Algo Trading India – Know about What is Algo Trading, Benefits & Future

Posted by Rushabh H. Mehta | Published on 02 Mar 2020
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Algo Trading India – Know about What is Algo Trading, Benefits & Future

The Introductory Guide to Algo Trading India

In today’s fast-moving world, technology has become an indispensable accessory of everyday life for most people, and investors are no exception. A growing number of investors today are exploring algorithmic trading for trading financial securities.

What is Algo Trading?

Algorithmic trading, also known as Algo trading, is automated buying and selling of shares in the stock market using intricate mathematical models and defined set of commands known as algorithms to carry out financial transactions at a high-speed. The instructions are programmed in the trading software as algorithms concerning specific variables like time, price, and volume, and the computer then executes the trade as per the instructions. Automation of trades helps investors perform specific financial strategies rapidly and precisely and, most importantly, free from human error, thus increasing the probability of success resulting in higher profits.

 

Advantages of algorithmic trading:

There are distinct benefits of Algo trading India as compared to traditional trading. The various benefits of algorithmic trading include-

  • Speed: Algorithmic trading India accelerates the rate of the transaction as it can analyze many parameters and technical indicators at lightning-fast speed and execute the trade.
  • Greater accuracy: The human intervention in Algo trading India is minimal, thus reducing the possibility of human error. Many a time, a trader can falter in punching orders or may analyze the technical indicators incorrectly, which is not the case in Algo trading due to automation, thus increasing the level of accuracy.
  • Reduction in transaction costs: Algo trading India enables traders to execute multiple orders in a short time, thus reducing the transaction cost and increasing the overall profits.
  • Minimization of human emotions: Algo trading strategies in India are pre-defined and formulated, thus keeping investor emotions at bay, which is one of the most significant advantages of algorithmic trading in India. As soon as the pre-required objectives are met, the execution of trade takes place automatically. As the psychological element is eliminated from the trade, so there is no room for deviation from the strategies.
  • Diversification of trades: The use of algorithms and computers Algo trading enables investors to execute multiple trades and trading strategies at one time, which is not possible in case of manual transactions. So, trading opportunities over a range of markets and securities can be scanned and executed simultaneously. Thus, Algo trading in India allows investors to take benefit of diversification, which is difficult to attain in traditional trading.

 

Disadvantages of Algo Trading 

  • Faulty algorithms can result in massive losses: As this strategy is entirely based on technology, the biggest drawback of algorithmic trading India is that the wrong algorithm can result in significant losses as many transactions take place simultaneously and any fault in the algorithm can be catastrophic.
  • No control by humans: As the strategy is completely automated, there is minimal scope for discretionary choice for investors. Even if the investor realizes that a particular strategy may fail, he cannot abandon the program or stop the execution.  

 

Types of Algorithmic strategies

After understanding what is algo trading, one needs to know the different types of algo trading strategies India.  Let us look at some of the most popular Algo trading strategies used by institutional and retail investors-

  • Momentum/Trend Following: Trend following is one of the most popular used algorithmic trading India strategies. This strategy involves finding a trend in the price of security using different indicators to analyze the available information. The trades use technical analysis charts and patterns to execute them. Technical indicators like moving averages, oscillators and price movements form the basis of analysis, and buying and selling of securities take place automatically when pre-defined conditions are satisfied based on the technical indicators. Simplicity and relative ease of design make it one of the most widely used algo trading strategies amongst traders.
  • Arbitrage Strategy: An arbitrage opportunity is created when there is a difference in the price of the security on different exchanges on which it is traded. This Algo strategy uses computers to identify arbitrage opportunities and create risk-free profits as quickly as possible and uses them for profits. If a security price is listed on more than one exchange and its price is lower on one and higher on the other, then the algorithm identifies the different pricing and buys on the exchange with lower price and sells on the exchange with a higher price.  Speed and accuracy are of paramount importance for this strategy and hence it is more efficient in comparison to manual trading.
  • Statistical Arbitrage Strategy: It is a short-term trading strategy and it tries to make profits from opportunities that arise due to price inefficiencies and misquoting of price. The complex mathematical algorithms help discover the price inefficiencies swiftly and execute the trade before price correction, which is tough for investors to analyze on their own.
  • Mean Reversion Strategy: Also known as a reversal strategy, it is based on the fact that the price of a security will move up or down but eventually come back to an average value at some point. The average price is calculated based on the historical data, and the strategy finds out the lower and higher price limit for stock and executes orders when they are beyond the range.

This strategy works when there is extreme movement in prices, and the unexpected swings generate profit for the investor.

 

Conclusion

Algorithmic trading has immense potential, and the benefits of this strategy are yet to be fully explored by retail investors. Brokers like IndiaNivesh provide valuable market data to traders and the right platform and tools to build on their algorithmic trading strategies.

 

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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NPS (National Pension Scheme) – Features, Benefits & How does it work

Posted by Rushabh H. Mehta | Published on 02 Mar 2020

Planning for retirement is an essential aspect of financial planning, and a growing number of investors today are realising the significance of making early investments to boost their retirement corpus. The National Pension Scheme is steadily gaining popularity among investors to meet their retirement needs. However, many investors still do not fully understand what an NPS is and what are the NPS benefits in retirement planning and are unsure if they should subscribe to an NPS. If you, too, are contemplating subscribing to NPS, then this simple guide will help you get an understanding of the NPS. What is NPS? National Pension System (NPS) is a defined contribution pension-cum-investment scheme sponsored by the government. NPS was launched in the year 2004 in January exclusively for government employees except for those in the armed forces, but later on, in 2009 became opened to all to encourage systematic investment savings among citizens so that they can have a regular income at old age.  National Pension System is a voluntary investment option that is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is one of the cheapest market-linked retirement plans with a minimum contribution of Rs 6000 per annum. The investment can either be made as a lump sum or through minimum instalments of Rs 500 each month.  Features of the National Pension System NPS is portable across locations. So, it can be opened and operated from anywhere in India It is open to all Indian citizens, and the minimum entry age is 18 years, and the maximum age is 65 years. NPS account can be opened offline at any Point of Presence (POP) center with your KYC documents or online at enps.nsdl.com by linking your PAN card and Aadhaar number to your account  In NPS, the savings of the investors are pooled together and invested in PFRDA-regulated funds managed by professional fund managers in various diversified portfolios. Investors can choose an asset mix of government bonds, equity instruments, corporate bonds, and alternative investments depending on their risk appetite. There are two phases in NPS-1. NPS Accumulation Phase: This phase, you invest periodically during your working years to build the retirement corpus in a mix of asset classes depending on your risk appetite.2. Retirement or NPS Annuity (Pension) Phase: This phase part of your corpus is used to provide you with a pension after your retirement in the form of annuity Investments in NPS can be managed in two ways-1. Active choice- If you want to manage your funds actively 2. Auto choice- If you feel you lack the knowledge and expertise and allow a life-cycle based approach for fund management. NPS offers tax benefits to investors at the time of making contributions and even at maturity. How does National Pension System work? Once you open your NPS account, you are provided with a unique Permanent Retirement Account Number (PRAN), which remains valid throughout your lifetime. There are 2 tiers in the structuring of NPS. Tier-I account- It is a permanent account. Thus, the accumulations made in this account are deposited and then invested according to the desired asset allocation as per the portfolio chosen by you. Withdrawals from NPS are not permitted. A total deduction of up to Rs. 2 lakhs can be claimed by investing in NPS under section 80C and 80CCD. Tier-II account- It is a voluntary account, but you need to have an active Tier I account. You can make withdrawals from this account as and when you need it to meet any expenses.    NPS benefits: 1. NPS is a low-cost planNPS has an initial registration cost of Rs 200 and another Rs 40 to be paid for opening the account. Apart from this, you pay an annual account maintenance cost, which ranges from Rs 60 to Rs 95, and the value of each transaction is Rs 3.75. There is a nominal Pension Fund Manager (PFM) charge of 0.01% of the total AUM and custodian charges of 0.0032%. 2. NPS investments are managed by professional fund managersOne of the most significant NPS benefits is that it is managed by professional fund managers who have adequate knowledge and market expertise about markets and money management.  3. NPS is a highly regulated NPS is regulated by the PFRDA (Pension Fund Regulatory and Development Authority) and all the investments are regularly monitored and reviewed by NPS trust. 4. Keeps the retirement corpus intact as it is difficult to exitEven though NPS is a voluntary investment, the structure of NPS does not allow you to withdraw your corpus till you attain the age of 60. As the lock-in period is very rigid for the scheme, your retirement corpus is intact to meet your post-retirement requirements.   5. NPS tax savings for taxpayers is very useful in lowering their tax liability and enhancing returns NPS tax savings make it very lucrative for the accumulation of retirement corpus. NPS entitles you to tax benefits at the time of investing, on the gains made during the tenure of your investment, and also at the time of withdrawal. In short, NPS offers EEE tax benefits. You can claim up to Rs 1.5 lakh in a financial year under Section 80C. Moreover, an additional deduction of Rs 50,000 can be claimed under Section 80CCD(1B).   CONCLUSION  The National Pension System is an ideal investment choice for your retirement planning as it will help you to make systematic investments and provide you with the desired income post-retirement. Get in touch with our experts at IndiaNivesh for more guidance and assistance for your NPS investments.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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Money Market Mutual Funds

Posted by Rushabh H. Mehta | Published on 02 Mar 2020

Mutual fund investments are one of the most preferred choices of investments for investors as it is the easiest and most comprehensive way to create a diversified portfolio. There are different categories of mutual funds to meet the specific requirement as per the time horizon, risk appetite, and investment purpose. Broadly, mutual fund either in invest in equities, debt, or both debt and equity. Additionally, they can either be open-ended or closed-ended schemes. What are Money Market Mutual Funds? Money Market Mutual Funds are open-ended mutual fund schemes that invest in short-term debt instruments. As the name suggests, Money Market Mutual Funds invest in high- quality money market instruments/securities such as commercial papers, treasury bills, certificates of deposit, etc. with short-term maturity usually less than a year.  Money Market Funds aim to serve a cash-like position for investors with very low volatility to ensure capital protection. These mutual funds are a stable investment vehicle for investors for short-term income generation with an investment horizon ranging from three months to one year. What are Money Markets and different types of money market instruments? Money Market is an important segment of the Indian Financial Market for borrowing and lending of short-term funds. The maturity of money market instruments ranges from one day to one year. Transactions in money markets are high, and the market is predominantly for large players.  After understanding the money market mutual funds meaning, one needs to know the different types of money market mutual funds. As retail players have limited scope for direct participation in money markets, the different types of money market instruments are the best way to invest in such investments. 1. Treasury Bills: Treasury bills, also known as zero-coupon bonds, are issued by the RBI on behalf of the central government to fulfill short-term fund requirements. T-bills are issued at a discount and paid at par on maturity. These are the safest as they are backed by the government. 2. Commercial Papers: Commercial Papers are unsecured promissory notes issued by companies and other financial institutions with a maturity period of 15 days to a year. As they are unsecured papers, these are issued by companies with high credit ratings. These papers are issued at a discount and redeemed at face value.  3. Certificate of Deposits: Certificate of deposits are short-term instruments which are issued by commercial banks and other financial institutions to individuals and companies, when the demand of credit is high, but the growth in deposits is slow, thus resulting in tight liquidity of the financial institutions 4. Repurchase Agreements (Repos): Repurchase Agreements is an agreement to facilitate short-term loans under which RBI lends money to other banks. The agreement can also exist between two banks. Simultaneous sales and purchase of agreement are involved in the case of the repurchase agreement.  These are the four types of money market mutual funds available in India. Key features of Money Market Mutual Funds 1. Short-term debt instrument: These funds invest in very high-quality, short-term money market instruments, and cash equivalents. 2. Low-Risk Investment: As these funds carry very low risk, so the rate of return is near the risk-free rate of returnBetter returns than Bank Accounts: The returns offered are better than those offered by bank FDs or savings account 3. Allow retail investors to participate in Money Markets: They provide retail investors an opportunity to invest in money market instruments which are other inaccessible to them due to high ticket size4. Liquidity: Money market mutual funds are highly liquid and ideal to park short-term emergency money Factors to consider before investing in the different types of Money Market instruments 1. Investment Horizon: For any investment time horizon of investment is very important. Money market mutual funds are specifically designed to meet the short-term investment needs of investors. So, you should invest in these funds only if your investment horizon is of three months to a year. 2. Risks: Money market mutual funds are safe investment options, but these funds are subject to interest rate risk affecting the price of the underlying instrument due to an increase or decrease in the interest rate. Money market instruments such as CD are unsecured loans, and hence creditworthiness of the issuer is essential. 3. Returns: Money market mutual funds have the potential to offer higher returns than a regular savings account, especially when the interest rates are falling. The NAV of the fund depends on the prevailing interest rate. A fall in the interest rates means that the price of the underlying assets will increase resulting in higher returns from the funds. 4. Expense Ratio: Cost plays an important role as it affects the overall returns generated by these funds. The expense ratio is the fees that the fund charges to manage the portfolio. The maximum limit for expense ratio as prescribed by market regulator SEBI is 2.25%.  CONCLUSION If you are looking at investing your surplus in a safe investment for better returns than traditional bank deposits and also highly liquid instruments, then money market mutual funds are the best option for you. A good investment broker like IndiaNivesh provides a complete list of top-performing money market funds. Here is the list of top-performing money market funds: Aditya Birla Sunlife Money Manager FundKotak Money Market SchemeL&T Money Market Fund IndiaNivesh provides the ideal platform to meet your investment needs. Open your Demat account with us by completing the simple documentation and KYC form and get started now.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Cost Inflation Index - Meaning, Calculation & Benefits
    Posted by Rushabh H. Mehta | Published on 06 Mar 2020

    Inflation is an economic term and referred to the continuous rise in the price of goods and services, thereby reducing the purchasing power of the money. The pinch of inflation is felt by all sections of the economy, be it, the consumers, investors, and the government.  And, even though it increases the cost of living, inflation is a necessary evil and desirable for the growth and development of the economy. For the reason of inflation, it is only fair to pay more for your goods like comb and brush over the years due to an increase in the price. For the same reason, it is unfair to pay capital gains tax on your assets without taking into account the impact of inflation on the value of the asset. Cost Inflation Index(CII) is the index to calculate the increase in the price of assets year-on-year due to the impact of inflation. What is the Cost Inflation Index? Cost Inflation Index or CII is an essential tool for determining the increase in the price of an asset on account of inflation and is useful at the time of calculating the long-term capital gains on the sale of capital assets. It is fixed by the central government and released in its gazetted offices by the Ministry of Finance every year. Capital gains are the profits arising from the sale of assets like real estate, financial investment, jewellery, etc. The cost price of the asset is adjusted taking into account the Cost Inflation Index of the year of purchase and the year in which the asset is sold, and the entire process is known as Indexation. Cost Inflation Index Calculation The cost inflation index calculation is done by the government to match the inflation rate for the year and calculated using the Consumer Price Index (CPI). Cost Inflation Index India for the financial year 2019-20 has been set at 289. Change of the base year for the Cost Inflation Index The cost inflation index base year was changed in the Union Budget 2017 from 1881 to 2001. The base year was changed by the government to enable accurate and faster calculations of the properties purchased before April 1, 1981, as taxpayers started to face problems with valuations of older properties. The base year has an index value of 100, and the index of the following years is compared to the index value in the base year to determine the increase in inflation. With the change in the base year, the capital gains and tax burden has reduced significantly for the taxpayers as it now reflects the inflated price of the asset realistically. The current Cost Inflation Index Chart for each year is as under- How is the Cost Inflation Index (CII) used in calculating capital gains To calculate the capital gains on your assets the purchase price of the asset is indexed by the cost Inflation Index using the formula below- Indexed cost of the asset at the time of acquisition = (CII for the year of sale/ CII for the year of purchase or base year (whichever is later))*actual cost of acquisition If suppose you purchased a flat in December 2010 for Rs 42 lacs and sold in Jan 2019 for Rs 85 lacs. Your capital gain from the sale of the flat is Rs 43 lacs. The CII in the year in which the flat was purchased is 148, and the CII in the year the flat was sold in is 280. The purchase price of the flat after taking into account the Cost Inflation Index is = (280/148)*Rs42 lacs= Rs 79. 46 lacs  This is the indexed cost of acquisition. Your long-term capital gain after taking indexation into account is Rs 85,00,000- Rs 79,45,946 = Rs.5,54,054. Long-term capital gains on the sale of property are taxed at 20% with indexation benefit. So, your tax liability, in this case, would be- 20% of Rs 5, 54, 054= Rs 1,10,810 Without indexation benefit, the capital gains are taxed at 10%. In this case, the capital gains would be- Sale price of the flat - purchase price of the flat = Rs 85,00,000 – Rs42,00,000 = Rs.43,00,000.  The capital gains tax without indexation benefit will be 10% X Rs 43,00,000 = Rs.4,30,000. Thus, indexation helps reduce the long-term capital gains and reduce the overall tax burden for the taxpayer considerably. Indexation benefit can be used for investments in mutual funds, real estate, gold, FMPs, etc. but is not applied for fixed income instruments like FDs, recurring deposits, NSC, etc. Few important tips to remember about the Cost Inflation Index- If you receive an asset as a part of the will, then in such the CCI for the year in which it was transferred will be considered and not the CCI of the purchase of the asset Indexation benefit for the cost of improvement of the asset is the same as the cost of improvement of the asset. Cost of improvement incurred before 1981 to be ignored. CONCLUSION Cost Inflation Index is an important parameter to be considered at the time of selling long-term assets as it is beneficial for the investors. Reach out to our experts at IndiaNivesh for any queries about capital gains arising from the sale of assets for correct guidance.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Dematerialisation of Shares – Meaning, Process & Benefits
    Posted by Rushabh H. Mehta | Published on 06 Mar 2020

    The online platform has revolutionised the way we live. Whether it is transacting, connecting with a loved one, getting updated about the happenings in the world, everything can be done online. When it comes to investments, the online platform provides ease and convenience. Investment in shares and share trading is a prevalent activity undertaken by many investors. They invest their money in the stock of a company with a view to earn profits when the stock value rises. When shares are purchased, share certificates are issued in physical form containing the details of the investor and the investor. However, these physical share certificates are inconvenient, and so the concept of dematerialisation has been introduced. Do you know what it is? What is dematerialisation? Dematerialisation of shares means converting physical shares and securities into an electronic format. 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Depository participants change holding charges which are minimal and you don't have to pay any stamp duty on dematerialised securities Since no paperwork is required to be done, the transaction time is considerably reduced Given these benefits, dematerialisation proves advantageous. Nowadays, the practice of holding physical securities has become almost obsolete and buying through a demat account has become the prevailing norm for investors. How to convert physical shares to demat? To convert physical shares to demat, the following steps should be followed – You should open a demat account with a depository participant. A depository participant can be a bank, financial institution or a stockbroker who is registered as a depository participant with the two licensed depositories of India You would then have to avail a Dematerialisation Request Form (DRF) from the depository participant and fill the form Submit the form along with your share certificates. The share certificates should be defaced by writing ‘Surrendered for Dematerialisation’ written across them. The depository participant would, then, forward the dematerialisation request to the company whose share certificates have been surrendered for dematerialisation. The request should also be sent to Registrar and Transfer (R & T) agents along with the company The company and the R & T agents would approve the request for dematerialisation if everything is found in order. The share certificates would also be destroyed. This approval would then be forwarded to the depository participant The depository would confirm the dematerialisation of shares and inform the depository participant of the same Once the approval and confirmation is complete, the shares would be electronically listed in the demat account of the investor Buying securities in a dematerialised form If you are looking to buy stock in a dematerialized form, here the simple steps that you can take for the same – Choose your broker for buying the securities and pay the broker the Fair Market Value of the securities that you want to buy The payment would be forwarded by the broker to the clearing corporation. 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So, if you want to buy or sell securities, open a demat account and start trading in dematerialised securities. Should you have any doubts, get in touch with the team at IndiaNivesh who will look into your requirement and lead you towards a quick resolution.    Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • High Dividend Mutual Funds
    Posted by Rushabh H. Mehta | Published on 02 Mar 2020

    Dividend mutual funds are a type of mutual fund that pays a regular dividend to the unitholders of the mutual fund scheme, thereby creating a regular source of income for them. The investment strategy of the fund manager is to invest in a basket of companies that have a steady flow of income and promise to pay periodic payment to the investors. Some investors prefer a regular source of passive income from their investments. Mutual fund schemes that offer a high dividend are a popular choice for such investors. The frequency of payment of dividends is decided by the fund manager and is usually fixed. Dividends can be paid daily, monthly, quarterly, six-monthly, or yearly, and the frequency of payment is mentioned beforehand. However, there is no guarantee on the rate and amount of the dividend to the investors and the payment of dividend is subject to the performance of the fund. There are 2 types of dividend mutual funds based upon the asset class that they invest in. 1. Dividend Yielding Mutual Fund (Equity) • Mutual fund schemes which invest more than 65% of their corpus in equity shares of companies • Like any other equity scheme, they have the potential for higher returns, but also carry a higher risk • Investors should invest in these schemes with an investment horizon of medium to long term 2. Dividend Yielding Mutual Fund (Debt) • Mutual fund schemes which invest more than 65% of their corpus in debt instruments of government and corporations like treasury bonds, commercial papers, etc. • These funds carry low risk and provide average returns to investors • Interest received from the various instruments is paid as a dividend to the investors• Investors should invest in these schemes with an investment horizon of short to medium term Tax treatment for dividend mutual funds Till now, dividend income received by the investor used to be recorded under the income head of “Income from other sources” and such income was tax-free in the hands of the investor. However, as per the Union Budget 2020, the DDT is now abolished for companies and mutual funds. From April’20 onwards, any dividend received above Rs 5000 will be taxed in the hands of the investor. It will be taxed as per the individual tax slabs for both equity and debt schemes. Only debt investors who fall in the lower slabs of 10% and 20% will pay lesser taxes on dividends. For all the others, the taxation would be higher going forward. Why should investors invest in high dividend mutual funds? Dividend mutual funds offer unique advantages to the investors, especially when the macroeconomic condition of the country is weak; these investments provide the reliability of income to investors. The benefits of dividend mutual funds which should be kept in mind while investing in such funds• Fund managers of dividend mutual funds invest in companies which can pay steady dividends and even if there is a slowdown in the economy, as companies do not want to send any negative signals, they avoid curtailing payment of dividends, thus making them less volatile than other funds.• Overall returns from these funds are less affected as compared to other funds as the dividends provide a hedge against market volatility.• In a low-interest rate regime, investors looking for a higher consistent income can opt for dividend mutual funds. Disadvantages of a dividend mutual fund scheme • Returns generated by dividend mutual fund schemes are lower as compared to growth schemes in case of rising markets• These funds are not suited for aggressive investors looking for higher returns from their investment• Moreover, with the abolition of Dividend Distribution Tax (DDT), investors in the higher tax-bracket will have to pay higher taxes on the dividend income. Role of dividend mutual funds in a portfolio Invest in dividend mutual funds with an investment horizon of 7 to 10 years for optimal returns. Investment in such funds should be a part of your strategic asset allocation and to lower the volatility of the overall portfolio. Aggressive investors can allocate less than 10% of their portfolio in such funds. Conservative investors, on the other hand, can allocate a higher percentage to these funds. Essential things to keep in mind while investing in dividend mutual funds • Conservative investors looking to invest in dividend funds should invest in large-cap funds, preferably of blue-chip companies that pay a higher dividend. Investing in companies with a higher proportion in mid & small-cap companies will increase the risk of the investment, thereby defeating the purpose of investment• Invest in a fund which has been in existence for some time and witnessed a few market cycles• Avoid investing in a fund with a small corpus to minimize risk as few wrong investment calls can significantly hamper returns• The expense ratio plays a vital role in determining the overall returns from a scheme. Choose funds with a lower expense ratio   CONCLUSION Investing in high dividend mutual funds is a good option if you are looking for a regular income through dividends. Consult our experts at IndiaNivesh to help you guide through the allocation of funds in these schemes as per your investment horizon and risk profile.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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