you keep up with changes to income taxes, investment products, estate laws, etc.?

Are you receiving conflicting advice from different sources? Is your banker telling you something different from your insurance agent? Do you want to know what is "right" for you?

Do you feel that you are paying too much tax? (Everybody does, but some are able to reduce the tax they pay now or in the future.)

Are you unsure of where to invest? Do you want a higher return but do not want to take higher risk? What return do you need to meet your goals?

Do you have difficulty saving money?

We provide independent and objective advice to put you on the right track to accomplish your goals. We will confirm whether you are on the right track or tell you what to do to get back on the right track. For many of our clients we provide peace of mind knowing that they are doing all the right things given their situation.

We help clients in the following areas:
Cash Flow Management
Debt Management
Income Tax Planning
Investment Planning
Retirement Planning
Education Funding
Insurance and Risk Planning
Estate Planning

Contact us to discuss your needs

Who Does Financial Planning?
Financial planners are individuals that will help you create your own financial plan. Some people prefer to do the financial planning themselves, others will want the assistance of a financial planner for some of the financial planning steps, others still will want the financial planner to do all the steps in creating and implementing a financial plan.

A financial planner may be compensated in one of three ways:

The first is on a fee only basis. The fee is based on the value of the client's assets and/or income and may include a certain fixed cost for the financial plan design and execution.

The second is on a fee and commission basis. The fee is determined by the amount of work involved in designing the client's plan and continuous updating. The commissions are derived from the sale of financial products if the client implements the product portion of the plan through the planner.

The third is on a commission only basis. The commissions are usually derived from the sale of financial products by the planner.

FAQ on General Insurance
What is General Insurance?
Insuring anything other than human life is classified as General Insurance. All insurance plans excluding life-insurance falls under the category of General Insurance. General insurance products for individuals include Travel, Health, Student, Motor, Home, Personal Accident, Corporate and other business insurance. Most general insurance policies are annual and only few policies like fire insurance for residences are given for longer period. Travel insurance is usually used to insure the duration of one’s travel.
 
What is TPA in Insurance?
TPA stands for Third Party Administrator. TPAs are organizations that processes insurance claims. TPA acts as an “outsourcing” company for insurance companies for the administration of the claims processing. All the TPAs are approved by Insurance Regulatory and Development Authority (IRDA).
 
What is IRDA in insurance industry?
Insurance Regulatory and Development Authority (IRDA) is an administrative agency by Government of India. IRDA is taking care of the supervision and development of the insurance sector in India.
 
What is Actuarial Science?
The discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries is called as Actuarial Science.
 
What is ‘Premium’ in insurance?
Premium is the amount that the insurance company charges you to issue insurance cover for you, your family or the assets/liabilities that are covered under the policy.
 
What are the factors that decide ‘Premium’?
Premium of the insurance policy is decided considering age of the customer, coverage period and duration of the policy.
 
What is ‘Policy Period’?
The duration of the Policy from the start date till the expiry date of the policy is called as ‘Policy Period’. You can utilize the benefits of insurance as specified only during the ‘Policy Period’.
 
What are the different modes of payment while buying Insurance Policy online?
You can use a credit card, debit card or cheque to purchase insurance policy on our website.
 
What if I do not have sufficient balance in my bank account while buying insurance policy online?
The insurance policy will be issued to you only after the transaction is completed. It is obvious that the transaction will fail if you do not have sufficient balance in your bank account while buying insurance policy online.
 
Why should I have to fill the proposal form for buying Insurance?
Insurance is a contract between the insurer and the insured. Your proposal form acts as a request to buy a policy. The details in your proposal form will be used to prepare the policy document or contract agreement.
 
Will I receive a confirmation for the transaction?
Yes, once the premium amount is recovered from your bank account you will receive an e-mail with all the transaction details.
 
Can I change my coverage effective date in the insurance policy?
No, once the application is submitted you cannot change the effective date. You can cancel the existing policy and purchase a new policy with the new dates.
 
What is the proof of purchasing insurance online?
When you purchase the insurance online at our website, you will immediately receive an email acknowledgement. You will receive the insurance policy document within a few hours, 24 hours at the latest. This policy will have your name, policy number, insurance company's contact information such as the toll-free telephone number and the address where claims should be submitted.
 
How do I receive the document if I buy an insurance policy online?
If you buy insurance online, you will receive the policy document by email and a hard copy of the same document will also be sent to your Indian address by courier.
 
What if I do not receive the courier?
In case the courier is delayed, you can use print out the electronically sent soft copy which is a legal document and is fully valid
 
Can I get discount on my insurance policy?
None can give discounts on insurance policies as it is illegal to do so. According to The Insurance Act, 1938, Section 41 - Prohibition of rebates: No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer: [Provided that acceptance by an insurance agent of commission in connection with a policy of life insurance taken out by himself on his own life shall not be deemed to be acceptance of a rebate of premium within the meaning of this sub-section if at the time of such acceptance the insurance agent satisfies the prescribed conditions establishing that he is a bona fide insurance agent employed by the insurer. .

FAQ on Health Insurance

I have a health insurance policy covered by my office; will it cover me for my overseas holiday?
Your domestic health insurance will not cover once you are out of your home country. You need to have overseas health insurance while travelling abroad. You have to check with your company regarding this and then act accordingly.

What if I cancel the policy?
On cancellation the cover will not exist from the date of cancellation. Also as elaborated in your policy, the premium will be refunded to you on the basis of short period cancellation rate.

How many times can I file a claim?
There is no restriction for repetitive claims for hospitalization including its pre and post expenses provided the coverage amount is available.

Are there any bonuses available in the event of no claims?
Normally insurers offer no claim bonus in the form of enhanced sum insured.

I bought health insurance in Delhi can I use it in Mumbai?
Yes, you can use domestic health insurance policy across the country, no matter where you bought it.

How can I buy the policy? 
One can buy the policy online using the credit/debit card or we can send an executive to your convenient place and you can sign up filling the proposal form and providing a cheque payable to the insurance company only.
Note: Please do not pay the premium by cash.

What is co-payment?
Co-pay is that part of your hospital bill amount, which you have to bear for applicants over 60 years. Co-pay can be up-to 20-30%

I want a policy for my family and not for me. Is that possible?
Yes, it is possible. You will be just a primary applicant and not the insured.

Is a medical check-up mandatory for buying the policy?
Yes, it is a mandatory for individuals or family members who are more than a certain age (usually 45, varies from company to company) to submit medical test report depending on the company regulations.

Do I need to go for medical tests if I am above the age 45 years?
Yes, Health Insurance for those above the age of 45 years, require medical tests.

Who will take care of the cost of the medical check-up?
Most of the companies bare the cost of pre-medical check-up.

What does pre-existing disease stand for?
At the time of applying for the policy for the first time if there is any disease for any applicant this is known as Pre-existing diseases.

Are the pre-existing diseases covered in the health insurance plan?
Most insurers do cover pre-existing diseases after a few years of insurance coverage. While it varies from company to company, pre-existing condition coverage is often covered after 2/4years provided you renew the policy with the same insurer.

Is there a need to disclose my blood pressure or diabetes problems?
Yes, it is necessary to disclose your existing health problems before buying policy. Since the insurers are not liable to any of the alteration of facts. At the time of buying policy one must know the diseases and the treatments he/she is going through.

How do you consider a disease as pre-existing?
At the time of filling an application for policy you have to disclose all the diseases for which you are currently undergoing treatment. The insurers refer to such health issues as pre-existing illnesses.

Does maternity expenses covered under the policy?
Yes. Few companies do cover for maternity after a waiting period around 2-4years.

Does this insurance policy cover the insured in case of accident?
Yes, this policy covers accident emergencies which require a period of hospitalisation for 24 hours or more. Health insurance policies provide accident coverage from the first day of the policy.

If I claim for a particular ailment, does the insurer consider it as pre existing disease for the next term?
No, the claim made for a disease does not become the pre-existing disease for the next term as long as there is no break in the term of the insurance policy and it is renewed within the due date.

Which are the places I can get hospitalised?
You can get hospitalised in any city in India. Cashless service is available only at the network hospitals of the insurer. The list of the hospitals is provided with your policy.
Note: For all the hospitals which do not come under the network you need to pay first and the insurer will refund you the money later.

Is there a duration limit for stay in hospital?
There is no duration limit as such for stay in hospital but there is a limit to the amount offered by the insurers depending on company terms.

What are the things I should produce for Cashless Hospitalisation?
Health ID card, a photo identity proof (like Passport, Voter ID, driving licence etc) should be produced.

Is the policy applicable if hospitalization is for less than 24 hours (e.g. for kidney stone removal)?
Insurance companies cover all advanced technological surgeries such as kidney stone removal, catheterization, chemotherapy etc. under Day care treatment and do not insist on 24 hours hospitalization in case of these procedures. The policy usually has the list of such treatments covered.

What will happen if my policy lapses when I am hospitalised?
Your hospitalization expenses will be covered as long as the event that caused your hospitalization occurred during the policy period.

Does the policy cover Ayurdevic, Unani or Homeopathic treatment?
Yes, now there are a few companies which cover Non-Allopathic treatments.

If any of my family members or me is treated at our home, is the policy coverage applicable?
'Domiciliary Hospitalization' covers you if any of the family members is treated at home. Only in case the patient's condition is such that he/she cannot be moved out of the home then the policy is applicable.

​Is there any waiting period when my expenses will not be settled, in case of emergency?
Health insurance policies usually have a 30 day waiting period from the policy start date in the case of sickness only. This clause is not applicable for accidents. Old age diseases like cataract, hysterectomy, hernia etc are usually given a waiting period of 1 – 2 years. The insurers specify these terms in the policy .

What is Life Insurance?
Life Insurance is a contract between a person and a life insurance company to reimburse his/her beneficiary (usually a spouse or child) at the time of his/her demise. The reimbursement amount is pre-decided based on the terms of the policy.

Why is Life Insurance useful?
Life Insurance is useful to provide your family with financial security in case circumstance throws you into a situation where you cannot earn or in the case of your premature demise. It helps keep your family in a position to enjoy financial security even after your demise.Life insurance policies also offer you the ability to save, which helps provide financial stability.

Is Life Insurance necessary?
Life Insurance is not necessary but is a smart investment to make, especially if you have a dependent spouse and children. It offers your family the benefit of financial support even after your death. In addition to this, it offers a number of advantages and provides a lot of flexibility on your investment. For example, you can add a critical illness rider to cover the cost of expensive for surgeries and operations; you can withdraw a part of your maturity benefit in case of an emergency or for your child's education or marriage, etc. Life Insurance policies come with a lot of flexibility.

How do I decide on the amount of life insurance I need?
The amount that you receive on maturity depends on the amount of premium you pay. The maturity benefit you need depends on your standard of living, income, spending habits, etc. You should aim to receive a maturity amount equal to 8 to 10 times your annual salary.

How much does life insurance cost?
The cost of life insurance depends on the type of policy you take, the amount of premium you pay, the sum insured, your age and the benefits you expect to receive when your policy matures.

Do I have different options to pay my premium?
Yes, there are options available to you to pay your premium. You can pay your premium monthly, quarterly, half-yearly or yearly. You can also pay it in one lump sum. However, a monthly premium is the most common because the amount is relatively small and it is easier to monitor and be prepared for a more frequent premium payment.

What if I don't pay my premium on time?
You usually get a grace period, up to 30 days, to pay your premium once it falls overdue. If you still don’t pay you premium after the grace period your policy stands defunct and you cannot claim any benefits from your policy.However, you can revive your policy once you pay all your overdue premiums and you will again start receiving the benefits of the policy.

What are the advantages of investing in a life insurance policy?
In addition to giving you, and your family, financial protection investing in life insurance offers many other benefits.
Encourages the habit of saving so you are provided with financial security at the time of retirement or your family is provided with financial assistance at the time of your demise.

Through a Life Insurance policy you can claim a tax benefit under section 80C of the Income Tax Act, up to Rs. 1,00,000.
The maturity benefits from a life insurance policy are tax free under section 10(10D) of the Income Tax Act.

You can invest in a policy that offers you a loan against your amount invested, if you need financial assistance in the case of an emergency. You can also take a loan from a bank or financial institution and put your policy up as collateral for the loan.

You can invest in a policy that allows you to withdraw a part of your investment at the time of a financial emergency.
You can add a critical illness rider to your policy, which offers you medical aid in case you are inflicted by a serious illness or injury. Under this rider you can also claim a tax benefit up to Rs. 15,000 as specified in section 80D of the Income Tax Act.

You can also invest in policies in the name of your spouse and children and claim tax benefit, under section 80C, on those policies as well.

So I won’t be able to claim tax benefits if I stop paying premiums on my life insurance or pension policies, right?
Correct. If you stop premium payments of your policy, it amounts to discontinuation of the policy and you cannot claim any tax benefits. However, if you discontinue paying your premiums after 2 years from commencement of your policy, tax will not be deducted on premium paid in the year when your policy ends. The amount of tax deducted on the premium paid in the preceding year, is taxable in the year when policy terminates.

What about with a Unit Linked Insurance Plan (ULIP). Can I claim tax benefits if I discontinue my ULIP policy?
In the case of a Unit Linked Insurance Plan you are not entitled to receive any tax benefits if you stop paying premiums earlier than 5 years from the commencement of your policy.

What about tax benefits on medical insurance premiums?
In calculating your (individual or HUF) total income, any sum paid by you, other than in cash, out of your income that is chargeable to tax to effect or to keep in force insurance for your health or the health of your spouse or children and
to effect or to keep in force an insurance on the health of your parent or parents up to Rs. 15,000 for each person mentioned in (i) and (ii) in the previous year and in case the person is a senior citizen up to Rs. 20,000 for each person mentioned in (i) and (ii) in the previous year shall be allowed a deduction.

Can I claim tax benefit on the interest on a loan taken against an insurance policy for the purchase or construction of a house?Interest on loans taken against an insurance policy is allowed as a deduction from income chargeable under the head “Income from house property” provided the amount of loan is used by the policyholder to acquire, to construct, to re-construct, to repair or to renew any property.

What are the Tax Benefits in case I opt for a Pension Plan?
You can claim tax benefits for a Pension Plan under Section 80CCC if you have paid premiums. You will receive pension from a fund referred to in Section 10(23AAB). You will be able get a deduction of up to Rs. 100,000 on your total annual income.

What happens when my life insurance policy matures?
When your policy matures you will receive the accumulated amount. This amount will include the total of all your premiums paid, plus any bonuses you have received on the part of your premium that has been invested by the insurance company on your behalf (for eg, ULIPs). The amount you receive will be quite substantial because the premiums you pay will accumulate and get compounded every year till the maturity of your policy.

Will I have to pay tax on my maturity benefit?
No, you will have to pay no tax on the maturity proceeds of a life insurance policy. In fact, under a pension plan you can even withdraw up to one-third of the total maturity amount in cash and that too will be tax free. All this is provided that you have paid all your premiums and you have not let your policy lapse.

1. What is eKYC or Online KYC?
Online KYC (Know your customer) or Electronic KYC (eKYC) is a procedure provided by us for KYC compliance that allows you to complete your KYC formalities completely online, without any paperwork whatsoever. KYC is mandatory before investing in Mutual Funds. Online KYC is a simplified KYC for investments based on PAN and Bank Account no. details.

Online KYC eliminates issues faced by an Investor while doing their KYC, particularly Applicants / Investors residing in B15 cities and outside India while doing their IPV, since everything is now online.
  
2. What is the Online KYC process?
Online KYC can be completed in one of the following possible methods
Method A. Online KYC through Manual IPV (In-person verification)

1. Visit our website (https://www.dhanayo.ga/kyc) and click on eKYC icon to Fill the standard KYC application form online and upload the scanned copy of required documents through the upload option provided in the Online KYC form. 
2. Our Customer Care team will then schedule an E-IPV i.e - face to face meeting with Applicant through WebEx via Desktop/Laptop.
3. All the documents will be verified through the web IPV. Investor  has to sign on the declaration (which was triggered to investor’s Email ID) or has to write and sign on a blank paper with a blue pen and show it in the mobile or web camera.  

Method B. Online KYC Through Self IPV (In-person verification)

1. Visit our website (https://www.dhanayo.ga/kyc) and click on eKYC icon to Fill the standard KYC application form online and upload the scanned copy of required documents with the following options i.e, Upload the scan copy of supporting documents AND Upload the documents through web cam option
   
2. Post filling one's personal and address details, investor will be automatically routed to a page where he/she has to show his signature in front of the camera and click its picture.
3. He/she will then have to take his selfie in front of the camera.
4. Investor will then have to do a self IPV by recording himself/herself in front of the camera. (This step will eradicate / override the earlier IPV process carried out by CR team)

 
Note: Document upload is mandatory. There will be independent validation of supporting data. Dhanayoga reserves the right to ask for any additional document, if required further, to establish the applicant’s Proof of Identity and Proof of Address.

Once E-IPV, is successfully completed, we will register the details of the Online KYC application in the (relevant) KRA Point of Service (POS) for processing the EKYC application for KYC compliance. It then goes through the following steps before being approved:

• Details mentioned in the Application provided / uploaded during EIPV are checked and validated through authorized third party associates. In case if the details are not successfully validated, the same is communicated to the applicant.
• Post successful validation the Online KYC application data are entered in relevant KRA POS for processing of KYC. Post uploading the document on KRA site, it takes upto 30 days to get the KYC status updated with the KRA.
• If the details are not successfully validated or the images are not clear, the same is communicated to the applicant, and /or the KRA may ask for clarification, and / or reject the KYC application.

 
3. Who can do Online KYC?
Only below mentioned categories of investors can do Online KYC:

• Adult Resident Indian Individuals
• Guardian in case of Minor investor
• Non -Resident Indians and persons of Indian origin residing abroad, on a non-repatriable / full repatriation basis. Excluding investors residing in the US, Canada and non-compliant FATF Countries. 

Currently Business or Organization entities, Non-Individuals & HUF applicants are not allowed to do Online KYC.
 
 4. What are the documents required for completion of Online KYC process?
The list of documents required to be scanned and uploaded for completing the Online KYC compliance process are as follows:

Resident Individual 

1. Self Attested PAN Card Copy
2. Self Attested Valid Proof of Address (Passport / Voter Id)

 
Non Resident Individual

1. Self Attested PAN Card Copy
2. Self Attested copy of Passport
3. Self Attested Proof of Address (Latest Bank Statement / Pass Book / Voter Id / Driving Licence not more than 3 months old
4. Self - Attested Overseas Address Proof and attested by Authorized Attesting officials.

Note: 

• The NRI investors who are mariner can upload their CDC copy self-attested in absence of foreign address proof.
• Please note if there is a difference in “Address of Correspondence” & “Permanent Address” of the applicant, separate address proof needs to be submitted for “Permanent Address”.

5. When can I transact after doing my Online KYC with Quantum Mutual Fund?

• Presently you will be allowed to transact post successful validation of your KYC status in the KRA website.

 
 6. Do I need to send the physically signed KYC form with supporting documents also separately, post submission of the Online KYC and uploading of supporting documents on portal / website?
No, you are not required to send any documents in physical form to us. It is a completely Paperless and Online electronic process!
 
 7. What precautions should I take for PAN? Can I submit copy of PAN allotment letter instead of PAN card?
The details of PAN should be written carefully on the application. Also the copy of PAN image uploaded should be clear. PAN allotment letter is not accepted instead of the PAN card.
  
8. How will I be informed of my KYC status?
Once your KYC is registered with any KRA, you will receive a letter/email confirming the same. You can also visit the websites of any KRA and verify the status online.
 
9. Do I need to have the original documents while doing E-IPV? Is my physical presence necessary while doing E-IPV?
Yes, you should have all the documents in original while doing E-IPV for verification. E-IPV is a process whereby an authorized entity or intermediary verifies the applicant face-to-face online to confirm and verify the applicant physically as who submitted the online KYC. Physical verification of the original documents as well as the KYC applicant is mandatory as per regulation and hence the requirement.
 
 10. Can I submit a modification request to change/update my details in existing KYC?
Only an existing investor of ours can submit a modification request to change/update your details in the existing KYC through Online KYC portal.
  
11. Are there any charges for doing an Online KYC through Dhanayoga's website?
No, there are no charges for Online KYC through Dhanayoga website. This is a completely new paperless initiative introduced for the first time in the Industry by us for our prospective investors.
 
12. Are there any restrictions on the size and format of the documents which I need to upload?
No, there are no restrictions on the size and format of the documents to get uploaded.
 
13. What are the technical requirements that I need to ensure as an applicant to avail the Online KYC / E-IPV facility?

1. A valid Email id (for “GotoWebinar” request to be sent to Applicant) , in case of Manual IPV method (i.e., if not opting for self IPV).
2. It is suggested to use a good quality of Camera (phone/laptop/webcam) to best avail the Online KYC/E-IPV facility. (We suggest you to use the most standard HD quality video conferencing webcams.)
3. It is also suggested to have good Camera smartphone along with 3G Data plan or minimum of 512 Kbps Internet bandwidth while doing E-IPV process for KYC.

 
14. What are the advantages of Online KYC over Physical KYC?

• Completely paperless: The service is fully electronic, and document management has been eliminated.
• Inclusive: The fully paperless, electronic, low-cost aspects of Online KYC make it more inclusive, enabling financial inclusion.
• Low cost: Elimination of paper verification, movement, and storage reduces the cost of Online KYC Process.
• Faster: The service is based on electronic filling of data and E-IPV. Hence, it reduces a lot of the time and efforts taken in the physical process. Further the Self IPV option has been eliminated the process of manual eIPV wherein investor has to complete the IPV process through his web-ex session with our customer care team.