Concept of Investment Investment is the employment of funds with the aim of getting return on it. In general terms, investment means the use of money in the hope of making more money. In finance, investment means the purchase of a financial product or other item of value with an expectation of favorable future returns. Investment of hard earned money is a crucial activity of every human being. Investment is the commitment of funds which have been saved from current consumption with the hope that some benefits will be received in future. Thus, it is a reward for waiting for money. Savings of the people are invested in assets depending on their risk and return demands. Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are Continue reading
Investment Terms
Tax liability attached to a demutualized stock exchange
When a trading right is acquired, and a share is allotted to a member of an stock exchange by virtue of which he acquires a membership privilege against the extinguishment of the previous right of membership, no transfer of assets effectively takes place and neither of the acquisitions should therefore be deemed to be a transfer within the meaning of the word in the Income Tax Act. However, at the point of sale of any of these two rights, capital gains tax would be attracted. Since the above processes are necessary to implement a policy announced by the Government, and in the larger interests of the securities market in India as well as in the interests of investors, it would be necessary to ensure that both the processes described above are tax neutral and no additional tax liability is attached either to the stock exchange or to a member of Continue reading
Mutual Fund NAV Calculation
The net asset value is the market value of the assets of the scheme deducting its liabilities. Simply put, the NAV is what investors are required to pay to buy or sell one share of the mutual fund. Keep in mind any additional fees are not included in this amount. In accounting terms, NAV is also known as the book value of the mutual fund. The net asset value per mutual fund unit on any business day is computed as follows: NAV = (Market value of the fund’s investments + Receivables + Accrued income -Liabilities -Accrued expenses)/Number of units outstanding Rules Governing the Mutual Fund NAV Calculation Accrued Income and Expenses: The correct accrual of all incomes and expenses is a requirement for computing NAV. In practical terms these are just estimates. For example, the investment manager’s fees has to be accrued everyday for computing NAV but the fee is Continue reading
What are Circuit Breakers?
Volatility in stock prices is a cause of concern for both the policy makers and the investors. To curb excessive volatility, SEBI has prescribed a system of circuit breakers. The circuit breakers bring about a nation-wide coordinated halt in trading on all the equity and equity derivatives markets. An index based market-wide circuit breaker system applies at three stages of the index movement either way at 10%, 15% and 20%. The breakers are triggered by movement of either S&P CNX Nifty or Sensex, whichever is breached earlier. Further, the NSE views entries of non-genuine orders with utmost seriousness as this has market-wide repercussion. It may suo-moto cancel the orders in the absence of any immediate confirmation from the members that these orders are genuine or for any other reason as it may deem fit. As an additional measure of safety, individual scrip-wise price bands have been fixed as below: Daily Continue reading
Advantages of Rolling Settlement
Rolling settlement system replaced the badla system from July 2, 2001. On July 2, 2001, 215 scrips were brought under the riling systems, bringing the total to 414 scrips. By January 2, 2002 all scrips were brought under compulsory rolling mode. Internationally most developed countries follow a T+3 cycle and are aiming to move to a T+1 cycle (next day settlement) or a T+0 cycle where trades are settled on the day they are executed (same evening settlement). This is system of T+0 is prevalent in Switzerland and volumes are phenomenal when compared to the T+3 system. Indian stock markets moved to the T+3 system from April 2002, in line with the recommendations of the “Group of Thirty” which suggested it as minimum international standard. The rolling settlement has many advantages. One, it reduces speculation and arbitrage in scrips as settlement occurs on a daily basis. Thus, there would be Continue reading
Differences Between Term and Permanent Life Insurance
Life insurance is an essential financial product with the life of the insured being the subject of protection. There are two types of life insurance: term and permanent. Term life insurance begins a low premium that increases upon renewal and pays a death benefit to the beneficiaries only if the insured dies within the policy term. On the other hand, permanent life insurance has a fixed premium and is designed to offer coverage for the insured’ s entire life. Both the insurance company will pay a death benefit to the designated beneficiary after the death of an insured. Although term and permanent life insurance behave as protections to ensure the beneficiary’s benefit, they have different features: convertibility, cost, and cash surrender value. For instance, term and permanent policy offer different periods of validity. Term life insurance provides guarantees for a limited set of years, generally between 10 to 30 years. Continue reading