- What is an IPO?
Initial Public Offering (IPO) can be defined as the process in which a private company or corporation can become public by selling a portion of its stake to the investors. Through the IPO, the company gets its name listed on the stock exchange.
Before the IPO, a company has very few shareholders. This includes the founders, angel investors and venture capitalists. But during an IPO, the company opens its shares for sale to the public. As an investor, you can buy shares directly from the company and become a shareholder.
- Why does a Company offer an IPO?
To raise capital for growth and expansion
Every company needs money to increase its operations, create new products or pay off existing debts. Going public is a great way to gain this much-needed capital for a company.
Allowing owners and early investors to sell their stake to make money
It is also seen as an exit strategy for initial investors and venture capitalists. A company becomes liquid through the sale of stocks in an IPO. Venture capitalists sell their stock in the company at this time to reap returns and exit from the company.
A company going public means that the brand has gained enough success to get its name flashed in the stock exchanges. It is a matter of credibility and pride to any company. This is a great way for a company to publicise its products and services to a new set of customers in the market.
- Types of IPOs
- Fixed Price Offering
Fixed price offering is pretty straightforward. The company announces the price of the initial public offering in advance. So, when you partake in a fixed price initial public offering, you agree to pay in full.
- Book Building Offering
In book building offering, the stock price is offered in a 20 percent band, and interested investors place their bid. The lower level of the price band is called the floor price, and the upper limit, cap price. Investors bid for the number of shares and the price they want to pay. It allows the company to test interest for the initial public offering among investors before the final price is declared.
- Benefits of Investing in an IPO
· First-mover advantage
This is especially true when reputed companies announce an IPO. You get a chance to buy the company’s shares at a much lower price. This is because once the company’s shares reach the secondary market, the share price may go up sharply.
· Listing gains
When a company gets listed on the stock market, it may be traded at a price that is either higher or lower than the allotment price. When the opening price is higher than the allotment price, it is known as listing gains.
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- Process of Applying for an IPO
Nowadays, it has become easier to apply for an initial public offering because of the online application process. However, if you are a new investor, you need to learn a few things before applying.
The first important thing is funding. Whether it is a fixed price or a book building IPO, you will have to make a payment in advance, and for that, you must have funding ready. Investors can use their savings or take a loan from a bank or NBFC for the purpose.
However, without a DEMAT account, you can’t invest in stocks. So, the next thing you need is to open a DEMAT account. Select a reputed broker with atrack record to have a DEMAT.
You can use the DEMAT account not only for IPOs, but to receive all sorts of investment instruments like gold bonds, corporate bonds, shares, and more.
The online process is an easy way to apply. You can do it from the investor portal on the broker’s website or by downloading the ASBA form from your bank’s net-banking platform.
ASBA stands for Application Supported by Blocked Account (ASBA). It allows banks to block funds in the applicant’s account against your bidding for the IPO.
If you apply through the broker, you need to use UPI enabled payment gateways to make payment. In either case, cheques and demand draft payments are not accepted for bidding.
An investor needs to bid while applying for the shares in an IPO. It is done according to the lot size quoted in the company’s prospectus. Lot size can be referred to as the minimum number of shares that an investor has to apply for in an IPO.
A price range is decided and the investors require to bid within the price range. Though an investor can make a revision in his biddings during an IPO, it should be noted that he needs to block the required funds while bidding. In the meantime, the arrested amount in the banks earns interest until the process of allotment is initiated.
There are different investor categories when it comes to IPOs. This includes:
- Qualified Insititutional Buyers (QIBs)
- Non Institutional Investors (NIIs)
- Retail Individual Investors (RIIs)
The allocation of shares differs for all the above groups in an IPO. As an individual investor, you come under the last category.
As an individual investor, you are allowed to invest in small lots worth Rs 10,000-15,000. You can apply for a maximum of Rs 2 lakh in an IPO. The total demand for shares in the retail category is judged by the number of applications received. If the demand is less than or equal to the number of shares in the retail category, you are offered a full allotment of shares.
When the demand is greater than the allocation, it is known as oversubscription. Many times an IPO can be over-subscribed five times over. This means that the demand for shares exceeds the supply by five times!
In such cases, the shares in retail category are offered to investors on the basis of a lottery. This is a computerised process that ensures impartial allocation of shares to investors.
- Terminology Associated with IPO’s
Draft Red Herring Prospectus
The DRHP is the document that makes the public know about the company’s IPO listings after the approval made by SEBI. A DRHP contains the following information about the company:
- Purpose of raising funds through listings
- Balance sheet
- Promoter’s expenses
- Earning statement of the last three years (if applicable)
- Net proceeds of the company
- Commission and discounts of the underwriter
- Details such as the name and address of all the underwriters, officers, directors and stockholder who possess 10% or more than the currently outstanding stock.
- Legal opinion on the listings
- Copy of the underwriting document
- An underwriter can be a banker, financial institution, merchant banker or a broker. It assists the company to underwrite their stocks. The underwriters also commit that they will subscribe to the balance shares in case the stocks offered at IPO are not picked by the investors.
What is IPO grey market?
An IPO grey market is one where a company’s shares are bid and offered by traders unofficially. This takes place before the shares are even issued by the company in an Initial Public Offering (IPO).
Since this is an unofficial market, there are no rules and regulations. Market regulators like Securities and Exchange Board of India (SEBI) are not involved in these transactions. The regulator doesn’t endorse this either.
Grey markets are generally run by a small set of individuals. All deals are based on mutual trust.
Grey Market Premium
Grey market premium is nothing but the price at which the shares are being traded in the grey market.
For instance, let’s assume the issue price for stock X is Rs 200.
If the grey market premium is Rs 400, it means that people are ready to buy the shares of company X for Rs 600; (i.e. 200+400).
This is how a typical deal works out in the grey market.
Overview of Chennai Super Kings: The Chennai Super Kings CSK is a franchise cricket team based in Chennai, Tamil Nadu which plays in the Indian Premier League (IPL) since its inception. The team is captained by Mahendra Singh Dhoni. CSK has won the IPL Tournament thrice and won the Champions League T20 Tournament twice.
The franchise has served a two-year suspension from the IPL starting July 2015 for the alleged involvement of their owners in the 2013 IPL betting case.
The brand value of the Chennai Super Kings in 2020 was estimated at Rs 611 Crores, making them the second most valuable franchise in the IPL as per the Brand Finance Report.
The overview & outlook of IPL:
- According to Duff & Phelps, global valuation and corporate finance advisors, IPL’s brand value was pegged at $6.8 billion or Rs 47,500 crore at the end of its 12th season last September. This is more than twice the $3.2 billion it was worth at the end of its seventh season in 2014.
- IPL witnessed a major milestone on September 4th, 2017, with Star TV winning the media rights for (2018-2022) five-year period, for a staggering Rs 16,347.50 crore. By virtue of these rights, the revenue share of franchises over the next 5-year period will be 50% of the above amount after deducting the production expenses incurred during the season.
- The league also signed a major title deal with VIVO for Rs, 2199 crore for the same period. ( 2018-2022)
- A combination of sponsorship and media rights ensures, your franchise will receive over Rs 1000 crore in the form of central revenue over the next five years from the BCCI-IPL.
- However, the Franchisees have to share 20% of the income with BCCI.
- The much-anticipated women’s Indian Premier League (IPL) has also been approved by the IPL’s governing council earlier this month. So Women’s IPL will most likely include the same teams as in the men’s tournament, providing a strong brand extension opportunity for the existing IPL franchisees.
|Shareholder’s Name||% of Total Shares of the Company|
|Trustees, India Cements||30.86%|
|Life Insurance Corporation||6.04%|
|Sri Saradha Logistics Private Limited||5.69%|
|Reliance Capital Trustee||2.51%|
|Radhakishan S Damani||2.39%|
|The Boston Company||1.68%|
N Srinivasan-owned India Cements, India’s leading cement maker, bought the CSK franchise rights for Rs 346 crore, to be paid in ten equal instalments over as many years until 2017-18.
It was initially run as a strategic business unit of India Cements, but was later demerged to become a wholly-owned subsidiary—Chennai Super Kings Cricket Ltd—in early 2015. In 2018, India Cements transferred its entire holding in CSK to a shareholders’ trust
Even as the pandemic led to a decline in the IPL ecosystem value, it led to an increase in IPL television viewership. As per the data, the 2020 IPL edition turned out to be a great success for broadcasters; it broke viewership and advertising revenue records.
As the economy opens up, there is an expectation that sponsorship deals may go back to their pre-Covid levels. Having been around for 13 seasons, the IPL franchise is seen to be entering a more stable phase in terms of the overall ecosystem’s value.
But according to a recently launched IPL Brand Valuation Report 2020 by Duff & Phelps, the value of the IPL media ecosystem dropped by 3.6% in 2020.
Financials of Chennai Super Kings: (Figures in Crores)
|Year||Revenue||EBITDA||PAT||EBITDA Margins||Profit Margins||EPS|
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Revenue Break up: (Figures in Crores)
|Income from Grant of Central Rights||294||240|
|Revenue from Operations||410||350|
This year the revenue has reduced from 417 Crores to 356 Crores mainly on account of reduction of income from grant of central rights from Board of Control for Cricket in India (BCCI). Accordingly, the PAT has also gone down from 110 Crores to 50 Crores.
How to value such a Franchise?
Valuations for such companies tend to be governed by private transactions instead of business nitty-gritty. Largely considered as “trophy assets” for billionaires, the valuation of such teams is additionally determined by who the potential future buyer might be , rather than being a function of the topline or bottom line. This is often further accentuated by the very fact that there can only be a limited number of teams and that they remain largely static, whilst the magnates eager to own such an asset changes.
As a consequence, a sports team’s reputation is extremely important. CSK has performed well thereon account, considering its sponsorship revenue was up 24 per cent to Rs 68 crore. “Increase in sponsorship income may be a very positive sign because it is directly linked to the brand image of the franchise,” said N Santosh, Director at Duff & Phelps.
Things forward for CSK
The much-anticipated women’s Indian Premier League (IPL) has also been approved by the IPL’s governing council earlier this month. So Women’s IPL will most likely include the same teams as in the men’s tournament, providing a strong brand extension opportunity for the existing IPL franchisees.
2 new teams will be included in the Tournament, as a result a new rule pertaining to player retention will be floated. It will be very important to see which players are retained by CSK.
Chennai Super Kings is the only squad in IPL 2021 with an average age of more than 30. So they will be looking out for young players who can come in and help the franchise not just on the field but also off the field by starring in various commercials and advertisements.
MS Dhoni (39 years old) has retired from International Cricket and will soon retire from playing the domestic tournament, so it will be very important for the franchise to search for a new leader who can carry forward the legacy’s franchise.
The IPO market is expected to see a variety of major big releases, thanks to the strong market momentum that guided Sensex and Nifty to record highs in 2021. Investing in IPOs means a chance to get it in quick, get it in easy, and make a big profit. Some IPOs do extremely well, although others have a terrible reaction from investors.
Despite the pandemic completely decimating the third and fourth quarters of FY 2020 and a whole portfolio of IPOs being put on hold, the public sector has been able to successfully raise over 25,000 crores. This proves to be a significant upgrade over the measly 12,360 crores that were brought in FY 2019. Come 2021, an estimate of over 80 companies have walked through SEBI’s doors in an attempt to acquire the certifications and permissions needed to come out with an IPO in 2021. FY 2021 has a long-range of the latest IPOs in India already lined up, as investors gear up to pick their IPO investments next financial year.
What is an IPO?
The initial public offering (IPO) is a process by which a new company in the share market becomes a publicly-traded company by offering its shares for the first time to the public.
How to Apply for IPO?
In India, most national banks and popular stock brokers provide facilities for online IPO applications. An investor must open a Demat account or a trading account with the brokerage institution that provides IPO service in order to apply online.
Upcoming IPO in India for 2021:
Let’s have a look at some of the top new IPO listings that are getting investors excited and optimistic.
1. Kalyan Jewelers
The IPO is set to offer a fresh equity issue of 1000 crores with an additional 750 crores as OFS (offer for sale). Kalyan Jewelers is planning to raise around Rs 1,750 crores through its IPO. The IPO is set to offer a fresh equity issue of 1000 crores. The company has posted operating sales of 10,181 crores, up from 9,814 crores in the last financial year.
The LIC IPO expected to launch in 2021 is set to be the biggest IPO ever listed on Indian stock markets. As finance minister Nirmala Sitharaman hinted at a minority share sell-off through the company IPO, the company is looking to offer a 10% stake in the company via its IPO in 2021. Through this IPO, it is estimated that the government is looking to raise funds to the tune of 80,000 crores.
A couple of years after the news of Walmart acquiring a stake in Indian online retail website Flipkart hit the market, the retail industry giant is all set to unload its recent acquisition onto the IPO markets. With a valuation of about 25 billion dollars as per its last round of funding, the company would be the first-ever Indian original country to be traded on the US exchange.
Paytm leads the Indian mobile payments market as it has acquired over 150 to 200 million active users alongside 16 million merchants being registered with the company looking to launch its IPO in 2021. While it is still unclear when the IPO will be launched exactly, some estimate that the IPO date might come after 2021. Softbank, Ant Financials, T Rowe Price and Discovery Capital are the main investors. Ant Financials is the largest investor with a 40% stake in the firm. Digital payments are at a significant milestone in India, with mobile payments dependent on UPI is expected to increase to over 60% of CAGR over the next five years.
BYJUs, India’s leading education site, soared to prominence during the pandemic. Online education website BYJU’s is currently backed by the likes of Lightspeed and Sequoia and holds a valuation of 10.8 billion dollars and has 70 million registered users. The lockdown and subsequent closure of schools and educational institutions are said to have fueled engagement on the website to increase by 300%. While the entry of the Ambani’s in the Ed-tech space means BYJUs will have to fight tooth and nail to maintain market share, it is still one of the most anticipated IPOs, though the exact date is unclear. Byju’s can go public by listing itself both in India and the US on stock exchanges. Byju’s, offers online kindergarten to Class 12 student learning courses, along with entrance exam training for engineering schools, medical colleges, and civil services. The list of prospective IPOs listed above is subject to significant modification as the information is not yet updated on the exchanges.
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Ola, a leading cab service provider plans to list on bourses this year. It is backed by Tiger Global alongside Tencent along with others. At present, the company reports more than 1 billion rides taken annually and retains the privilege of a 55% market share in Indian markets.
Delhivery is another online delivery service that has been shot into the limelight during the COVID-19 pandemic. The E-logistics service provider owns over 20% of the market share in its sector and has to date raised 780 million through its various funding rounds. Backed by industry Giant Softbank, the company is eying an IPO. The company’s last estimate stood at $1.5 billion and could go public in 2021-22.
8. Bajaj Energy
The thermal generation company Bajaj energy based out of Uttar Pradesh aims to launch its IPO by the end of 2020 to early 2021. With the company IPO amount reaching 5,450 crores, the IPO is split into 5,150 crores of fresh issue shares and 300 crores of scrips provided by its promoter Bajaj power ventures.
9. Policy Bazaar
Policy bazaar plans to secure nearly $250 million in a $2 billion-plus valuation funding round before an initial public offering in September 2021. With Info Edge being an early investor, Policy bazaar was founded in 2008. With more than 90 per cent market share, Policy bazaar is the biggest online insurance firm in India.
Food delivery Unicorn Zomato is said to launch its IPO in the first half of 2021. While it is still unclear whether this company IPO will launch in US or Indian markets still remains to be determined, the company is currently valued at just about 3.5 billion dollars and has just received additional cash flows in the form of 146 million dollars raised by the company as part of its series J round of funding. Recently having included Tiger Global in its list of backers, the company is also supported by Temasek and Ant financial and has recently also added Kotak Mahindra Capital the foremost merchant bank for the IPO in 2021.
If looked at carefully, the year 2021 seems to be bringing out everything for everyone in the stock market. The dynamic mix of the IPO’s belongs to various verticals like from FMCG to high-end jewels to the education industry. However, IPO stock prices tend to fluctuate depending upon the time of listing, which may make it a little risky considering the volatile nature of stock markets.
Timing the Market vs Time in the Market: Mr. Sharma was very much worried about the stock market would fluctuate and so will his returns. He said “I am thinking whether I entered the markets at right time. Right now, markets are volatile and can’t be timed for a better entry point”
I refuted him, “No investor can time the market for correct entry or exit point. Due to the dynamic nature of the markets, it is better to wait and hold the stock for the right time rather than timing the right entry or exit points in the stock markets.”
“Well, now I am confused, aren’t those both the same things?” Mr. Sharma said.
“Not at all, these are totally different strategies and give different results. I will help you understand these.”
Who is a perfect investor?
A perfect investor is the one who can buy a stock at its lowest price level and sell at its highest price level. This perfect investor is a myth. Time plays a very vital role in choosing an investment strategy. Fluctuating markets reflect promising returns and many of us get attracted by short-term numbers showing high gains. In the short term, markets are generally volatile, while in the long run, investments exhibit stable behaviour and deliver consistent returns.
The market moves in the most unpredictable ways in the short run, but in the long run, there is much more predictability. Before investing hard-earned funds, one needs to understand the working of markets and the risks associated with investing, which is not easily possible with short-term investments. Investment objectives might differ from person to person, but everyone intends to get good returns.
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What is Market Timing?
Market timing is an investing strategy in which the investor tries to identify the best times to enter and exit the market. This can result in higher returns than other strategies. However, there are risks involved. Changes in a market trend can appear suddenly and almost randomly, making the risk of misjudgment significant. Regular evaluations are necessary as this strategy involves active monitoring of funds invested. Timing the market requires many, many correct guesses – when to get in when to get out when to go back in again and it is a continuous process. The probability of making correct guesses most of the time is quite low.
What is Time in the Market?
This investment strategy is also called Buy and Hold investing, however, it doesn’t mean ignoring your investments. Here, the investor focuses on buying quality stocks and holding them for a longer-term. Here, the investor intends to pick a good stock at a fair value rather than an average stock with a great valuation. The longer you stay invested, the lower is the risk of losing funds. Long-term investments ensure consistency against speculative gains. Successful investors base their actions on deep research rather than random market ups and downs. However, it is advised to monitor your investments regularly.
What do we understand as the difference between time and timing? To understand this difference, one needs to look at the difference between speculation and investing. Speculation is trying to take a bet on the future direction of the market and positioning your trades accordingly. On the other hand, investing is all about focusing on the quality of the asset and holding on to it for the longer term. That is the fundamental difference between the timing of the market and time in the market. When you try timing the market you are effectively speculating on the market direction.
Why does time in the market work better than timing the market?
- In the short run, a stock market is a slotting machine but in the long run the stock market is a weighing machine. Over a longer period of time, quality stocks held on tend to outperform any kind of aggressive strategy for timing the market. Over the longer run, the vagaries of the markets tend to get smoothened.
- Transaction costs make a big difference to a timing strategy. When we talk of transaction costs, we refer to brokerage, statutory costs, taxes, exit loads in case of mutual funds etc. When you add all these up the actual economics of timing the market can change quite drastically.
- Timing the market is very vulnerable to the handful of good days and bad days in the market. Over a period of 10-15 years, there will be days when the markets will either spurt sharply or correct sharply. In the process of timing the market if you miss out on these good days or if you happen to buy on the bad days, your timing concept can grossly underperform. This is what actually happens when you try to time the market.
- When you try to time the market, you tend to get carried away by the hype in the media and the analyst community. Normally, the media and the analyst community tend to create a sense of hysteria around stocks which may not really materialize. That hysteria is essential to create interest but, in the process, you may end up hurting your portfolio.
- Time in the market gives you a sense of perspective. When you time the market, you tend to get too involved with the market vagaries at a short-term level. Instead, if you take a longer-term approach you are able to invest when valuations are attractive and vice versa. This sense of perspective works in favour of time in the market over timing.
So, clearly, Mr. Sharma should approach time rather than timing. Markets have proven time and again that passive, long-term investing without any attempt to time the market would be the superior choice.
Cabinet approves PLI scheme for telecom sector worth ₹12,195 crore
The Union Cabinet on Wednesday approved a ₹12,195-crore Production Linked Incentive (PLI) scheme for domestic manufacturing of telecom and networking products such as switches, routers, radio access networks, wireless equipment, and another internet of things (IoT) access devices.
The core component of this scheme is to offset the huge import of telecom equipment worth more than Rs 50,000 crore and reinforce it with ‘Made in India’ products, both for domestic markets and exports,” the telecom ministry said in a release. Currently, India imports over 80 percent of its telecom and wireless networking equipment.
With the inclusion of telecom equipment manufacturing under the ambit of PLI schemes, the total number of sectors under such programs stands at 13. All the sectors included under the various PLI schemes are mostly labor-intensive and aim to attract global manufacturing giants into the Indian manufacturing space.
Trade experts are of the opinion that all the sectors chosen under PLI schemes are also a part of the government’s plan to present India as an alternative destination to China for setting up manufacturing hubs.
In November, the PLI scheme was expanded to include 12 more sectors such as automobile and automobile components, pharmaceutical drugs, textile products, food products, high efficiency solar photovoltaic modules, white goods such as air conditioners and LED bulbs, and specialty steel products. Finance Minister Nirmala Sitharaman had in her Budget for 2021-22 said the total outlay on PLI schemes in these 13 sectors over the next five years would be Rs 1.97 lakh crore.
Warren Buffett Buys Telecom, Drugmaker Stocks; Apple Stake Cut
In Q4, Buffett opened new stakes in Verizon (VZ), Chevron (CVX), Marsh & McLennan (MMC) and EW Scripps (SSP).
The new Verizon stake is big: – Buffett paid $8.62 billion for the 147 million shares. It now accounts for 3% of the portfolio, making it the No. 6 stock by number of shares held.
Berkshire dumped entirely Pfizer (PFE), JPMorgan Chase (JPM), Barrick Gold (GOLD), M&T Bank (MTB) and PNC Financial (PNC). The conglomerate grew stakes by 117% in T-Mobile (TMUS), 34% in Kroger (KR), 28% in Merck (MRK), 20% in AbbVie (ABBV), 11% in Bristol-Myers Squibb (BMY), and 1% in RH (RH).
Buffett cut a stake in Apple (AAPL) by 6%. It remains the No. 1 stock in his portfolio by market value and No. 2 stock by a number of shares held, at 10.6% of the portfolio. He kept an Amazon (AMZN) stake steady.
The main aim of investing in stocks is to ensure that you are able to meet your future financial goals. The rise in inflation makes it difficult for us to just earn and save some part of our incomes. It is very important to invest your savings to meet the increase in prices due to inflation. The stock market is one of the oldest and most popular investment methods among investors due to its several benefits.
Buying stocks not only gives an opportunity to own a percentage of a company but it also comes with benefits such as dividend payouts and capital gains when the value of stock increases in price over time.
Domestic stocks happen to provide great opportunities for money growth in the long-term. It should be an important part of your investment portfolio. But, one should be aware that this greater potential for growth carries a greater risk, especially in the short term. Therefore, it should be looked upon for long term wealth creation, and for the short term, one needs to be cautious.
So it is crucial to understand your risk appetite before investing in domestic stocks. You should be aware that stocks are generally more unstable than other types of assets, your investment in a stock could be worthless when you take a decision to sell it.
Now let us see some of the benefits of having domestic stock in your portfolio which will have a positive impact on your overall financial health.
Diversification is the practice of laying your investments around in such a way that your risk to any one type of asset is limited. This practice is designed to help reduce the instability of your portfolio over time. The idea is to simply spread your portfolio across several asset classes. One way to balance risk and profit in your investment portfolio is to diversify your assets and get some exposure to domestic stocks. Diversification can help reduce the risk and instability in your portfolio. It will most likely help in reducing the frightening ups and downs of the stock market.
The Indian stock market compromises of two major exchanges, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Both of them play important roles. Most of the companies trade their shares on either or both of these exchanges. This provides higher liquidity to investors because average daily volumes are high. Thus, if an investor wants to buy or sell any stock on the stock exchanges, he can easily do so.
It is also easier to understand the business activities and strategies of a domestic company. For starters, interviews with top managers, financial analyst reports about the corporation, and stock predictions will be the starting point to analyze a stock.
The stock market offers different financial instruments, such as shares, mutual funds, and derivatives. This provides investors a wide choice of products to invest their money. The decision should be based upon the risk appetite of an investor. In addition to providing investment choices, this flexibility is beneficial in reducing the risks inherent to stock investing by enabling diversification of investment portfolios.
Even if you acquire a single share in a company, you get a portion of ownership in the company. This ownership gives investors the right to vote. Although this may seem like an overstatement it is true and there are several instances when shareholders have prevented company management from making unreasonable decisions that are harmful to their interests.
Higher Returns in Shorter Periods of Time
If we compare with other investment products like bonds and fixed deposits, stock investing provides investors an incredible possibility of making high returns in comparatively shorter time periods. Sticking to the stock market basics, such as using stop-loss, take-profit triggers, and doing the research can significantly reduce the risks associated with stock investing. This will help in maximizing the returns on share market investments.
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Nowadays, everything is online. The trades are also carried out on an electronic platform to ensure the best investment experience for investors. In addition to this, broking service providers offer online share trading facilities that make investing even more convenient. This is because investors from the comfort of their homes or offices can place their orders through the computer.
The Demat account holds all the products within their investment portfolio electronically in a single location, making it easier for investors to track and monitor the performance.
Regulated by SEBI
We know that the Indian stock market is regulated by the Securities and Exchange Board of India (SEBI). The SEBI has the responsibility of regulating the stock exchanges, its development, and even protecting the rights of the investors. This eventually means the interest of investors is well-protected by a regulatory framework while investing in the stock market.
This is how exposure to domestic stocks will impact your investment portfolio. It is suggested to have some exposure to stock investments to push your investments for that extra growth. Having said that you also need to be aware of the fact that stock market investment comes with a risk. Thus, doing your research before investing is a must.
Income Tax Returns (ITR) for individual taxpayers have to be filed by 31st Dec 2020. This means that it’s time to evaluate your finances and declare all sources of income, so your taxes can be filed correctly. While the process of filing your ITR has been one which has traditionally been riddled with complicated forms and procedures, the government has taken active measures in order to make this a more streamlined activity. The Union Budget has been introducing some radical changes which have come into effect in the last few years. While these changes may at first glance look very long drawn and complicated, they have in fact reduced the pressure for the taxpayer.
If You have not filed your Income Tax Return – File Now!
One such change introduced in the last few years is a relaxation of the rules of long-term capital gains (LTCG) disclosures. Earlier, when filing your ITR, you had to declare LTCG on each equity investment individually. However, since 2019, the Central Board of Direct Taxes (CBDT) brought into effect the rule that only the net consolidated amount generated through LTCG from equity-related investments need to be declared. For those taxpayers who earn over Rs.1lakh from equity investments during the financial year, this decision brings a great sense of relief. The paperwork associated with filing LTCG on equity investments of large amounts has been reduced significantly, thus simplifying the tax filing process.
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What is the LTCG on Equity?
As per the Finance Bill 2018, LTCG from listed shares or mutual funds which are equity-oriented were liable to be taxed. On April 1, 2018, it was also announced that LTCG incurred through the sale of any instrument which has been held for more than 12 months will be taxed at 10% – with the exclusion of cess and surcharge – if the LTCG amount exceeds Rs.1lakh.
It is important to note here that LTCG up to Rs.1lakh is exempted from being a taxable amount. There is also something known as the grandfathering process, according to which if you have bought equity shares or mutual funds before 31st of January, 2018, the gain which has been calculated up to that date will not be taxed. Short-term capital gains (STCG), however, will still fall under the radar of taxes at 15%, with the exclusion of cess and surcharge.
Where do I disclose LTCG?
Apart from LTCG, another important thing that needs to be reported is LTCL or a long-term capital loss. This is important because after calculation, if LTCL is seen to exceed LTCG, not only will the tax on LTCG be nullified, the remainder of the loss incurred can be used in the subsequent 8 financial years to nullify against the capital gains earned.
LTCG and LTCL both have provisions to be disclosed in ITR-2 and ITR-3 forms, as per the CBDT’s mandate. There are specific columns where the taxpayer has to mention the net amount generated. For instance, if you are filing an ITR-2 form – for those HUFs (Hindu Undivided Families) or individuals who do not earn income from profits through profession or a business – LTCG must be disclosed in Section B4. Likewise, if you are an individual or HUF who earns income from profits via a profession or business, you need to file ITR-3, where Section B5 will allow you to disclose the details of LTCG.
All in all, we can say that the new reforms introduced by the government from time to time have been made keeping the ordinary taxpayer in mind. As the new rules are implemented stringently, it’s important to keep a track of all the changes which have been introduced so you don’t end up filing the incorrect taxes!