Vishal, Author at Thrive Group

PMS(Portfolio Management Services) complete part 1

Establishing a Portfolio Management Services (PMS) business in India involves meeting regulatory requirements set by the Securities and Exchange Board of India (SEBI), creating robust operational infrastructure, and offering professional investment services. Below is a step-by-step guide to establish a PMS:

Understand SEBI Regulations

PMS in India is regulated under the SEBI (Portfolio Managers) Regulations, 2020.
Key regulatory requirements include:
- Minimum Net Worth: A PMS provider must have a minimum net worth of ₹5 crore.
- SEBI Registration: Mandatory to obtain a PMS license from SEBI.
- Minimum Investment per Client: Each client must invest at least ₹50 lakh.

Formulate a Legal Entity

Establish a legal entity such as:
- Private Limited Company.
- Public Limited Company.
- LLP (Limited Liability Partnership).
Ensure compliance with the Companies Act, 2013 for corporate entities.
Obtain a Permanent Account Number (PAN), Tax Deduction Account Number (TAN), and GST registration.

Apply for SEBI Registration

Submit an application to SEBI to become a registered portfolio manager.

Steps to Register:

Prepare Documents:
- Memorandum of Association (MOA) and Articles of Association (AOA) of the company reflecting PMS activities.
- Net worth certificate issued by a chartered accountant.
- Background of key personnel (portfolio managers, directors, compliance officers).
- Infrastructure details.
- Internal risk management and compliance policies.
Submit the Application:
- File Form A along with a non-refundable fee of ₹1 lakh.
- Pay a registration fee of ₹10 lakh upon SEBI approval.
Evaluation by SEBI:
- SEBI will assess the applicant’s financial soundness, professional expertise, and adherence to regulatory guidelines.
Grant of Certificate:
- SEBI issues a Certificate of Registration, valid for three years and renewable thereafter.

Build Operational Infrastructure

Set up robust systems for portfolio management, compliance, and client servicing.
Infrastructure Requirements:
- Office space and operational setup.
- Secure IT systems for tracking client investments.
- Platforms for reporting and compliance management.
- Banking and demat account integration.
- 5. Recruit Qualified Professionals
  - Key Personnel:
    - A qualified and experienced portfolio manager with at least 5 years of experience in portfolio management, investment advisory, or related fields.
    - Compliance officers to ensure adherence to SEBI regulations.
  - Support Staff:
    - Analysts for research and market analysis.
    - Relationship managers for client interaction.

part 2 continued...

05/03/2025 /2 Comments/by Vishal

Articles, Education

Treasury Bills (T-Bills)- meaning, features

Definition:
Treasury Bills (T-Bills) are short-term debt instruments issued by the government to meet its short-term borrowing requirements. These are issued at a discount to their face value (par) and redeemed at par on maturity. T-Bills do not pay periodic interest (coupon), and the return is the difference between the purchase price and the redemption value.

Key Features:

Issued by the Government:
- In India, T-Bills are issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
- They are among the safest investment instruments since they are backed by the government.
Short-Term Maturity:
- T-Bills have maturities of 91 days, 182 days, and 364 days.
- They are ideal for short-term liquidity management.
Zero-Coupon Bonds:
- T-Bills do not pay periodic interest. Instead, they are sold at a discount to their face value and redeemed at full face value at maturity.
Highly Liquid:
- T-Bills are traded in the secondary market, offering high liquidity.
Risk-Free:

Since they are backed by the government, they carry no credit risk. The only risk involved is interest rate risk if sold before maturity.

Example:

Suppose a 91-day T-Bill has a face value of ₹1,000 and is issued at a price of ₹980.
On maturity (91 days later), the government repays ₹1,000 to the investor.
The return (yield) for the investor is ₹1,000 – ₹980 = ₹20.

How T-Bills are Used:

By Investors:
- Individual and institutional investors use T-Bills for short-term investments.
- Banks and financial institutions buy T-Bills to manage their liquidity and fulfil statutory liquidity ratio (SLR) requirements.
By the Government:

T-Bills are a tool for the government to raise funds to manage temporary mismatches in revenue and expenditure.

Advantages:

Safety: Virtually risk-free as they are issued by the government.
Liquidity: Easily tradable in the secondary market.
Flexibility: Availability in different maturities allows flexibility in managing funds.
Disadvantages:
- Low Returns: Returns are generally lower compared to other investments like corporate bonds or equities.
- No Periodic Income: As zero-coupon instruments, they do not provide regular interest payments.
The minimum investment in Treasury Bills (T-Bills) in India is ₹10,000. Here’s a breakdown:

Key Details:
1. Denomination:
  - T-Bills are issued in multiples of ₹10,000.
  - For example, you can invest ₹10,000, ₹20,000, ₹30,000, and so on.
2. Who Can Invest:
  - Individuals, corporations, banks, and financial institutions can invest in T-Bills.
3. Where to Buy:
  - T-Bills can be purchased through:
    - RBI Retail Direct Scheme: A platform for retail investors to buy government securities directly from the RBI.
    - Stock Exchanges: Through brokers on platforms like NSE and BSE.
    - Primary Auctions: Participating directly in RBI auctions via a bank or financial intermediary.
1. No Maximum Limit:
  - While the minimum is ₹10,000, there is no maximum limit on investment in T-Bills.

How Investment Works:

T-Bills are issued at a discount to face value. For instance, if the face value is ₹10,000, you may buy it for ₹9,800. At maturity, you receive the full face value of ₹10,000, and the difference is your return

03/03/2025 /0 Comments/by Vishal

Articles, Education

Bonds- meaning, types

In the stock market, bonds are a type of debt investment. When you purchase a bond, you are essentially lending money to an entity (such as a corporation, government, or municipality) in exchange for regular interest payments over a fixed period of time. At the end of the bond’s term (maturity date), the principal amount of the bond is repaid to the investor.

Issuer: The entity that issues the bond, such as a government, company, or organization, needs money and borrows it from investors.
Face Value: The amount the bond is worth at maturity, typically $1,000 for corporate bonds.
Coupon Rate: The interest rate paid to the bondholder, usually on an annual or semiannual basis. This rate is fixed when the bond is issued.
Maturity Date: The date when the bond’s principal (face value) is due to be repaid.
Yield: The return on investment (ROI) for the bondholder, based on the price paid for the bond and the interest payments.

Fixed Coupon Rate Bonds

Description: These bonds have a predetermined and fixed interest rate (coupon) that is paid to bondholders periodically, typically semi-annually or annually.
Example: A bond with a face value of ₹1,000 and a fixed coupon rate of 8% will pay ₹80 annually, regardless of market interest rate changes.
Advantage: Predictable returns.
Disadvantage: Bondholders face interest rate risk; if market rates rise, the bond becomes less attractive.

Floating Coupon Rate Bonds

Description: These bonds have an interest rate that is not fixed but fluctuates based on a benchmark, such as the repo rate or LIBOR.
Example: A bond tied to the repo rate + 2% will adjust its coupon payment if the repo rate changes.
Advantage: Protection against rising interest rates.
Disadvantage: Uncertainty in interest income.

Zero Coupon Bonds

Description: These bonds do not pay periodic interest. Instead, they are issued at a discount to their face value and redeemed at par.
Example: A zero-coupon bond with a face value of ₹1,000 might be sold for ₹800 and redeemed at ₹1,000 after maturity.
Advantage: Suitable for investors seeking a lump sum at maturity.
Disadvantage: No regular income; higher interest rate risk.

Callable and Puttable Bonds

Callable Bonds:
- Description: Issuer has the right to redeem the bond before maturity at a predetermined price.
- Advantage: Beneficial to issuers when interest rates fall, as they can refinance at lower rates.
- Disadvantage: Risk of reinvestment for bondholders.
Puttable Bonds:
- Description: Investors have the right to sell the bond back to the issuer before maturity at a predetermined price.
- Advantage: Provides flexibility to investors during rising interest rates.
- Disadvantage: Issuer bears the risk of premature redemption.

Subordinated Bonds

Description: These bonds have lower priority in the repayment hierarchy in case of issuer bankruptcy.
Example: In the event of liquidation, holders of subordinated bonds are repaid only after senior debt holders are paid.
Advantage: Often offer higher yields as compensation for higher risk.
Disadvantage: Increased risk of losing principal and interest in case of issuer default.

Perpetual Bonds

Description: These bonds have no maturity date and pay interest indefinitely.
Example: A perpetual bond offering a 6% coupon rate will pay interest continuously without repayment of the principal.
Advantage: Steady income stream.
Disadvantage: High sensitivity to interest rate changes and no repayment of principal.
1. Tax-Free Bonds
- Description: Bonds where the interest income is exempt from income tax, usually issued by government entities.
- Example: Bonds issued by municipal corporations.
- Advantage: Ideal for investors in higher tax brackets.
- Disadvantage: Typically offer lower yields than taxable bonds.

Covered Bonds

Description: Bonds secured by a pool of assets, usually mortgages or public sector loans, which remain on the issuer’s balance sheet.
Advantage: High credit quality due to dual recourse – the issuer and the covered pool.
Disadvantage: Yields are often lower due to lower risk.

Principal Protected Market Linked Debentures (PPMLDs)

Description: These are hybrid instruments that guarantee the principal repayment while linking the returns to the performance of an underlying asset or index.
Example: A PPMLD linked to the NIFTY index may offer returns based on its movement but assures principal protection.
Advantage: Combines safety of principal with potential for higher returns.
Disadvantage: Limited upside potential compared to direct equity investments.

Capital Gain Bonds

Description: Special bonds that allow investors to save on capital gains tax under Section 54EC of the Income Tax Act, India.
Example: Bonds issued by institutions like NHAI and REC with a lock-in period of 5 years.
Advantage: Tax savings on long-term capital gains.
Disadvantage: Limited liquidity due to mandatory lock-in period.
Bonds are generally considered lower-risk investments compared to stocks because they provide predictable income through interest payments and return the principal amount at maturity (unless the issuer defaults). However, their returns are typically lower than the potential returns from stocks.

02/03/2025 /1 Comment/by Vishal

Articles, Education

Top-Traded Stocks During Muhurat Trading 2024:

During Muhurat Trading on November 1, 2024, several stocks saw high trading volumes and attracted significant investor attention. Key stocks included:

Reliance Industries (RIL)
Zomato
Indian Railway Finance Corporation (IRFC)
Waaree Energies (a recently listed IPO)
Hindustan Aeronautics Limited (HAL)
Tata Steel
Bandhan Bank

During the 2024 Muhurat Trading session on November 1, a variety of stocks across sectors saw significant investor activity, reflecting optimism as the new financial year began in Samvat 2081. Reliance Industries (RIL) led in terms of trading volume, driven by investor confidence in its diversified portfolio and recent developments, including a recent bonus issue which added appeal for both retail and institutional buyers. Similarly, Zomato, a popular pick due to the growth of India’s digital and food-delivery economy, saw strong trading volumes, indicating confidence in its future expansion potential.

Indian Railway Finance Corporation (IRFC) continued to be a favorite, especially as India’s railway infrastructure developments gain momentum. Another notable mention was Waaree Energies, a new IPO that drew significant interest from investors attracted by the green energy sector’s long-term growth prospects.

Defense sector stocks like Hindustan Aeronautics Limited (HAL) also saw increased activity. HAL’s performance aligns with India’s growing focus on strengthening its defense sector. Tata Steel and Bandhan Bank rounded out the top-traded stocks, with Tata Steel benefiting from the global steel demand recovery, and Bandhan Bank drawing interest due to expectations of a potential turnaround in its lending portfolio.

This trading session highlights investor enthusiasm in sectors like energy, defense, infrastructure, and finance, setting a positive tone for the upcoming financial yea

03/11/2024 /0 Comments/by Vishal

Articles, Education

Muhurat Trading 2024

The annual Muhurat Trading session, scheduled to coincide with Diwali, will take place today, November 1, 2024, from 6:00 PM to 7:00 PM IST on both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). A unique feature of the Indian stock market, Muhurat trading is an auspicious hour for trading and is observed as a symbolic start to the Hindu New Year in line with the Samvat calendar, where Samvat 2081 begins this year.

This session allows investors to make a fresh beginning, invoking prosperity and wealth as they place their trades. Muhurat trading is not just a financial event but also a cultural tradition embedded in investor sentiment across India. Here are key aspects, historical patterns, and insights into Muhurat Trading:

1. Significance of Muhurat Trading

Cultural and Financial Importance: For decades, the special trading hour on Diwali has held sentimental and financial importance. It represents a time when traders, portfolio managers, and retail investors alike wish for wealth and success in the coming year.
Astrological Belief: Many believe the Muhurat trading hour is a time of planetary alignment favoring new beginnings. Traditionally, the practice follows the belief that any activity started on this auspicious hour is blessed with prosperity.

2. Scheduled Timings for 2024

Trading Session: 6:00 PM – 7:00 PM IST
Pre-Open Session: Approximately 5:45 PM – 6:00 PM IST
Trade Modification Window: Until 7:10 PM IST (a short period for final adjustments before the session closes)

3. Historical Performance of Muhurat Trading

Over the past 17 years, the BSE Sensex has ended positively on 13 occasions, showing the optimism and positive sentiment that typically surrounds the event.
Largest Gain in a Single Session: In 2008, amidst global financial turmoil, the Sensex recorded a 5.86% jump, closing at 9,008, marking the highest one-day Muhurat trading gain in its history.
Moderate Returns with Low Volatility: The index usually records moderate returns during the session, as market sentiment is buoyant, though trading volumes are generally low compared to regular trading days.

4. Trading Volume and Stock Movement Patterns

Low Volumes: Muhurat trading sees significantly lower trading volumes than regular sessions, as only selected stocks witness notable movements.
Selective Stock Movements: Blue-chip stocks, particularly from large-cap sectors, often experience more attention than mid-cap or small-cap stocks, although retail investors sometimes buy small quantities for sentimental reasons.
Sector-wise Focus: Traditionally, sectors like banking, consumer goods, and automobiles see more activity, aligning with Diwali’s symbolism of abundance and wealth.

5. Common Investor Strategies During Muhurat Trading

New Beginnings: Investors often purchase new stocks or increase positions in existing holdings as a symbolic start to the new Samvat year.
Portfolio Restructuring: Some use this time for a brief portfolio review, making symbolic adjustments that reflect optimism for the new financial year.
Long-Term Focus: Unlike the high-frequency trading seen on other days, investors tend to hold positions taken during Muhurat trading longer, based on the cultural significance of the event.

6. Expectations for Muhurat Trading 2024

Market Sentiment: With the Sensex and Nifty hovering at historically high levels this year, investors and analysts anticipate a positive close, albeit with limited upward movement.
Market Dynamics: Economic indicators, global cues, and sector-specific news will influence stock performance. However, the cultural and symbolic nature of Muhurat trading often steers focus toward established and blue-chip stocks.
Optimism Among Investors: This year’s Muhurat trading session is expected to follow the trend of cautious optimism, with a focus on sectors that have demonstrated resilience, such as banking, information technology, and consumer goods.

7. Symbolic Value and Broader Implications

Significance for Retail Investors: Retail investors often see Muhurat trading as an ideal time to make a small investment, hoping it will grow throughout the year.
Involvement of Institutional Investors: While retail participation is high, institutions also participate symbolically, marking a shared cultural acknowledgment of the occasion.

Key Takeaways:

Muhurat trading is as much a cultural event as it is a financial one. It reinforces the link between financial markets and traditional beliefs.
Historically, the Sensex and Nifty have shown positive returns, though with lower volumes, underscoring the session’s symbolic importance.
Investors generally adopt a conservative approach, favoring select large-cap stocks that align with the optimistic outlook associated with the new Samvat year.

Overall, Muhurat trading in 2024 presents an opportunity for a hopeful start in the markets, reflecting both investor sentiment and cultural tradition on the auspicious occasion of Deepavali.

01/11/2024 /1 Comment/by Vishal

Articles, Education

“SEBI Approves Key Reforms: Expansion of T+0 Settlement, Faster Rights Issues, and Streamlined Filing for Listed Entities”

SEBI (Securities and Exchange Board of India) has approved several significant changes aimed at enhancing the operational framework and improving the efficiency of the Indian securities market. The key highlights of the recent SEBI board meeting include the expansion of the scope of the optional T+0 settlement cycle, faster processes for rights issues, and more flexible filing and trading options for market participants.

1. Optional T+0 Settlement Cycle Expansion

SEBI has been working to introduce a faster settlement system in the Indian stock market. The T+0 settlement cycle, which refers to the settlement of trades on the same day (T+0), was launched in a beta phase earlier. After reviewing the performance and feedback from stakeholders, SEBI has decided to enhance the scope of this settlement system:

Expansion of Eligible Scrips: The number of stocks (scrips) eligible for the optional T+0 settlement will be increased gradually. Starting from the current 25 scrips, SEBI plans to phase in up to the top 500 scrips based on market capitalization.
Enhanced Flexibility for Investors: Investors will now have the option to trade in the secondary market using either the Unified Payments Interface (UPI) block mechanism, which operates similarly to the ASBA (Application Supported by Blocked Amount) system used in primary markets, or through a 3-in-1 trading facility. The 3-in-1 facility integrates a savings account, a demat account, and a trading account, making the trading process more streamlined.
Mandatory for Qualified Stock Brokers (QSBs): One of these two mechanisms (either the UPI block or the 3-in-1 trading facility) must be mandatorily offered by Qualified Stock Brokers (QSBs) to enhance investor convenience and efficiency in executing trades.

2. No Immediate Changes in F&O (Futures & Options) Market

There were no decisions taken regarding changes to the Futures and Options (F&O) segment during this meeting, despite ongoing discussions and considerations.

3. Faster Rights Issue Process

SEBI has introduced a much faster process for completing rights issues:

Completion in 23 Working Days: SEBI has streamlined the rights issue process, enabling completion within 23 working days, significantly reducing the time required for issuers to raise capital.
Flexibility for Promoters: Promoters now have the flexibility to renounce their rights in favor of specific investors, making the rights issue process more tailored and flexible. This is a significant shift that allows promoters to choose who will receive the rights, instead of allowing all shareholders the same renunciation options.

4. Single Filing System for Listed Entities

SEBI has approved the implementation of a single filing system for listed companies, allowing them to make one-time filings across all stock exchanges. This will eliminate the need for multiple filings with different exchanges, thereby reducing administrative burdens and improving efficiency for listed entities.

Conclusion

SEBI’s new measures aim to modernize the securities market infrastructure, improve settlement efficiency, provide more options and convenience for investors, and streamline the processes for listed companies and promoters. The phased increase in eligible stocks under the optional T+0 settlement, along with faster rights issue processes and the single filing system, represents SEBI’s commitment to simplifying the market and enhancing investor confidence.

VWAP complete guide.

18/03/2025

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