Systematic Withdrawal Plans – How to use SWP?

Systematic Withdrawal Plans – How to use SWP?

Mutual Funds are to financial markets what star kids are to Bollywood – the talk of the town. Campaigns like “Mutual Funds Sahi Hain” have helped to spread awareness about the benefits of mutual funds to the masses. One of the most commonly used MF terms is SIP or Systematic Investment Plans. However, not much is known or talked about its better half – Systematic Withdrawal Plans or SWP. SWPs are considered as the opposite of SIP. Read on to know more about SWPs and how it can be beneficial for you.

SWP – Meaning in Mutual Fund parlance

Systematic Withdrawal Plan is a facility which allows investors to take out a pre-decided amount from their existing Mutual Fund investments at pre-determined time durations. The frequency of withdrawal can be chosen by the investors basis their requirements. It can be monthly, quarterly, bi-annually or annually. Basis the amount withdrawn in SWP, the equivalent units (as per the NAV on the day of withdrawal) are redeemed.

Key features of SWP in Mutual Funds:

  • It generates a regular stream of cash inflows
  • Offers flexibility to investors in terms of withdrawal amount and frequency
  • Can be started at the time of starting investment in a Mutual Fund scheme or can be activated at a later date in an existing scheme.
  • Many investors prefer the SWP route to dividends. This is because dividends attract DDT (Dividend Distribution Tax) while long-term capital gains (till Rs. 1 Lakh) under SWP are exempt from tax.
  • There is an option in SWP to customize the withdrawals:
    • Fixed Withdrawal Option - You can decide to take out a specific amount on a periodic basis.
    • Appreciation Withdrawal Option- If you want to preserve your capital, you can decide to withdraw only the amount of capital gains. 
  • Setting up a Systematic Withdrawal Plan is a simple process. All you need to do is fill up the SWP Form (with the details like the amount to be withdrawn, periodicity etc.) and submit to the fund house or your distributor.

Benefits of Systematic Withdrawal Plan Mutual Funds

1. A fixed source of income

Systematic Withdrawal Plans become a fixed source of income for investors. For working individuals, it helps to supplement salary or business income. It can also be used as a steady source of income post-retirement.

2. Discipline

Just like Systematic Investment Plans, SWPs also help to instil a sense of disciplined investing. In SIP you need to invest a fixed sum of money on a regular basis. SWPs automatically redeem pre-determined units of mutual funds, irrespective of market levels. One can plan their monthly expenses as per the SWP amount, which will help them to remain within the budget. Secondly, the fixed withdrawal limit protects you from impulse sell or buy decisions in case of market fluctuations.

3. Rupee Cost Averaging

Rupee Cost Averaging enables investors to eliminate the need to time their market related decisions. Mutual Fund’s Net Asset Value(NAV) keeps on changing from time to time. Through SWP, investors get the average NAV of the MF over a long duration of time. Hence, it protects them from market fluctuations and ensures that investors do not become dependent on any particular NAV.

4. Tax efficiencies

From a tax perspective, each withdrawal under SWP is treated the same as equity or debt mutual funds. As the tax is applied only on the amount redeemed, SWP becomes a more tax-efficient alternative as compared to Fixed Deposits or lump sum withdrawals. They are preferred to Dividend Plans too for the same reason. Dividend payouts attract DDT (Dividend Distribution Tax) which is deducted by the AMC before the payout. SWP allows  optimising the tax on capital gains by holding the investments for a longer tenure and splitting the income over multiple time periods.

How to use SWPs effectively?

All investors can benefit from SWP in Mutual Funds. Here are some examples in which you can include them effectively in your financial planning-

  • Retirement Planning

SWP is a great strategy to fund financial needs post-retirement. This facility is especially handy for retirees who do not have a pension or other such regular source of income.

  • Supplement salary income

Salaried individuals can use SWP as a second source of income. It can help them fund specific financial goals such as children’s education, purchase of consumer goods, paying off loans, etc.

  • Freelancers

The biggest challenge faced by freelancers or self-employed professionals is lack of a steady or fixed income. There may be months where they would be minting money but there could be some dry spells as well. In such cases SWPs help to bring stability to one’s financial life.

  • Nearing your financial goals

Many investors use SWP in an extremely smart manner, especially when the markets are doing well. They invest in an equity mutual fund as they have the potential to generate higher returns. Once they reach their desired corpus, they can opt for an SWP. Through this facility, they move the funds from the equity investments to a relatively safer/ non-volatile option such as Bank Deposits, etc.


Final Words

Systematic Withdrawal Plans help to cultivate a sense of financial discipline. It can be effectively used as a means to fund your monthly expenses or finance your (or your parent’s) retired life. Not only does it offer regular income but also ensures a controlled and budgeted approach to spending. However, you should try to withdraw only the interest part and keep the capital amount intact. In case you are unable to decide how much is too much, it is best to seek the help of an expert like IndiaNivesh. The team at IndiaNivesh can help you choose the right Mutual Fund scheme and the correct SWP amount basis your financial needs and investment tenure. They also offer a wide range of financial solutions related to broking and distribution, institutional equities, strategic investments, investment banking and wealth management. You can read all about them on

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


SME IPO – Meaning, Procedure & Benefits of SME IPO Listings

All over the world, the SME sector is playing an important role in the social and economic development of a country. Growth of the SME sector is crucial for the growth of our country to curb the problems of poverty, income inequalities, unemployment, and regional imbalances. In India the SME sector contributes a high proportion in the national income and is witnessing rapid growth and more and more efforts are being taken in the development and promotion of this segment. Various government initiatives such as Skill India, Make in India, Start-up India, Pradhan Mantri MUDRA Yojana, Public Procurement Policy to encourage growth and innovation in the SME sector has led to favourable  growth in the agricultural, manufacturing and service industry. Even though the SME sector contributes significantly to the GDP of our country, numerous challenges that impede the growth of the SME sector which include- Inadequate funds and timely access to credit is one of the biggest hurdles in the growth of SMEs. Lack of resources and infrastructure Lack of skilled manpower Inability to market their products/services Technological and digital barriers All these challenges create a serious problem for the growth and development of the SME sector in India to its full potential. All the above challenges are more or less due to a lack of capital and access to raise money from the public like the bigger companies. To overcome this challenge, SME platforms BSE-SME and NSE Emerge were launched by the BSE and NSE respectively, to allow small and medium enterprises to fulfil their dreams of growth and expansion by raising capital from the public. Meaning of SME IPO: BSE SME exchange platform is a trading platform dedicated especially for the trading of shares of small and medium enterprises. In order to get listed on the exchange, the companies have to come out with their IPO. The eligibility criteria and norms of the SME IPOs are different from that of the main board of BSE and NSE. The listing requirements for BSE SME IPO It must be a public limited company. Proprietorships, Partnership Firms, Private Limited Companies need to change to convert to a public limited company. The company’s net worth in the latest audited financial results should be at least 3 crores. The company’s net tangible assets in the latest audited financial results should be at least Rs 3 crores. The companies post paid-up capital should be at least Rs 3 crores and not more than Rs 25 crores. If the paid-up capital is more than Rs 25 crores then it has to be listed on the main board. Distributable profits for at least two years out of the immediately preceding three years. The company must have its own website with financial statements of 3 years. It must enter into an agreement with both depositories and mandatorily facilitate DEMAT trading of securities. There should be no winding-up petition by the applicant company which has been admitted by the court. The issue should be a 100% underwritten issue and 15% of the issue must be underwritten by the Merchant Banker in his own account. A minimum of 50 allottees is needed by the company at the time of listing through IPO. The minimum lot size for trading and application is Rs. 1,00,000. The company has not been referred to BIFR( Board for Industrial and Financial Reconstruction). The listing criteria for EMERGE- NSE SME IPO The applicant must be registered as a company under the Companies Act 1956 or Companies Act 2013. The companies post paid-up capital should not be more than Rs 25 crores. Distributable profits for at least two years out of the immediately preceding three years. It must have certified copies of the annual report for 3 years. A business plan of 5 years along with balance sheets and profit and loss statements. The promoters must have relevant experience of 3 years in the same field. It must enter into an agreement with both depositories and mandatorily facilitate DEMAT trading of securities. There should be no winding-up petition by the applicant company which has been admitted by the court. An auditors certificate stating there is no default in payment of interest by the promoter or by the promoter’s holding companies.  If there is any litigation case filed against the applicant, promoter or promoter held companies then it must be disclosed along with the nature and status of the litigation. If there are any criminal cases filed against the director or directors then the nature and status of such investigations which can have a direct impact on the business must be disclosed. A minimum of 50 allottees is needed by the company at the time of listing through IPO. Procedure for listing on the SME IPO exchange Appointment of a Merchant Banker for advisory and consultation. The Merchant Banker is then required to conduct due diligence and documentation check of the company. It must check all financial documents, details of promoters, requisite government approvals, material contracts, etc. The documentation should also include share issuances, IPO structure and other financial documents. On completion of due diligence and documentation by the Merchant Banker, a draft prospectus and DHRP have to be submitted by the company in accordance with the SEBI guidelines. The BSE will verify the documents and on finding those satisfactory will process it. A site visit is also conducted by officials at the company’s site. The promoters will be called for an interview with the Listing Committee on satisfactory completion of documentation and site visit and issue an in-principal approval. The Merchant Banker can then file the prospectus with the ROC along with the opening and closing date of the issue. On approval from ROC, the company will intimate the exchange with the required documents and opening date of the issue. As per the schedule, the IPO will be opened and closed to the public for allotment. The company will then submit the documents to the exchange for allotment. Once the allotment is over, the notice of listing and trading of the shares will be issued How can the companies benefit from SME IPO listing? The SME Capital Markets have helped many companies scale up their business. The SME IPO listings have increased manifold since the introduction in 2012 and at present the BSE SME platform has over 300 companies listed on it and the NSE Emerge has over 180 companies listed on it. With relaxed listing norms and minimal cost for listing when compared to the main board, the SME platforms are ideal for companies who wish to raise capital to meet their growth requirements. Support from exchange boards, increase in the number of SME stocks on exchange and good results is encouraging more and more investors to invest in the SME  segment.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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Know What is Pre-Market Trading & How it Works in Share Market

Most of us are aware that trading takes place on the stock exchange between 9.15am and 3.30pm. But what if we told you that it is only partially correct. Some trading (though low in volume) also takes place during the extended trading hour periods. Read on to know about more about this additional trading window and its significance. What is Pre-Market Trading Pre-market Trading is a global phenomenon and refers to trading that takes place before the usual trading hours. The usual trading hours for Indian stock markets is 9:15 am to 3:30 pm. Pre-open market stock trading is a special trading window of 15 minutes prior to the start of the working hours for the stock markets. Hence, the time frame between 9:00 am and 9:15 am is considered as the pre-open market session. This feature was first introduced by NSE and BSE in October 2010. The objective behind a pre-market trading It was observed that there was tremendous volatility in the first couple of minutes of trading hours. The core objective behind having a pre-market trading session is to stabilise the market especially when heavy volatility is expected due to some overnight major events or corporate announcements. These could be election results, reforms or new economic policies, declaration of mergers and acquisitions, delisting of shares, open offers, change (especially downgrading) in credit ratings, debt-restructuring, market rumours etc. The additional 15 minutes allows the stock markets to arrive at the right premarket stock price and not get carried away by external events or announcements. In India, premarket future or options trading is not permitted. Pre-market Trading Session – Breakdown of the 15 minutes The premarket trading period can be further bifurcated into three slots:Order Entry or CollectionThe Order Entry session starts at 9:00 am and lasts for eight minutes. The following activities are undertaken during this timeframe Placing of orders for purchase or selling of stocks Changes or modification in orders Cancellation of orders After 9:08am (i.e. completion of order entry session), orders are not accepted by the stock markets Order MatchThe Order Matching session starts at 9:08am and continues for the next four minutes. The following activities are undertaken during this timeframe Confirmation of orders placed during the Order Entry session Order Matching Calculation of stock opening price for the regular session that starts at 9:15am During the Order Match session, one cannot buy, modify, cancel or sell their orders. Limit orders (i.e. order quantity and price is specified) are given priority over the market orders (order quantity and price are not specified) during the execution time. Buffer TimeThe last three minutes of the premarket trading session (i.e. 9:12 am to 9:15 am) is considered as buffer time. This period is used to ensure a seamless transition to regular trading hours. Any abnormalities from the previous two slots are addressed during this time.   Calculation of Opening price during the pre-market stock trading session The opening price of the stock during this session is determined during the second phase i.e. Order Match session. It is done with the help of a specific methodology. This calculation method is referred to as the call auction methodology or the equilibrium price. The stock price which corresponds to the maximum quantity of tradable shares is known as the equilibrium price. It is a factor of demand and supply. The orders placed during the first eight minutes are matched at the equilibrium price and then traded accordingly. Some scenarios: If the highest tradable quantity corresponds to two different stock prices, then the stock price with the lower unmatched orders is taken as the equilibrium price. For example:   Stock Price Order (Buy) Order (Sell) Demand Supply Max Tradable Quantity Size Unmatched Orders (Demand minus supply) 105 1275 1160 25000 20000 20000 5000 99 2000 8000 20000 30000 20000 -10000   Though the maximum tradable quantity is same in both the cases, the equilibrium price will be considered as 105 as it has a minimum unmatched order size If the values of the highest tradable quantity and unmatched orders are same or equidistant, but they correspond to two different stock price, then the above methodology cannot be applied. In this case, the equilibrium price is taken as the stock price which is closer in value to the closing price of the previous day. For example, Stock Price Order (Buy) Order (Sell) Demand Supply Max Tradable Quantity Size Unmatched Orders (Demand minus supply) 105 1275 1160 25000 20000 20000 5000 99 2000 8000 20000 25000 20000 -5000 Assuming the closing price on the previous day was Rs. 110, then the equilibrium price in the above example will be Rs. 105.   What about orders that remain unmatched or are not traded in the pre-open session? Orders that are not traded or remain unmatched are carried forward to the general trading session. The opening price of these orders is determined in the following manner: Limit Orders i.e. orders wherein the price and quantity are already specified are carried forward at the same mentioned price Market Orders i.e. orders wherein the price and quantity are not specified are carried forward at: If the opening price was ascertained during the pre-open trading session but order not traded, then at the determined price If the opening price was not discovered, then they are carried forward at the previous day’s closing price   Stock Markets tend to be overwhelming for many investors. The concept of premarket trading can further compound the complexity level. However, as an investor, you should always remember that help is just around the corner. Professional experts like IndiaNivesh can help to simplify and demystify the entire process. The team at IndiaNivesh keeps a close eye on this Pre-market session to comprehend the mood and strength of the stock market. They track the pre-market stock prices and take the best decisions for your portfolio basis the market sentiments. Moreover, since they offer a wide range of services (broking, mutual funds, institutional equities, private equity, strategic investments, corporate advisory, etc.) they have a holistic view of the market and the economy. Their expert opinion can help you to amp up your investment game. You can read more about their offerings, vision and accomplishments on their website "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • Commodity Market – Different Types of Commodity Market in India

    The commodity market in India has seen a sharp increase in the volumes over the past few years. Commodities are just another asset class like the bond and equity market. Commodities come from the earth and act as raw material for all types of manufacturing businesses. There are many types of commodities that can be traded in the market. In this article, you will learn about commodity trading in India, types of commodity market and other aspects of the commodity market in India. Let us begin by understanding the meaning of commodity. Meaning of Commodity A commodity is a group of goods or assets that are used in our day to day lives such as metals, agriculture, energy, etc. A commodity can be categorised as movable good that can be purchased and sold, except for money and actionable claims. There are various types of commodities that are traded in India. Let us look at the types of commodities. Types of Commodities Traded In India Agriculture: Wheat, Cotton, Rice, Corn, etc. Metals: Copper, Zinc, Gold, Silver, etc. Energy: Natural Gas, Crude Oil, Heating Oil, etc. Meat and Livestock: Cattle, Egg, etc. Let us now learn how you can invest in the commodity market in India. How to Invest in Commodity Market in India? You can commence commodity trading in India in any of the six major commodity trading exchanges as listed below; Indian Commodity Exchange – ICEX Ace Derivatives Exchange – ACE National Multi Commodity Exchange – NMCE The Universal Commodity Exchange – UCX Multi Commodity Exchange – MCX National Commodity and Derivatives Exchange – NCDEX From the above MCX and NCDEX are the most popular exchanges. List of Commodities Traded on Multi Commodity Exchange (MCX) Metals: Aluminium, Brass, Copper, Zinc, Lead, Nickel. Bullion: Gold, Silver. Agri Commodities: Rubber, Black Pepper, Mentha Oil, Crude Palm Oil, Palmolien, Cardamom, Cotton, Castor Seed. Energy: Natural Gas, Crude Oil. List of Commodities Traded on National Commodity and Derivatives Exchange (NCDEX) Fibres: Cotton, Guar Gum, Guar Seed, Kappa’s Oil and Oilseeds: Crude Palm Oil, Cotton Seed Oil Cake, Castor Seed, Mustard Seed, Refined Soy Oil, Soybean Soft: Sugar Cereals and pulses: Wheat, Barley, Paddy, Chana, Maize Rabi, Maize Kharif / South Spices: Jeera, Turmeric, Coriander, Pepper. Let us now learn about the commodities that are most traded. Most Traded Commodities Natural gas, crude oil, gold, silver, cotton, corn, wheat are among the most traded commodities globally. Crude oil and gold are among the most favourite commodities among the traders and investors community. Crude oil is used for producing diesel, petroleum, etc. It is very volatile during global tensions. OPEC is the consortium of oil-producing nations that determine the supply of crude oil. The main oil-producing nations are Russia, US, Saudi Arabia, etc. Just like crude, gold is among the most popular commodity Indian people invest in. The price of gold has an inverse relationship with the US dollar. When the price of the US dollar falls, the prices of gold increase and when the price of the US dollar increases, the prices of gold falls. Let us now learn about the participants in the commodity market. Participants of Commodity Market Speculators Speculators are traders that constantly monitor the price of commodities and predict the future price movement. If the speculators expect the prices of the commodity to move higher, they purchase commodity contract and sell them when the price goes up. Similarly, when they expect the price to go low, they sell commodity contracts and purchase back when the price falls. Thus, the intention of speculators is to make a profit in any type of market. Hedgers Hedgers are the producers, manufacturers, etc. who safeguard their risk by using the commodity futures market. Like for example, if a cotton farmer expects price fluctuation during crop harvesting, he can hedge his position. To hedge the risk, the farmer enters into a futures contract. If the price of the crop falls in the local market, the farmer can compensate for the loss by making profits in the future market. Similarly, if there is an increase in the price during crop harvesting, the farmer can book loss in the futures market and compensate it by selling his crop at a higher price in the local market. Let us now learn about the benefits of trading in the commodity market. Benefits of Trading in the Commodity Market Management of Risk The Securities and Exchange Board of India (SEBI) ensures that the exchanges have proper risk management procedures in place to protect the investors. Therefore, trading in commodities is regarded as very safe. Transparency Trading on the commodity exchanges is very transparent and the buyers or sellers cannot manipulate the price. The price discovery is done without any manipulation and orders are executed only when there is a match between a buyer’s and seller’s order. The margins in commodity markets are low, therefore traders use this market to hedge their position and for higher leverage. There are many benefits of trading in the commodity market. However, there are some important things that you must know while trading in such a market. Things to Know While Trading in Commodity Market The demand and supply chain determines the prices of commodity and you must have a clear idea about it. The prices of commodities depend on various factors and your strategies must be framed after understanding those factors. As a beginner, it is always advisable to take the help of experts before starting commodity trading. The risk in commodity trading is higher because you get higher leverage. The above mentioned are a few things that one must know before indulging in commodity trading in India. As a beginner or seasoned investor, you can contact IndiaNivesh for any assistance relating to the Indian commodity market. Our experts and professionals can help you in finding the best commodity to trade in India according to your risk-taking ability and financial goals. Our aim is to exceed the client’s expectation in all endeavours and we will be glad to serve you.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Commodity Investment – Reasons to Invest in Commodity Market

    The world of investments has a vast number of financial instruments such as shares, stocks, bonds and many more. Commodities, too, are one such investment option available for investment. Even though the commodity market has grown substantially in the last few years, the participation of retail investors in commodities is still limited. However, the commodity market has huge potential and making the right investments in commodities can help improve the performance of your portfolio. What are commodities? Commodities are tangible goods that are either naturally occurring or can be agriculturally grown.  Commodities are consumed directly or used as raw materials for manufacturing finished goods meant for public consumption. All commodities can be classified under either of the two categories- Soft commodities- Those, that are grown and cannot be stored for an extended period. Examples of soft commodities include agricultural products such as grains, tea, coffee, and livestock. Hard commodities- Those, that are obtained through mining and extraction. Example of hard commodities includes oil, metals and natural gas. Why should you invest in the commodities market? Commodities play an important role in the development process and hence are building blocks of every economy. Commodity investments can help you diversify your portfolio into a different asset class apart from shares and bonds and enhance the overall returns of your investments. For many of you, the general perception is that the commodity market is complex and hence not something that everyone can dabble into. However, commodity investments can fetch you handsome returns.  Here are the top three reasons to invest in commodity markets for all types of investors-1. To diversify your portfolio  One of the key factors that determine the success of your financial planning is diversification. Diversification with regards to investment portfolio means investing in various assets that are not correlated to each other of your portfolio in different asset classes. Most of you would be diversifying your portfolio in five major asset classes which include cash, shares, fixed income securities, real estate, and gold. In times of increased volatility in the markets, you are either holding on to cash or investing in gold. Gold is considered the safest haven for investment in turbulent times and Indians tend to invest in gold because it is considered as a symbol of wealth and has ornamental value. However, in reality, the gold in your portfolio is your investment in commodity and just like all the other commodities the returns from it are independent of the returns generated by stocks and bonds. Just like gold, there are other commodity investments whose returns are not correlated to equities and bond markets. The price of any commodity investment is a function of demand and supply and by doing proper research and analysis you can make profits from commodity market investments.2. To provide a hedge against inflation Inflation is the general rise in the price of goods and services over time. For any investment to be fruitful, it is important that the returns generated beat the rate of inflation.  Higher inflation effectively erodes the real returns generated by your investments in stocks and fixed income securities. However, in the case of commodities, higher inflation relates to the higher price of commodities. So, unlike other investments, your commodity investments will result in a strong performance when inflation is high. Given the current situation when inflation is constantly on the rise, investing in commodities will provide a hedge against inflation.3. To improve potential returns The prices of individual commodities can fluctuate significantly due to several factors such as demand and supply, the impact of natural calamities, exchange rates and the economic health of the nation.  The rise in infrastructure projects in a developing country like ours and also globally has had a positive impact on commodity prices. As the commodity market is still an untapped arena, many of them are trading at a lower price than their actual potential. Proper research and effective implementation of investment strategy in commodities can help investors improve the overall returns on their portfolio. What are the various options to invest in commodities? The commodities market is a very deep market and investors have many investment vehicles to access it.  Let us look at the various options available for investors to buy and sell commodities1) Investing in the physical form Commodities such as gold, silver, etc., are bought by investors in physical form.  However, not all commodities can be bought in physical form as it has its drawbacks of storage and spoilage. Even in the case of precious metals security and insurance increase the cost of your investment. Moreover, most of the time you want to invest in a commodity, not for end-use but to make profits if you anticipate that the price will increase. So, buying a commodity in physical form, except for precious metals, is generally not recommended for retail investors.2) Investment through commodity futures One of the most common ways to trade in commodities is through a commodities futures contract. It is a standardised agreement to buy or sell fixed quantities of the underlying commodity at a predetermined price on a specific date as mentioned in the contract. Also, commodity trades happen electronically through commodity exchanges where investing real-time commodity is possible.  Multi Commodity Exchange of India (MCX), National Commodity and Derivatives Exchange (NCDEX) are two of the many commodity exchanges present in the country which help investors trade in commodities. All the commodity exchanges come under the regulation of the Forward Markets Commission (FMC). 3) Commodity ETFs Commodity ETFs are another popular investment option available for retail investors to diversify their holdings in commodities. Commodity ETFs invest in a single commodity and physically hold and store it, invest in a commodity futures contract or invest in a commodity index that tracks the performance of multiple commodities. Investors can invest in commodity ETFs electronically in their Demat account. 4) Commodity Stocks Investors who are not comfortable with investing in commodity futures or ETFs can diversify their portfolio in commodities is by investing in commodity stocks. Commodity stocks are stocks of those companies which are directly or indirectly related in the manufacturing process of the commodity and hence have a positive correlation with the commodity.  For example, if you feel that the steel prices are going to increase, then you can invest in the stocks of various steel companies listed on the exchange. 5) Mutual funds One of the biggest reasons for an investor to shy away from commodity investment is that commodity investments require a lot of time, knowledge and expertise to make the right investment choices. However, now SEBI has permitted mutual funds to invest in the commodities market through the exchange-traded commodities derivatives (ETCD) route.  Thus, retail investors can now participate in commodity markets in a structured manner through professionally managed mutual funds. Takeaway Commodities are a broad and diversified asset class that offers a great investment opportunity to investors. Given the high inflationary pressure and volatility in the markets, dedicating a small portion of your portfolio to commodities will help enhance the overall performance of your investments. Investing in commodities may look intimidating and you may feel a little hesitant to explore your options, but correct guidance from an experienced financial advisor can help you understand the nuances of commodity markets and make the right investment decisions as per your investment needs. Financial advisors at IndiaNivesh possess the requisite expertise and experience to help and guide you with investments in commodities markets.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Trading in Equity - 5 Equity Trading Tips for Volatile Markets

    Market volatility is quite like Voldemort. No one wants to talk about it though it is inevitable. It will creep into your equity trading life at some point or another. So, what should you do? Leave everything to fate or prepare for the fight like Harry Potter. If the answer is latter, continue reading. You will get to know some great equity trading tips that will ensure that you weather the volatility without a crease on your brow.What causes volatility in the markets?Volatility refers to big swings or fluctuations in the price of stocks in the market. The movement can be in either direction – up or down. When the stock prices come down significantly, it is referred to as a bear market. On the other hand, if the prices keep on rising, it is called a bull market. Some factors which result in market volatility Global and national political scenario (including election results) Fluctuations in crude oil prices Economic or policy reforms Unexpected developments (positive or negative) in the market, earnings or news about a reputed company Equity Trading Tips for Volatile MarketsEquity trading in India has been on a rise in the last couple of years. But so has been market volatility. Hence, it is important to understand factors that can make trading in equity a fruitful exercise.These equity trading tips will come handy while chalking out an investment strategy for effectively handling the volatility in the markets: Stick around for the long-term Sometimes, not taking action is the best action. Investors who take up trading in equity with a long-term view (at least a five-year time frame), do not keep on tracking the markets daily. Hence, they do not panic or get worried in the face of market fluctuations. It is best to review one’s investments on a bi-annual or annual basis. Step into the market A bearish or volatile market presents good opportunities for investors who have been waiting along with sidelines to make their entry. One can get stocks of good companies that have fallen just because of the market conditions. Not only would you be able to get more units (because of the low price) but also the net yield in the long term would be higher when compared with the cost of investment. Average out the cost of purchase As mentioned in the earlier point, the per-unit cost of stocks can come down in a bearish phase. The rupee cost averaging philosophy can help in reducing the average purchase cost of trading in equity over a period of time. For instance, let us assume that the average cost of one stock was Rs. 250 before the slump. If the market continues to fall (Rs. 200, Rs. 175 and Rs. 150) and the investor buys the same quantity as earlier, then the average cost of purchase comes down to Rs. 193. Book profits It is a wise choice to take out profits at regular intervals, especially when the market is going through turbulent times. In such scenarios, there is a high degree of overnight risk. So, all your profits can be wiped out at the blink of an eye. The FIFO approach works best. One should track their earlier investments and if they have generated sufficient profits, one can opt to sell them. The proceeds generated can fund a financial goal or can be used to invest elsewhere. Gracefully exit from non-performers In spite of the best equity trading tips, one is bound to make mistakes. That is, in fact, the name of the game. One should periodically review the stocks and identify the non-performing ones. If they have run their course, one should consider exiting from them during volatile times. The funds generated can be used to invest in other stocks with better prospects. Go Long and Short In times of volatility when one is unsure about the market performance, it is a wise decision to have a portion of the capital invested in short trades. One should not have a complete long-only portfolio. For example, in the case of moderately bullish investors, the ratio of long to short is recommended at 65:35. Covered Call Covered Call is one of the most highly recommended options strategies. It is effective in optimizing returns in a moderately volatile scenario wherein the price of the underlying asset lies within a small/tight range and the premiums are high. Other widely used options equity trading strategies that can be used to make money during market volatility include short straddles, iron condor, etc. But it is best to seek help from experts to effectively execute these strategies.Things to avoid when the markets become volatileThe list for equity trading tips will not be complete with only the DOs. One also needs to be aware of the DONTs or the mistakes to avoid in equity share trading. Panic or contingency sell Knee-jerk reactions and decisions based on speculation are the death of a smart equity trading strategy. Whenever the market is volatile, a sense of fear grips most investors. However, the important thing is to not act on that feeling without any research. Before taking any decision, one should carefully evaluate the reasons for the stock value going down. Go for the cheapest option Trading in equity is not only about the numbers. One should not just pick up stocks merely because they are available at really low price levels. Rather than making money for you, it could end up being a value trap. One should carefully analyze factors such as the stock’s track record, revenues, stability, PE Ratios, debt and equity ratios, etc. before taking a call. Leveraged bets Borrowed capital (or leverage) to fund equity trading may not be a good idea when the markets are volatile. Practices such as leverage and margin investing work both ways. When the times are good, they can generate high returns, but in case of a slump, the losses are also magnified. Hence, it is better to avoid in times of instability.Final Words Volatility in the market is not always an adversary. It also provides opportunities to invest at better (read more cost-effective) valuations and leads to market corrections. The idea is to remain cautious and alert and not fall prey to grapevine rumors or take knee-jerk reactions. And now that you know the DOs and DON’Ts, you can safely do equity trading in India (and also anywhere else in the world). One can also take the services of professional experts for equity trading in India who can help you navigate market volatility with ease. IndiaNivesh is one such partner who offers a wide range of financial services (equities, derivatives, commodities, mutual funds, insurance, IPO and online trading). Their “client-first approach” ensures that each customer gets customized inputs based on their financial goals, risk appetite, and investment horizon. So, whether you are new to trading in equity or just looking for some expert advice, IndiaNivesh can help you out. So, make sure you take help from the best and then even the worst of the market fluctuations will not trouble your trading aspirations.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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