Posts Tagged ‘stock exchange’

Gold ETFs………..Safe Haven Against Market Risk

Not too long ago, when buying physical gold was the only option for investing in gold. However, the launch of Gold ETFs has opened another option for investors. When the stock markets take a sharp fall investors to look beyond equities and consider other investment avenues. In that case gold provide safe heaven. By enabling investors to invest in gold without holding it in physical form, it offer a rather unique investment opportunity to investors.

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Gold ETFs are commodity exchange traded funds which track prices of gold. Hence, they can be bought and sold like stocks on a real-time basis. These funds are passively managed and they mirror domestic gold prices.

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How Gold ETFs Work

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Gold ETFs are essentially different to gold. The manner in which they track the gold prices makes gold ETF products unique. Some gold ETFs buy and physically hold gold while others invest in futures contracts. Physically-backed gold ETFs will obviously track the spot price of gold more accurately, since the value of the underlying holdings depends solely on the market price of bullion.

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ETFs that using futures contracts will track the spot price of bullion very closely, but may deviate occasionally due to phenomenon’s such as backwardation and contango in commodity futures markets.

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For investors with significant gold holdings, diversification across custodians and geographies may be desired as well. Some investors may sleep better at night knowing their gold is securely stored in multiple locations in different parts of the world. For this reason, London-based ETF Securities offers an ETF that stores its gold in Switzerland, a country long known for being friendly to investors due to different reasons.

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The holding of world largest gold ETF SPDR Gold Trust, rose to 1295.516 metric tons by August 18.

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Correlation with dollar

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Gold generally traded inversely with dollar. Gold tends to rise when the dollar is weak However gold traded positive co-relation with dollar recently. It can be seen as uncertainty in global recovery which has supported both gold and dollar index.

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Criteria for selecting a Gold ETF

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Ideally, investors must select a Gold ETF that holds a significant portion of its portfolio in gold and a fund which has a lower expense ratio. Higher expenses translate into lower returns for investors.

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Advantages of Gold ETFs

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? Gold ETFs can be bought at the prevailing market rate without paying any premium

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•Quick and convenient dealing through demat account.

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•No storage and security issue for investors

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• Transparent pricing

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• Can be traded on stock exchange like buying / selling a stock.

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• Ideal for retail investor as minimum lot size to trade is one unit on secondary market. The resale value will be always safe

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•NAV of a unit will track price of approximately ½ or 1 gram of gold

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• As per SEBI regulations, the purity of underlying gold in Gold ETFs is 0.995 fineness and above.

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•long-term capital gains tax is applicable after twelve months from the date of purchase

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•Gold ETFs are not subject to Wealth Tax.

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Gold ETFs turnover in domestic market The table shows the Gold ETFs available in India and there turnover. Among 7 Gold ETFs GOLD BEES accounted for 60.30 % of the total trading volumes during the month July. Since July 2009 monthly turnover is increasing rapidly due to growing uncertainty in global recovery.



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CURRENCY FUTURE – BETTER FUTURE FOR CURRENCY TRADERS

There is good news for currency traders who would like to trade in currency futures. After trading in dollar-rupee futures, now corporate and retail investors will also be able to trade in currencies such as Euro, and Japanese Yen.

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Currently dollar-rupee futures are trading on three recognized exchanges, NSE, MCX Stock Exchange and BSE. But the currency derivative is liquid only on the first two bourses, which have together posted an average daily turnover of around Rs. 18,566 crore in December, up from a couple of thousand crore when the currency futures trading commenced in the second-half of 2008.

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NSE commenced currency futures trading in India on 29th August 2008. It has witnessed healthy growth in the turnover and open interest positions during its first completed month of currency futures trading in India.

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Brief of currency future

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Currency futures contracts are those contracts which allow investors to hedge against foreign exchange risk and traders to speculate on the movement in Currency. Since these contracts are marked-to-market daily, investors can exit from their obligation to buy or sell the currency prior to the contract’s delivery date.

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Major Profitable accounts

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The introduction of new currency pairs will go a long way in helping market participants, especially international traders, hedge against cross-currency Volatility and mitigate risk in export and imports across all major traded currencies and will add depth to the exchange-traded currency futures market.

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Along with the above mentioned participants, Currency futures trading in India has generated huge interest among Indian retail investors and traders.

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There is a strong demand for information gathering about the intricacies of currency futures from small investors and enterprises. For instance, entities that have borrowings in Euro will get one more avenue, apart from the over-the-counter market that is dominated by banks, to hedge them against volatility in the 16-nation common currency.

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Due to the transparent mechanism of execution in currency futures trade, increased participation by corporations and high net worth individuals, too, could be witnessed.

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Contract specification

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As in the case of the dollar-rupee futures, the contract size has been fixed at 1,000 units each for pound and euro, and 100,000 units for the yen, across 12 concurrently available contracts, one for each month.

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The contracts, like the existing dollar futures, would be cash-settled in rupees and the settlement price would be at RBI’s reference rate for all the four currencies.

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However, there are different initial margins (cash) that an investor needs to put up for trading each currency on day one and subsequently though this has not been changed for the dollar.

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The market regulator has also decided to modify the calendar spread margin to be applied on the dollar-rupee contracts.

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All the new contracts would be quoted in rupee terms, while the outstanding positions would be in the respective foreign currency terms.

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The maximum maturity of the contract would be 12 months, while all monthly maturities from 1 to 12 months would be made available.

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The contracts would be settled in cash in rupees.

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The client-level position limit has been capped at 6 per cent of the total open interest position.

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Responses:

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Market participants responded enthusiastically to the inclusion of these new currency pairs. The three new currency pairs clocked Rs. 1,98,761 contracts resulting from 7,762 trades at a total value of Rs. 1,277.13-crore on the NSE on day first, which is approximately comes out to be 9.61 percent of the total turnover in value terms. Out of the three new pairs, euro-rupee (EURINR) was the most traded currency pair clocking 1, 82,013 contracts.

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Total contracts and open interest in EUR/INR and GBP/INR:



First Traders inception of currency futures 🙂

The first trade in the new currency pairs was executed by East India Securities, IndusInd Bank executed the first trade amongst banks. Union Bank was the first PSU bank to trade and execute the single largest trade. ICICI Bank and State Bank also participated actively. This market has now become bigger than the cash segment of the equity market, which recorded average volumes of Rs. 20,000 crore last month.

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The beauty of exchange-traded currency futures are that they allow a participant to directly buy or sell the Dollar,Euro,Yen or GBP without having an underlying exposure, so it’s also a view-based market. One can take this opportunity of investing smartly in currency futures and gain by every tick.

Stay Tuned for More updates 🙂

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BSE and NSE all Set to Improve Arbitration and Appeal Mechanism

NSE BSE Mechanism

BSE and NSE all Set to Improve Arbitration and Appeal Mechanism

Both the BSE and NSE will soon be adopting the best practices in the other to improve the investor grievance redressal mechanism where the NSE is considering putting in place an appeal mechanism similar to the one at BSE.

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However, BSE is looking at scrapping the arbitration fees to be paid by the investor for claims below Rs 10 lakh while efforts are on to provide investors with help from a representative of Investor Associations (IA).

Meanwhile, at present, there is a two-level arbitration process in BSE whereas, in NSE, there is a single-level arbitration meaning if you lose your case in arbitration in NSE you shall have to appeal in the High Court.

Further, in BSE, you can appeal against an unsatisfactory verdict to an appellate panel of 5 arbitrators before taking the matter to court while if the arbitration claim amount is less than Rs 25 lakh on the NSE and less than Rs 10 lakh in case of the BSE, a single arbitrator hears the case.

But, if the arbitration claims are higher than this amount then a panel of 3 arbitrators will decide the case while NSE agreed to the appeal mechanism subject to the Arbitration Act.

In addition, on the BSE, an investor seeking redressal has to file an application with the exchange at Investors’ Grievance Redressal Committee (IGRC) comprising of a former justice of high court and a broker member trying to resolve the dispute at the IGRC level itself.

However, if no mutually agreeable settlement is reached, the parties are advised to go in for arbitration while another proposal, when executed, will be beneficial to investors like the BSE levies arbitration fees of approximately Rs 4,000 whereas on the NSE, for claims of up to Rs 10 lakh, only the brokers have to pay the arbitration fees.

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Dividend Payout not the Best Criteria to Judge MFs Schemes

Dividend Payout not the Best Criteria to Judge MFs Schemes

Dividend Payout not the Best Criteria to Judge MFs Schemes

 

Mutual fund schemes generally boast about high dividends but mutual fund experts say picking a mutual fund scheme on the basis of its dividend payout may not be the best way to invest in the sector.

As per MF experts, comparing the quantum of dividends paid in short term is not the correct way to measure a fund’s performance.

The proportion of dividend depends on a number of factors, including the frequency of payouts over a certain period of time.

There are funds that have higher net asset value (NAVs) but lower dividends, while others have lower NAVs, higher dividends.

Moreover, many analysts believes that the consistency of dividend payout is important than the quantum of dividend.

Experts always insist investors to not to base their investment decision on the percentage of dividend paid in a short period.

Rather Investors should look for the track record of the fund in this regard over a longer period of time.

After the recent equity market bull-run, many equity funds have declared dividends up to 70 per cent.

So far in October, over a dozen of equity schemes have declared dividends.

Experts are of view that the quantum of dividend paid does not directly indicate the performance of the fund, especially in the short term.

Unlike equities, if a mutual fund scheme pays certain percentage of dividend, NAV of the scheme drops by the same proportion.
If investors go for dividend plans, they most probably miss the compounding opportunities over the long-term for short-term gains.

An Equity head of a mutual fund said “unlike debt funds, where the intention of an investor is to earn dividends on a regular basis, investors in equity funds,  do not always look for dividend”.

At times, the focus is more on capital appreciation.

Even Fund Managers of reputed firms have maintained quite often that they pay dividends every year irrespective of the market conditions and consistency have always been theirs primary concern not the quantum of dividend.

Bharti Airtel’s Scrip Fell 6% Down !

 

 

Bharti Airtel’s scrip Friday fell 6.38 percent

Bharti Airtel’s scrip Friday fell 6.38 percent lower at the Bombay Stock Exchange (BSE)

Telecom major Bharti Airtel’s scrip Friday fell 6.38 percent lower than its previous close at the Bombay Stock Exchange (BSE) as investors dumped the stock because of disappointing second quarter results.

The scrip, which had fallen to an intra-day low of Rs. 290.30 from Thursday’s closing figure of Rs. 312.05, ended the day at Rs. 292.15.

Bharti Airtel said its net profit, according to US accounting rules, increased 13.4 percent to Rs. 2,321 crore (495 million) for the quarter ended Sep 30 from Rs. 2,046 crore in the like quarter of previous fiscal.

This was, however, a decline of 8 percent over the previous quarter of current fiscal.

Revenues were up 9 percent to Rs. 9,846 crore from Rs. 9,020 crore reported a year earlier.

“The industry is seeing entry of many players and this is bound to have a bearing on the fortunes of existing companies,” said Jagannadham Thunuguntla, equities head of brokerage and capital markets consultancy SMC Capital.

“In the short term, the stock could see some more pressure, though it is coming within range of a good buy, at least for the long term investor,” Thunuguntla added.

The Bharti scrip has lost as much as 30.2 percent over October and at current levels is the lowest in seven  months.

Bear and Bull – Part 1

Hello Friends here we come up with our another write up on “SMC Gyan Series” 🙂

Have you all ever wondered that what exactly this Bull and Bear Market is ?

 

Bull markets and bear markets...what are they?

Bull markets and bear markets...what are they?

What are they? What do they look like? What’s the origin of this terminologies?

Lets Talk about it

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When we talk about bull and bear stock markets it reminds us that it’s a zoo out there. And, like any zoo, there are quite a few wild species to be found 😉

The first two are the bulls and the bears.

Bull market is when stock prices are climbing strongly and a Bear market is when they’re languishing.

Bear Market

To be more precisely, in finance, a bear market is a market condition that occurs when the prices of shares decline or are about to decline.

Figures may vary, but if prices decrease by 15 to 20% then the market is assumed as a bear market.

In general, a bear market resumes if the government goes into recession and if the inflation rate is high.

Bull Market

A bull market is a condition of a financial market of a group of securities in which prices are rising or are expected to rise.

The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue.

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Myth About Bull and Bear Markets

One common myth is that the terms “bull market” and “bear market” are derived from the way those animals attack a foe, because bears attack by swiping their paws downward and bulls toss their horns upward.

This is a useful mnemonic, but is not the true origin of the terms.

Long ago, “bear skin jobbers” were known for selling bear skins that they did not own; i.e., the bears had not yet been caught.

This was the original source of the term “bear”.

This term eventually was used to describe short sellers, speculators who sold shares that they did not own, bought after a price drop, and then delivered the shares.

Because bull and bear baiting were once popular sports, “bulls” was understood as the opposite of “bears.” I.e., the bulls were those people who bought in the expectation that a stock price would rise, not fall.

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Stay Tuned for more on this where we would touch upon if bull and bear markets are inevitable and what are the basics investors should keep in mind while trading in bear and bull market.