Commodity Market – Different Types of Commodity Market in India

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• Systematic Withdrawal Plans – How to use SWP?

  Posted by Mehul Kothari | Published on 20 Nov 2019

  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 Basis the amount withdrawn in SWP, the equivalent units (as per the NAV on the day of withdrawal) are redeemed.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 All you need to do is fill up the SWP Form (with the details like the amount to be withdrawn, periodicity etc.)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 https://www.indianivesh.in.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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• Commodity Investment – Reasons to Invest in Commodity Market

  Posted by Mehul Kothari | Published on 07 Nov 2019

  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

  Posted by Mehul Kothari | Published on 01 Aug 2019

  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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