All about Futures

Posted on January 25, 2019Categories Short term programmes   Leave a comment on All about Futures

Futures and Options! These are two words any person could find on any page of a newspaper! What can we expect in the future and what are our options?

Futures and options are the most common derivatives traded in the market. The selling price of these derivatives is commonly based on an underlying asset and the price of the derivative moves along with the price of the underlying asset. The asset underlying it is usually a stock or an index of a stock market. This means that a company’s price of its futures and options will depend on the price of the company’s shares.

How do Futures work?

Futures are considered a lot easier to understand than the Options as they pretty much work in the same manner as shares. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.

Here are some important factors which one needs to consider.

  • Not all stocks have Futures:

There are only a handful of shares which have Futures traded on them. You can buy or sell Futures only on these particular shares.

  • All Futures have an expiry date:

All Futures have an expiry date, and in India, you can only buy Futures of three duration

– one that expires in the current month,

– one that will expire in the coming month,

– one that will expire in the third month.

All Futures contract must expire on the last Thursday of the month.

For example, In February you can buy a February contract which will expire on

28th February 2019, 31st March, 2019 OR 30th April, 2019.

  • Futures are always traded in lots:

You can buy or sell one share of TATA Steel, but Futures allow you to buy pre-planned amounts and you have to buy or sell in those multiples only.

For example, a Tata Steel Future has a lot of 125. When you buy one Future contract of Tata Steel, it is like buying 125 shares at one go. The big difference here is that you won’t have to actually pay the price of 125 shares, but only pay the difference in the buying and selling price which is usually a lot less.

  • You can sell a Future without owning it first:

Since a Future transaction is always settled on an upcoming date, it is also possible to sell a Future without actually owning it. This is called as going short and is a very useful feature of Futures.

For example You can sell a March Future today without owning it first, and you have till March 28th to buy back your Future and square your transaction. In this case, you get to make a profit when the price of the share goes down because you have already sold the share to another person and are hoping to buy it back at a lower price.

Why does one buy Futures or Options?

The main reason to buy futures and options is leverage. These derivatives allow you to make a large amount of money in a short period of time with the same amount of capital than one can with a regular cash position.

The second reason is it takes short positions or profit from the reduction in the prices of a share or particular commodity. If one is aware of the weak position of a company and is aware that the stock price is about to collapse – he/ she can profit from it. Profiting from this knowledge is not possible in a normal stock market, but you can sell a future, call option or buy a put option to take a short position in the particular stock or index.

The third reason recently heard is hedging risks, and this is a big reason for all the institutional investors. Retail investors can’t effectively hedge with derivatives. The notional value of these derivatives is often too high, and on the other hand the expiry periods are too short to act as an effective hedge for small investors.

Practically, this is riskier than buying a Future because there is no limit to how high a share can go. Theoretically, the limit is the amount that is present in your account. Once you reach this limit – the broker will square your transaction by buying back the share.

All these may sound tough, but it is all based on simple accounting principles.

BSE Institute Limited, a 100% subsidiary of BSE India, offers multiple courses which allows students and working professionals to learn new financial concepts. It provides a short-term online courses on BSEVarsity.com for all those who wish to learn about Futures and Options. This course can help one learn all about futures and options in just 4 sessions!!

 

Data and AI Save Money!!

Posted on January 25, 2019Categories MBA   Leave a comment on Data and AI Save Money!!

In an ancient age, on the continent of Africa, over 64,000 years ago, there was an important technological innovation. It was an advanced weapon which is still used in many parts of the World for hunting and defense. The bow and arrow is considered to be one of the most important innovations, that pushed mankind to think more and innovate more, in order to conquer more land and natural resources.

The times and the players may have changed, but the game is still the same! Governments still fight over the control of markets, land and natural resources. In some cases, they go to war! Similarly, innovation has been an important part of the human history. It is the one thing that has set us apart from other animals we share this planet with.

In this millennium, digital technology is what everyone is looking out for. Artificial Intelligence, Fintech, Digital platforms and other internet based technology, which has the capacity to revolutionize the world.

The world is rising up to explore the vast possibilities of these emerging technologies.  These technologies bring new opportunities to make a profit in the markets. According to a study by Cisco and International Data Corporation, globally the net job addition with these technologies will be more than 5.9 million by the start of 2027 out of which 1.4 million will be in India.

Data analytics is evolving rapidly and with the help of Artificial Intelligence, it can certainly save plenty of money. Beca, a leading professional services firm has recently adopted AI to ensure smooth management of buildings and other infrastructure. Beca is based in Auckland. It uses a digital model and the latest cloud-based mobile technology. It has a well developed advanced data analytics system, which accurately tracks the energy use, building maintenance and any other division that may need regular servicing.

The system automatically collects and analyzes millions of data points all over the building, detects faults and also diagnoses the issues including wastage of energy using algorithms and rule checks based on engineering formulae.

   

The building managers operating it can see the performance and also give custom instructions by simply logging into their online dashboard through their mobile devices. These smart buildings use ground-breaking technology which can save up to 30 percent in the power bills and at the same time deliver a return on investment within two years.

During the renovation of any property, the asset information is captured on site using iPads and then embedded back into the 3D environment. This also includes data from the supply chain and linking essential documents such as manuals, commissioning information and warranties of specific 3D models.

This solution enabled the property owner, to digitally manage the life cycle of the building’s plant and equipment with greater efficiency, accuracy and transparency. This helped reduce the maintenance costs.

Beca first introduced its building tuning service at the Victoria University in Wellington. Due to this, the University successfully saved $84,000 and also sustained energy reduction of 30 percent in a year. Beca is also providing data analytics systems to over 90% buildings of Singapore’s Nanyang University campus.

There are many companies like Beca, who are working on building technology solutions, that make the jobs of humans easier and more cost effective. They can transform the way we plan and execute work in the industry they are applied in.

New Zealand is a hub for many new tech companies which are coming up with new innovations like the ones mentioned above. New Zealand has proven to be a great destination for any individual who hopes to work on AI or anything new and innovative. As a nation that is steeped in promoting innovative technology and business, New Zealand is a great place for anyone who is willing to work towards promoting new technology.

BSE Institute, a 100% subsidiary of BSE India, helps you learn at one of the best universities of New Zealand, the University of Otago. With our Master’s of International Business program, students get to learn in a research driven atmosphere that helps them learn to think like innovators, who disrupt large industries.

 

The Stock Family

Posted on January 17, 2019Categories Executive Courses   Leave a comment on The Stock Family

When we hear the term, ‘stock’ we see people confused or afraid. This is because there are very few people who are cognizant about the various types of stocks and their characteristics. They have come to believe that investing in stocks = bearing heavy losses. However, its the opposite which is true! Investing with proper planning has made people Millionaires. Let’s take an overview of these.

What is a Stock?

A stock is referred to as a term to describe the ownership certificate of a particular company. It can also be called share, referring to the stock certificate of the company. If you hold a share of a company you become a shareholder, .i.e. a part owner. There are 2 types of stocks.

  1. Common Stock :

Like its name, the common stocks are very common, when people talk about stocks, in general, they are always referring to this type of stock. The majority of stocks are issued in this form. Common stocks represent the company’s ownership and a claim on the profits earned each year. Investors of a company get one vote per share to elect board members, who look into the major decisions to be made by the management. When compared on a long-term basis, common stock yields higher returns than any other investment. The main reason for higher returns is that this stock requires the highest amount of risk and if a company goes bankrupt and liquidates, the common shareholders will not receive money until all the creditors, bondholders and preferred shareholders are paid.

  1. Preferred Stock

The preferred stock represents only some degree of ownership in a company and does not come with the same voting rights. They vary from company to company. With preferred shares, the investors are usually promised a fixed dividend forever. This is not like the common stock, which has variable dividends, that are never guaranteed.

In event of liquidation or bankruptcy the preferred shareholders are paid off before the common shareholders. Preferred stock can also be callable, which means the particular company the option to purchase shares from shareholders anytime for any reason. Some people also consider the preferred stock to be more like debt than equity.

Market Capitalization :

The Market capitalization of a company refers to the total number of outstanding shares in the market multiplied by the current price per share. This provides the investor with an estimated valuation of the company. For example, A company has 10,000 outstanding shares in the market, and each of them is at Rs 10. Thus, its market capitalization will be total outstanding shares multiplied by the price per share, which is Rs 1 lakh.

Based on the current market capitalization, the stocks are classified into 3 types.

  • Large Cap Stocks: The market capitalization of these companies ranges above Rs.20,000cr. Large-cap companies are said to have a strong market presence and their stocks are generally considered to be very secure as they have a solid structure in place to tap the market.
  • Mid Cap Stocks: The market capitalization of these companies is considered to be in the range of Rs.5,000cr to Rs.20,000cr. These stocks have a tremendous scope for growth. They are pegged to be the next Large Cap stocks.
  • Small Cap Stocks: The small-cap companies are either start-ups or companies which are still in the development stage. Their market capitalization is ranging below Rs.5000cr. Information of such companies isn’t easily available and a lot depends on the current management and their operational style. Most investors who make a killing, earn their money in this segment.

Knowing about the functions and performance of each type of stock is important as this is the basic of stock market investing. Learning to read Balance Sheets, profit and loss accounts and other details of a company’s functioning are integral for any investor. BSE Institute Limited, a 100% subsidiary of BSE India offers you an executive course on Investment Management which will help you learn all about investing in stock markets and build your career as an Investment Banker.

 

Why do we need Financial Markets?

Posted on January 8, 2019Categories Financial Markets   Leave a comment on Why do we need Financial Markets?

Financial markets are present in every nation of the world. They are very important as no one Government, company, body or person has the funds to finance major projects which are needed for the development of a country. Without the presence of investors, it’s practically impossible to build infrastructure that’s necessary for a country’s development.

Investors always have access to all financial markets and exchanges present in the world. These markets deal with a huge array of financial products such as – foreign exchange, bonds, equities, treasuries, etc. Some of these are accessible for private and foreign investors, while the others remain within the reach of major banks and financial organizations.

Structure of a Financial Economy

To understand the importance of financial markets, one should first understand their individual role in our economy. When it boils down to tapping funds for investments , every economy has two sectors – savings and investment. Savings is what an individual household saves, usually in their savings/ postal bank account. Investment is the capital that every corporation needs to start and run their businesses.

Here, the financial economy acts as a major link between savings and investments. The standard way to convert savings into investments is with the help of banks. Almost all banks depend on the deposits they receive from account holders for lending them out as loans. Loans are the main source of revenue for banks.

Alternatively, savings can be also turned into investments with the help of financial markets. The households can use their savings to buy financial commodities such as shares and bonds, which also help corporates raise funds. In this way a financial market can serve as an allocative function and help mobilize idle funds which can help a business grow, thus giving better returns to shareholders and create critical infrastructure and services for the nation.

Only when the allocation and use of funds is done well, is there all round progress in an economy.

Some retail investors prefer to invest in financial markets because:

l The rate of returns on their savings will be higher than what a bank offers

l Your resources will be invested in firms which have high productivity and which shows great promise in the economy.

Functions of Financial Markets :

1] Mobilization of Funds

In a successful economy, money never sits idle. Investors with savings must be linked with corporations and industries that require investment. So financial markets enable this transaction, where investors invest their savings according to their choices and risk. This utilizes idle funds and the economy experiences growth.

2] Determination of Price

The financial commodities that are traded in a financial market get their prices from the rule of demand and supply. The investors or households are the suppliers of capital and the industries are the ones that demand them. The interaction between the two and other market factors provide help in determining the prices.

3] Liquidity

The instruments or securities sold in the financial market have high liquidity. This means that at any given time, an investor is able to sell his/her financial commodities and convert them to cash in a very short period of time. This is crucial for investors who do not wish to invest for long term.

4] Easy Access

Investors and industries have a symbiotic relationship – they need each other. The financial market provides a platform where both the buyers and the sellers find each other without any third party involvement, without spending too much time, money or effort.

5] The markets are unpredictable

The markets cannot be predicted at any time. For example: Investors predicted a fall in the Indian rupee after a massive increase in international oil prices. They believed that with oil touching $100 per barrel, the Indian Rupee will drop to Rs 80 to the US dollar and more. However, the oil prices dropped in no time to below $60 a barrel and the rupee was trading at Rs 70 to the US dollar resulting in heavy fluctuation in the financial markets.

Investors have to have a deep knowledge about the markets before they make their decisions. It is vital to know about the historic climatic and economic conditions of a certain geography before investing in it. Living in an age where the markets fluctuate on a daily basis, having the right knowledge and information is imperative.

BSE Institute has been successfully training students and working professionals in the field of financial markets for the past few decades. The course on GFMP Edge Financial Markets can help anyone become an expert in the field of financial markets in under 4 months!!

 

Hedge your way up!

Posted on January 3, 2019Categories Short term programmes   Leave a comment on Hedge your way up!

Hedge funds are extremely popular in Indian Stock Markets. They are also very popular among startups who get a lot of funding from Hedge Fund Managers.

So what is a Hedge fund? Why are they in the news so soften? Hedge Fund is a type of an investment fund which is used to invest in a wide variety of investment strategies (ranging from high to very high risk) that are used to cut risks of the investors from the market movements.

Hedge funds are not as widely known as mutual funds. Hedge funds are not as common  as Mutual Funds as people cannot invest in them. These funds too collect money from investors and they use highly complex strategies to hedge risks and delivers high returns. The amount collected from investors is usually very very high (in crores of Rupees/ millions of Dollars).

Breaking it down :

The literal meaning of a hedge is to avoid risks. A hedge fund functions by using the funds collected from recognized investors such as banks, insurance firms, high net-worth individuals, family offices and pension funds. This is the main reason why these funds function as overseas investment corporations or private investments. They don’t need to be registered with the SEBI and do not need to disclose their NAVs periodically like other mutual funds. It consists of asset classes like derivatives, bonds, equities, currencies, and convertible securities. They are also called alternative investments.

Who should invest in Hedge Funds :

Basically, hedge funds are the type of mutual funds which are privately managed by experts. This is why there are comparatively expensive than the other mutual funds. They are only affordable for the financially well off. Greater the deposits, higher is the risks. So, the expense ratio (fee to the fund manager) is a lot more for hedge funds than regular mutual funds. It ranges from 15% to 20% of your final returns. Therefore, unless you have full faith in your fund manager, investing in hedge funds can cause heavy losses.

Features of Hedge Funds :

Hedge Funds are still young in India, as they got recognized only in 2012 after the SEBI allowed alternative investment funds (AIF) in India.

They provide the following features :

  1. Investors

Only recognized or well-qualified investors can invest in hedge funds. They are mainly the high net worth individuals (HNIs), banks, insurance companies, endowments, and pension funds. The minimum ticket size for the investors to invest in these funds is Rs 1 crore.

  1. Investment Latitude

Hedge funds have a huge variety of asset class investments ranging from investments in currencies, derivatives, stocks, real estates, equities and bonds. The large number of investment products that they invest in makes Hedge Funds attractive. The large number of investments make the possibility of losses minuscule.

  1. Fee Structure

Hedge funds basically work on the concept of both the expense ratio and management fee. Globally, it is called the ‘Two and Twenty’, meaning there is a 2% fixed fee and 20% of the final profits. The hedge funds in India, the management fee ranges between 2% to 1%. The profit sharing percentage fluctuates between 10% to 15%.

  1. Risks

Hedge fund investment strategies can expose a fund to huge losses in the market. The lock in period is generally long. The leverage used by hedge funds can turn large investments into a huge loss. As a fund, Hedge Funds usually seek out high risk investments, which usually yields very high profits.

  1. Taxation

The Category III of AIF (hedge funds) is still not given a pass-through status on tax. This implies that income from these funds is not taxable at the investment fund level. The tax obligation will not pass through to the unit-holders. This is a major disadvantage for this industry as they are not on a level playing ground with the other mutual funds. 

  1. Regulations

It is not compulsory for a Hedge Funds to be registered with the securities markets regulator and have no reporting requirements including periodic disclosure of Net Asset Values (NAV).

As an investment option, Hedge Funds are considered to be one of the riskiest ways to multiply investor funds. However, most Hedge Funds have a track record of providing extremely high Returns on Investments. American and European Hedge Funds are known to multiply their funds by 10X – 20X, which is what makes them so attractive.

As the benefits for these fund advisers and investors are comparatively higher than other funds, Hedge Funds have historically been attractive investment opportunities.

BSE Institute Limited, a 100% subsidiary of BSE India, has been offering short term courses for the last few decades. It has successfully helped scores of students begin their careers and offered a great platform for professionals to rise to greater heights. To help one learn about hedge funds, BSE Institute’s BSEVarsity.com offers a short-term course on Introduction to Hedge Funds where one can learn and begin their journey in the field of hedge funds.

 

The Guardian of Stock Markets

Posted on January 3, 2019Categories Executive Courses   Leave a comment on The Guardian of Stock Markets

We always worry about the security of our valuables. We need someone to guard our properties, just like a nation needs a disciplined army to guard the interests of the country. Likewise, Governments feel that each country needs an organization to protect the investments of retail investors in stock markets. Various nations have different organizations to guard their securities markets. USA has the Securities and Exchange Commission (SEC). India has the “SEBI – Securities and Exchange Board of India”; an organization which is focused on protecting retail investors in the securities markets. SEBI is considered to be the most important regulatory body in India.  

History of SEBI :

The Securities and Exchange Board of India was established as a regulatory body in 1988, but real ordinance powers were given to SEBI after the passing of the Securities and Exchange Board of India Act by the Parliament on January 30, 1991. SEBI is located in Mumbai and it also has regional branches located in the northern, eastern, western and southern parts of the country.

The branches are located in New Delhi, Kolkata, Chennai and Ahmedabad respectively. Besides it also has small offices in cities like Bangalore, Jaipur, Guwahati, Bhubaneshwar, Patna, Kochi, and Chandigarh. The SEBI is run by its own members which consist of a chairman, who is elected by the parliament, two officers from the Union Finance Ministry, one member from the RBI and five members who are mutually elected by the Parliament and the Chairmen of SEBI.

The SEBI was established to replace the Controller of Capital Issues, which had administered the security markets in India during the British era. The SEBI is regulated as per the Capital Issues (Control) Act of 1947, one of the first acts passed by the Parliament of India after India’s Independence.

SEBI duties:

The main purpose of SEBI is to protect the interest of small retail investors in the securities markets and to promote the development of new securities market in India. The SEBI is expected to be compliant to 3 main groups:

l The issuers of Securities

l Investors

l The market intermediaries

SEBI has indefinite powers, as it drafts the rules, regulations and statutes in its legislative capacity. It passes orders in its judicial capacity and conducts investigations and enforces orders in its executive capacity.

SEBI has 3 main functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. Even though this makes it very powerful, there is also an appeal process to create accountability.

The appeal process is carried out by the Securities Appellate Tribunal (SAT) which consists of a three-member tribunal. It is currently headed by Justice J P Devadhar of the Bombay High Court. A second appeals mechanism is also in place. The individual or company has to approach the Supreme Court of India directly to resolve any pending issues. SEBI is very proactive and always tries to ensure that all its work is as per international standards. This is necessary as every securities market attracts international investors.

In India, the role of SEBI, has been the most benevolent in its use of its authority. It has upheld the law and followed strong systematic reforms aggressively. After the Recession of 2008 and the Satyam Fiasco in October 2011, the SEBI was able to quickly take steps to protect small investors from losing a large chunk of their investments and thus stabilize the economy.

There are many other private investors who sometimes are in a position to get inside information of a company, before other investors. Using inside information to profit is illegal and not allowed by law. Rich investors are sometimes barred from investing for a certain period of time if they are found guilty of insider trading. Insider trading is a very serious offense  internationally and must be taken seriously.

BSE Institute Limited  BSEvarsity.com provides a short executive program on Securities and Business Law which can help one know all the rules necessary to invest in the securities markets.