Back to Blog IPO – Terms that you must know April 29, 2022 Initial Public Offerings, or IPOs, have been on the rise these last few years with a lot of companies going through the process recently. These IPOs have created a huge buzz, and have made a lot of investors curious and willing to invest. Though they are a fairly commonly seen term nowadays, there are a lot of industry terms that can confuse you, or worse yet, make you shy away from an excellent investment opportunity. While it is important to know the market and which companies are launching their IPOs, it is also important to have a basic understanding of the terms that can help you navigate your way around these IPOs. Let’s decode in layman’s terms the commonly used jargon, and hopefully make your IPO processes a little easier. What is an IPO? Short for Initial Public Offering, an IPO is the point where any existing company decides to invite the public to invest in them by buying their shares. The company, thereafter, gets listed on the stock exchange and is open for investment by the public, with its stock being publicly traded. Any company can only ever have one IPO, though a company may issue new shares after its IPO is completed. In case a company that is already listed on the stock exchange comes out with a new range of shares, it is known as a Further Public Offer. Pricing and Book Building The issue/offer price of a share is the price at which a share is distributed to the general public, before they are traded on the stock market and the price fluctuates according to market trends. The process of discovering the issuing price of the shares is known as price discovery and can be done using two methods. The first, is called a Fixed Price Issue. In this method, the price of a share is fixed by the company (with the help of its Lead Manager) and applications for shares are invited at this fixed price. The second method is something called book building, where bids are invited for shares, not at a fixed price, but within a range. The lower limit of this range is called the floor and the higher limit is called the cap. During the bid, you can ask for the number of shares you’d like to have and the price that you are willing to pay for them, within the price band. The actual price is then discovered based on the bids received. What is an Allotment? Allotment, in simple terms, can be defined as the process by which you are given shares upon your application. During the book building procedure, there are three kinds of investors who can make a bid for the shares. The first category of investors are the Qualified Institutional Buyers (QIBs). These consist of mutual funds, and foreign institutional investors. The next is retail individual investors. Any investor that makes a bid under Rs. 50,000 can be labelled as a retail investor. The remaining shares are offered to individual investors with a high net worth (HNI) and the employees of the company. Depending on how a company chooses to go about its price discovery, there are rules that govern what percentage of shares should be allotted to which investors. For example, if a company chooses a fixed price issue, a minimum of 50% of shares should be allotted to retail individual investors. Once all applications are received and validated, shares are allotted to investors, with everyone who applied getting their allotments in an ideal scenario. When the number of shares applied for is greater than the actual number of shares available, the IPO is said to be oversubscribed. In these instances, shares are again allotted based on prescribed SEBI guidelines. One scenario worth discussing is if an IPO is oversubscribed to the extent that not everyone who applied during the IPO can even get one share. In these cases, final allotment is decided based on a lottery to ensure no preferential treatment. What is a Draft Offer Document? Any company aiming at issuing its IPO is required to file its prospectus with SEBI, which contains all the information about the company. This prospectus also tells you why the company is issuing shares for public investment purposes, along with information about the company’s financial position, and the issuing price of the shares. The Draft Offer Document is first filed with SEBI, at a minimum of 21 days before filing it with the stock exchange. Prior to filing the Draft Offer Document with the Registrar of Companies (RoC), the document needs to be revised with all suggestions from SEBI. What is a Red Herring Prospectus? A Red Herring Prospectus is basically the same as a draft offer document and contains the same information, without the addition of the number of shares being issued and the price per share. The reason for the prices being undisclosed is that a red herring prospectus is used exclusively for book-building purposes. Who is an Underwriter? An underwriter is the entity that picks up the remaining shares at the IPO in case all shares are not subscribed to. An underwriter to an IPO can be a merchant banker, a broker, or a financial institution that has given a commitment to underwrite the issue. In case an underwriter fails to hold up their end of the commitment of picking up the remaining shares, their licences get cancelled by SEBI. Who are Lead Managers? Lead managers are the entities who are responsible for acting as the intermediaries between the company and the investors, with proper validated registration from SEBI. They are merchant bankers who are in charge of the entire issue process. It is a lead manager’s role to certify an issue in accordance with the regulations and carry out due diligence that everything mentioned in the prospectus is correct. Furthermore, they are also accountable for the book-building process, in which case, they are referred to as the Booking Running Lead Managers. Activities that come after the issue, such as the intimation of the allotments and the refunds, are also taken care of by the lead managers. There are never any guarantees that you will get an allotment on subscribing to an IPO. However, it always helps when you’re familiar with the terms being thrown around during the process and will hopefully help your next IPO application be a little easier to navigate. Featured Posts How to Improve Your Chances of Getting IPO AllotmentIPO vs FPO: Understanding the Difference for Smarter InvestingHow to check your IPO Allotment Status: Key factors you need to know?IPO Investment: Strategies, Allotment Status, and Key Updates. Explained!5 Myths and Misconceptions of IPO Investments. Debunked in this blog.
Back to Blog Demat Accounts – A Beginner’s Guide April 22, 2022 You are probably familiar with the idea of investing in shares and equities, which give you returns on your investment based on market fluctuations. The first thing you’ll need in order to invest in these shares and equities is a demat account. Over the past few years, you may have seen the term ‘Demat Account’ quite frequently, causing you to wonder what they were all about. Let’s try to answer a few basic questions about demat accounts. What exactly is a demat account? Short for dematerialisation account, a demat account is like a bank account, but instead of storing or holding your money, a demat account holds your securities in the form of shares, debentures or bonds. This information is stored in a digital format and acts as an alternative to the physical certificates that were used previously. According to the rules set by the Stock Exchange Board of India (SEBI), in order to invest or sell securities in the stock market of India, it is mandatory for you to hold a demat account, along with a Depository Participant (DP). Depositories and Depository Participants A Depository is an organisation responsible for holding your securities along with facilitating your transactions. These transactions are performed by intermediaries, called Depository Participants (DP), and they act as a bridge between the depositories and the investors. In order to use the services of a depository, you are required to have a DP. What are the different kinds of Demat accounts? In order to understand the market and the kinds of trades that are possible within it, we need to have an understanding of the different types of Demat accounts. Regular Demat Account: A regular demat account is meant for investors that are based in India. A regular demat account is best used when specifically dealing in equity shares. The shares that you buy are stored in the account digitally, and the ones that are sold are removed from the account. There are many depository participants that offer demat accounts, but the charges levied by each may vary. Repatriable Demat Account: A repatriable demat is ideally meant for non-resident Indians (NRI), still want to invest or take part in the Indian markets in some way. These demat accounts allow for NRIs to invest in the Indian share markets from anywhere in the world. A repatriable demat account will need to be linked with a NRE bank account. Note that you cannot hold both a regular demat account and a repatriable demat account at the same time, since they are meant to cater to two entirely different demographics. With a repatriable demat account, an NRI can transfer up to $1 million out of the country in a calendar year. Non-repatriable Demat Account: If you are an NRI who wants to partake in the Indian markets but does not want/have any intention to transfer the funds abroad, a non-repatriable demat account is suited for you. However, you must have an NRO linked to this type of demat account. Trading account vs. demat account While both trading and demat accounts are required for us to be able to invest and trade in the stock market, there are some differences between them. The main difference between a trading and a demat account is that a demat account is responsible for holding the securities and shares in an electronic format, while a trading account is responsible for providing you with an interface that allows you make trades in the stock market, which is primarily buying and selling of shares and securities. Essentially, a demat account can be said to be a storage space, while a trading account can be defined as a transactional interface. How do you benefit from having a Demat Account? A dematerialisation account, or a demat account serves multiple purposes, and brings a lot of benefits for a customer, a few of which are listed below: The information about your securities and shares are held and stored securely in an electronic mediumThe transaction charges associated with a demat account are significantly lesser than its physical counterpart because of not having to pay any stamp dutiesHaving the data stored in an electronic medium ensures speed and convenience during electronic settlementsAll data being digitally stored also means that paperwork is reduced by a large margin in case of securities being transferredThe risks of theft, fraud and non delivery, associated with the certificates in case of the physical medium are eliminatedThe largest advantage of having an electronic medium is the ability to make online investments and sell any number of shares according to your convenience. You can even sell one share if that is what you deem necessary. If you are looking to start your investment journey in the stock market, get a demat account here https://ipo.kfintech.com/ with KFintech. Featured Posts How to Improve Your Chances of Getting IPO AllotmentIPO vs FPO: Understanding the Difference for Smarter InvestingHow to check your IPO Allotment Status: Key factors you need to know?IPO Investment: Strategies, Allotment Status, and Key Updates. Explained!5 Myths and Misconceptions of IPO Investments. Debunked in this blog.
Back to Blog Factors to consider while choosing a mutual fund April 21, 2022 Money makes money, is an often quoted mantra and investors are willing to do just that, aiming to fulfil their personal financial goals. However, with the number of options available at hand when it comes to mutual funds, it is very important for us, as an investor, to understand the kind of investment we want to make, and the exact mutual fund we want to invest in. Choosing the right mutual fund is a two-step process, and we need to carefully consider multiple factors before we lock in on an option. The two factors that matter the most are our appetite for risk and the reason we’re investing in a mutual fund. Even so, it isn’t a one size fits all solution and the same mutual fund scheme is not perfect for all investors. Considerations before choosing a mutual fund category Let’s take a look at some of the more crucial ones now: Investment Objective: The first, and most important thing to consider before you choose a mutual fund category, is the reason for starting the investment in the first place. The investment can be either short or long-term, depending on our financial aspiration. It can be as short as going on a vacation, or as long as the time it takes for us to retire. The mutual fund category choice we make should depend on the goal we want to achieve with it. Time Horizon: This is the amount of time we want to keep our money invested in the mutual fund scheme. Some funds invest in shorter-dated debt periods than others. If our investment period is more than 5 years, an equity fund is likely the best option for us. For shorter terms, the market can be extremely volatile, which can be more risky, but there is always the chance of higher earnings as well. Risk Tolerance: Tolerance or risk appetite is the limit of risk that we are willing to take against the money that is invested in the mutual fund category of our choice. As of 2015, SEBI issued a mandate for all mutual funds to carry a riskometer that indicates the risk level of a fund scheme. There are five levels of risk, namely low, moderately low, moderate, moderately high, and high. It is always best to choose a mutual fund category whose risk category matches our risk tolerance. Measures to look at when choosing a mutual fund scheme Now that we have discussed the considerations before choosing a mutual fund category, we should also discuss some of the attributes to look at when choosing the best mutual fund scheme for our purpose: Performance Against Benchmark: This is a comparison of a mutual fund scheme’s performance against a standard benchmark, which is usually chosen by the mutual fund house. The investment philosophy of a mutual fund scheme can be said to be guided by its benchmark index. Asset allocations of the benchmark index should ideally be the same as the investment objective of the scheme. For example, the benchmark of a mutual fund with a banking index should be focused on banking stocks. Comparisions against this benchmark will usually reveal whether our fund itself is performing above or below expectations. Performance Against Category: While choosing a mutual fund scheme, it is important for us to compare the performance of that fund against other mutual fund schemes in the same category. Doing this gives us a broad idea of the fund’s performance, and ensures that we have an understanding of the fund before investing. However, such comparisons should be done only across the same type of mutual fund schemes. For instance, a small-cap mutual fund should only be compared with other small-cap funds. Performance Consistency: As already stated earlier, the market is a very volatile environment, and it is critical that we know if a fund performs consistently. Consistent returns are important to ensure that our money does not to go waste, and that we get returns during both market ups and downs. Experience of the Fund Manager: As an investor, we should always be aware of the capabilities of the person who will be handling our finances. It is important to understand how well a mutual fund scheme is being managed by the fund manager. Company Legacy: Mutual Fund investments should always be made in fund schemes that are brought to us by credible financial institutions. Not only does this remove any chances of fraudulent activities, but it also ensures that the fund is consistent, and that our investments are well researched. A poorly selected stock can cause losses, which is why it is imperative that we check the track record of the asset management company. Ratio of Expenditure: While our finances are being managed under the mutual fund scheme, there are some charges that are billed to us directly. There are charges for administration, management, as well as promotions and distributions, all of which are expenses incurred during the running and maintainence of the fund, and are included in this figure. The higher the overhead expenditure, the lower our net returns from the mutual fund scheme. Now that you know what to look for when choosing a mutual fund category or scheme, you should be able to make a more informed decision on your investments. There are a lot of other factors that can influence this decision and it’s outcomes and we always suggest that you consult your financial advisor before making any investment decisions. Featured Posts How Technology Is Transforming Mutual Fund Management and Investment Solutions in IndiaHow are MFDs at the core of India’s investment ecosystem? Give it a read.What are the Challenges for MFDs, and How Mutual Fund Software Solves Them?How are the mutual fund solutions empowering MFDs? Read in the blog. The Role of a Mutual Fund Advisor in Creating Financial Success
Back to Blog What is the Alternative Fund scenario in India? April 13, 2022 In order to understand the Alternative Fund scenario (AIF) in India, we first need a clear understanding of what Alternative Investment Funds are. An AIF is any financial asset that does not fall under regular investments categories, like debts, equities etc. Any funds that are established in India, and are privately pooled investments that collect their funds from high profile investors (national or international), with the purpose of investing the money in accordance with certain guidelines or policies can be classified as an AIF. Any privately held equity, a hedge fund, and even real estate can be considered to be a form of alternative investment. Since an investment in AIFs is generally manifold higher than an investment in a regular Mutual Fund, they are mostly invested in by High Net work Individual (HNIs). The Stock Exchange Board of India (SEBI) has categorised AIFs into three broad categories, and understanding them should give us a better understanding of the Alternative Funds scenario in the country presently. AIF scenario in the country Since its inception in 2012, AIFs in India have seen unprecedented growth and investments in them have steadily gained a lot of traction, with the number of investors increasing year on year. Furthermore, hedging strategies are allowed to be incorporated into Alternative Funds, unlike mutual funds, where there is no scope for implementing similar strategies. As of 2017, AIFs were regarded as the second most active sector in India. The reason for this high spur of activity within the industry was because of the Indian Government’s allocation of Rs 20,000 Crores to the National Infrastructure Investment Fund. By September of 2020, AIFs managed to raise investments worth a whopping figure of nearly $27 Billion, with a 74.4% compund annual growth rate (CAGR) between the years 2014-20. However, in India, AIFs are not allowed to invite public investors for subscribing to their securities. Instead, they are privately pooled and raise funds specifically using private investment vehicles only. The minimum corpus for an AIF stands at a high $2.7 million, and the same for an angel fund corpus is at $1.4 million. In it’s current state, AIFs can be broadly categorised into three sections, which also showcase their market size. Category I AIF Category I AIFs are funds that operate with the strategy of investing in a startup or venture in an early stage. SMEs or social ventures, which the government considers to be desirable by the society, are a part of category I AIFs. Category I AIFs generally tend to have a positive spillover effect on the economy of the country, due to which SEBI, and the Indian Government, along with other regulators sometimes consider providing concessions and incentives to these AIFs. Under the regulatory framework, Category I AIFs may be sub-categorised into venture capital funds, infrastructure funds, social venture funds and so on. Category II AIF Alternative Investment Funds that have a motive of investing in multiple securities, that comprise both equity and debt, can be put under Category II AIFs. These funds cannot be put under Category I or Category III by SEBI and other regulators, and are not given any particular concession or incentives by the Government for investing in these funds. However, Category II AIFs are the largest component of the Indian AIF industry, and alone makes up for nearly 77% of the same. Close ended funds like private equity funds, debt funds and fund of funds can be considered to be Category II AIFs. Category III AIF This category of Alternative Investment Funds undertake complex strategies and diverse trading methods to get short term returns on their capital. These can be open ended as well as close ended funds, which have the option of making an investment in both listed and unlisted derivatives. Unlike conventional investments, they are less regulated and hence do not have the requirement of publishing their information on a regular basis. However, like Category II AIFs, the AIFs in Category III are also exempt from all forms of incentives and concessions from the government and other authorities. Hedge funds can be said to be an example of a category III AIF. While AIFs raise funds from high profile private investors, there are taxation rules that apply to these funds. Category I and II AIFs are exempt from taxes, and the fund itself does not have to bear taxes based on its earnings. However, the investors, on the other hand have to pay taxes based on their respective tax slabs. Investors have to pay a tax ranging from 10% to 15% based on the holding period, provided there has been capital gained from the stocks. The Category III AIFs fall under the highest tax slab at the fund level, with the rate standing at 42.7%. The investors are given their returns post the deduction of relevant taxes. Featured Posts AIF Investments in India: Begin with Avoiding These 7 MistakesHow Alternative Investment Funds Work in IndiaBeyond Mutual Funds: Understanding Alternative Investment FundsAlternative Investment Fund in 2026: How to Invest in AIFs in IndiaWhy Are More Investors Choosing AIFs for Smarter Wealth Building?
Back to Blog The different types of Mutual Funds April 12, 2022 You may have heard of the term ‘Mutual Funds’ frequently over the last few years, but do you know exactly what they are? Mutual Funds are investment platforms that pool money from different investors, and provide these investors with returns on the collected corpus over a period of time. This accumulated money pool is invested into the equity market by investment professionals, who are known as portfolio managers or fund managers. Fund managers invest your money into various forms of securities, like stocks, gold, bonds and other similar assets, which have the potential to provide satisfactory returns. These returns are then shared amongst the investors proportionate to their investment in the mutual fund. While the crux of mutual fund investments is market returns, they can be classified into various segments, based on their investment goals, and other forms like structure and asset classes. Classification on the basis of structure Close-Ended Funds: Close ended funds are ones which are available for purchase only during an initial offer period. For the purpose of providing liquidity, these schemes are often listed for trade on the stock exchange. Close ended mutual funds need to be sold via the stock market at the prevailing price of the shares. Open-Ended Funds: Open ended funds are those which can be purchased throughout the year. Open ended funds allow you to keep investing as long as you want, without any limits being imposed on the investment amount. Because of the active management these funds are subjected to, open ended funds charge a higher fee when compared to passively managed funds. Since they are not bound to a particular maturity date, open ended funds are the perfect choice if you are looking for liquidity. Interval Funds: Interval funds are a combination of both open ended and close ended funds. These can be purchased at different time periods during the tenure of the fund. During this time, if you are a shareholder and wish to sell the shares, you can offload them to a fund management company that offers to repurchase the units from you. Classification on the basis of asset class Equity Funds: These are funds which provide high returns, but also come with high risk. Equity funds invest in company shares and are linked to the stock market, which is why returns may fluctuate. Money Market Funds: Money Market funds invest in liquid instruments like Treasury Bills (T-Bills). They are moderately safe and good for you if you are looking to gain immediate returns. The risks associated with these kinds of funds are credit risks, reinvestment risks and interest risks. Debt Funds: As implied by the name, Debt funds invest in company debt instruments like debentures, and other fixed income assets. They are safe investment platforms and deliver fixed returns. Balanced or Hybrid Funds: These funds combine both equities and debts, however, the proportion invested in each varies between funds. Both the risk and returns are balanced out in a similar fashion. Investments are done in a mix of different asset classes. Classification on the basis of investment goals Income Funds: These funds are primarily used to invest in instruments providing a fixed income. The main motive of income funds is to provide you with a regular stream of income. Growth Funds: Growth Funds primarily invest in the equity market with the aim of gaining revenue from capital appreciation. These are subject to market risks, and are beneficial if you are looking to make high returns on your investments. Liquid Funds: These are very short term investments that provide you with high liquidity. While they are low risk investments, the returns from liquid funds are moderate, and good for you if you have short timelines. Capital Protection Funds: Capital protection funds are invested in a split between equity markets and income instruments with a fixed return. The motive of making the split investment is to protect the principal amount invested by you. Tax-Saving Funds: With high risk and high returns, these funds primarily invest the capital in equity shares, which qualify for deductions under the Income Tax Act. Pension Funds: These funds have the aim of providing you with regular returns on your retirement after a long investment period. While they are mostly hybrid funds, they have low but stable future returns. Fixed Maturity Funds: These funds invest in the debt market instruments which have a similar maturity period as the fund. While it is definitely beneficial to be aware of the forms of mutual funds and align these with your financial goals, you should also know about the risks associated with each and consult your financial advisor before making any financial decisions. Featured Posts How Technology Is Transforming Mutual Fund Management and Investment Solutions in IndiaHow are MFDs at the core of India’s investment ecosystem? Give it a read.What are the Challenges for MFDs, and How Mutual Fund Software Solves Them?How are the mutual fund solutions empowering MFDs? Read in the blog. The Role of a Mutual Fund Advisor in Creating Financial Success
Back to Blog What is POP? How do you know your NPS POP? March 30, 2022 The National Pension System, or NPS is a retirement and social security plan introduced by the Government of India in 2004. Though initially introduced for government employees only, it was made accessible to all Indian citizens in May 2009. With the NPS, money invested is pooled together to form an investment fund. This investment fund is then reinvested by professional fund managers who are vetted by the Pension Fund Regulatory and Development Authority. Investments are done in the equity market in a diversified portfolio that comprises government bonds, bills, corporate shares and debentures. You can decide how much of your investment goes in to equities, but it is capped at a maximum of 75%, making the NPS a relatively safer investment plan, and suitable for building a stable retirement corpus. On retirement, you are allowed to withdraw 60% of the corpus as a lump sum, which is non-taxable. The remaining 40% is used to purchase annuities which provide you a monthly return as pension. Since the government has made the NPS available for all citizens of the country, there is now a need to provide everyone with a method that can be used when people want to operate, change or track their NPS accounts. This is where Points of Presence, or PoPs, come into play. What are PoPs? Points of Presence, or PoPs, are service providers present all across the country to ensure that you are able to operate your NPS account smoothly without any hindrance. PoPs are also appointed by the PFRDA, forming a network of branches, which are known as PoP Service Providers (PoP SP). Apart from providing you with facilities like opening a Permanent Retirement account, and being able to contribute to your NPS fund, PoPs also serve a plethora of other purposes. What are the functions of PoPs? The primary function of a PoP, or a PoP SP, is to enable you to register a Tier I or a Tier II account, as per your convenience. A PoP is responsible for accepting your duly filed Composite Subscriber Registration Form (CSRF) and verifying the form for your date of birth, bank, details of the scheme and the nominations. The PoP also serves the purpose of verifying your customer documents as per existing, prescribed norms. A PoP is also responsible for collecting your NPS Contribution Instruction Slip (NCIS) along with your application form, ensuring that mandatory and relevant details are given by you in your NCIS. They also remit the funds, after deducting their charges and taxes, to the Trustee Bank within one banking day from the date of your application. While you submit your NCIS, the PoP shall also perform the due diligence of checking your Permanent Retirement Account Number (PRAN), along with your payment details and other documents. Your contribution details are then uploaded to the Central Recordkeeping Agency system bank in correspondence to your PRAN. A Point of Presence also serves the purpose of changing your personal details as per your requirement, within one banking day of your application. You can also change your investment scheme or your fund manager, through your PoP, if you are not happy with the performance of your fund. In case you are unhappy with the overall performance of your NPS account and choose to withdraw your account, the PoP will facilitate it on the same day, provided your application is processed within banking hours. In case your application is processed after banking hours, the same is processed the next banking day. Your PoP SP is also responsible for changing your location and issuing prints of your account statement, as and when needed. In case you lose your PRAN card, you can also apply for another one from your PoP. In case you have any grievances pertaining to your National Pension System account, you can submit them to your respective PoP, which would then receive and upload the same on the Central Grievance Management System (CGMS) of the CRA. In short, all services that are prescribed by the PFRDA are provided by the PoPs or the PoP SPs. How do you know your PoP? In case you have difficulties locating a Point of Presence close to you, you can check your transaction statement, if you have one, and it should have your PoP listed. You can also locate your closest PoP by clicking here https://nps.kfintech.com/index/allcitizens/ If you are looking for a suitable solution to a stable retirement plan, you can choose to go with NPS with KFintech CRA, by clicking here nps.kfintech.com Featured Posts NPS New Rules 2026: A More Flexible Path to Retirement PlanningA Simple Guide to NPS Registration and Online Account OpeningNPS Vatsalya: Building Financial Security for the Next GenerationPlanning for Retirement with NPS: This Blog Might Be For You!NPS Returns and Retirement Planning: What Every Investor Should Know
Back to Blog Why NPS is better than other long term retirement plans? March 29, 2022 What is NPS? The National Pension System, or NPS, is a retirement plan introduced by the Government of India in 2004, and is regulated by the Pension Fund Regulatory Development Authority (PFRDA). With this retirement plan, money invested by you and others is pooled together and then reinvested into the market by professional fund managers vetted by the PFRDA. These investments are made in a diverse portfolio that consists of government bonds, bills, corporate shares and debentures. They accumulate over time and provide you with market based returns on your investments, which you can withdraw on your retirement. Who should invest in NPS? While NPS is available to all Indian citizens between the ages of 18-70, its end goal is to provide you with financial security on your retirement. Hence, it is best suited for people who are looking for a stable retirement plan and have a relatively low tolerance towards market risks. Moreover, NPS also provides tax rebates of upto Rs. 2 lakhs under Sections 80C and 80CCD of the Indian Income Tax Act. NPS allocates a portion of the accumulated corpus to equity investments, which are exposed to market fluctuations, returns and risks. The percentage of your investments that goes towards these can be decided by you, within a few limitations. It is important that you decide the right option for you depending on your investment goals, earnings and living expenses, and most importantly, your risk tolerance. NPS vs EPF While both Employees’ Provident Fund (EPF) and NPS are managed by the government, there are some factors that make them different, and may be a differentiating factor when it comes to choosing which one you want to invest in. The similarity between these retirement plans is that they both invest your money across debts and equities. The difference between them is that you do not get to choose your fund manager with EPF. In the case of NPS though, not only can you choose the fund manager, but you can also switch between fund managers if you are not happy with the performance of your funds. NPS can be said to be a more evolved retirement plan that takes into consideration your age and risk appetite. It allows you to decide on the assets you want to invest in based on your return expectations. NPS vs ELSS ELSS is a form of equity mutual fund which allows you the benefit of saving taxes, on investments upto Rs. 1.5 lakh under Section 80C, just like NPS. However, with the NPS, you also have the option to save an additional Rs 50,000 under section 80CCD (1B). Also, on maturity, you have the provision to withdraw 60% of the entire corpus as a lump sum entirely devoid of taxes, while the remaining amount is used to purchase annuity. Since ELSS is entirely based on equity, it carries a substantial amount of risk, while NPS caps equity allocation at 75% which makes it comparatively safer than ELSS. Furthermore, NPS also allows you to invest in assets like corporate bonds and government securities, which are safer than equities. Therefore, if you are looking for a retirement plan which is secure and also lowers your taxes, NPS can be a good option. NPS vs PPF Public Provident Fund, or PPF, is another savings scheme that was introduced by the Government of India, and was designed to provide fixed returns, and is not limited to pensions, unlike the NPS, which is exclusively a pension savings scheme. Since NPS is market based and carries a certain amount of risk, the average returns are higher in the long term. While it cannot be guaranteed that NPS is better than PPF, it can definitely be said that NPS can help you create a higher corpus in the long run which can help you secure your finances better. NPS vs Mutual Funds The National Pension System operates in a similar manner to that of a mutual fund, and invests your money in equities. However, unlike equity mutual funds, which are entirely based on equity market investments, NPS has a capping of 75% in the equity market, which makes it relatively safer to invest in. Furthermore, the tax savings on investments of up to Rs. 2 lakh, with NPS, also adds to the benefits, while any returns from mutual funds are subject to taxes. If you are looking to create a corpus that provides you with regular income on retirement, NPS should be the ideal choice because of the lower risk and tax benefits.To conclude, every investor has different goals for their investments and a specific mindset. You should always consult your financial advisor before you make any investment decision. If you are looking to have a stable and smart retirement plan that provides you with multiple benefits, you can choose to go with NPS by KFintech here at nps.kfintech.com. Featured Posts NPS New Rules 2026: A More Flexible Path to Retirement PlanningA Simple Guide to NPS Registration and Online Account OpeningNPS Vatsalya: Building Financial Security for the Next GenerationPlanning for Retirement with NPS: This Blog Might Be For You!NPS Returns and Retirement Planning: What Every Investor Should Know
Back to Blog Factors to consider when opening a demat account March 26, 2022 A demat account is necessary if you want to trade in the stock market, securities or other equities. If you’ve thought about trading in the stock market, you probably already know this. A demat account is essentially, just like a bank account. The difference between them is that a bank account holds your money, while a demat account keeps your shares. Since both these accounts concern your finances, there are several factors that you should keep in mind when opening one of them. While opening a demat account online is a fairly easy procedure, choosing the right one is not as simple. As an investor, especially if you are a beginner, there are a number of factors that you should consider before you finalize a service provider for your demat account. Let us take a look at some of these factors you must look at. Is the legacy of the company good enough? Whenever it comes to managing your finances, you must always consider the trust and the investor base associated with the company you choose. It is essential to look for a platform that maintains a strong base of investors, along with a presence all across the country. This ensures that your service provider of choice is trustworthy and it will help filter out operators who may not be able to deliver on the promise of excellent returns. It is best to take some time to research and do the due diligence on the legacy of your chosen depository participant, along with their customer base, the duration they have operated for, and the number of branches they operate. Does it provide robust security? Everything choice we make has its own set of pros and cons. While the virtual world provides several advantages, there is also a security risk that comes with it. We need to take in to account this risk, even more so when it concerns your finances. Your demat account provider must be equipped with state of the art security softwares and firewalls that can properly protect your financial information. Any data must be encrypted with the highest security levels when moving between servers. Should you have the same demat and trading account broker? Although most brokers operate both your demat and trading accounts, there can be scenarios, where a broker does not have a Depository Participant license, which is required for a broker to be able to open and maintain a demat account. In such cases, it is essential to submit the debit instruction slip to your broker on time after selling your shares. Failing to do so results in a bad delivery and you may end up incurring losses. Having one entity as both your broker and Depository Participant will make the procedure seamless, making your experience simpler and easier. It is definitely better to have the same broker for both types of accounts. What are the demat charges involved? While many services advertise that you can open a free demat account with them, it is important to understand that account opening charges are just one of the costs associated with maintaining your demat account. An annual maintenance charge may be billed to keep your account maintained. This charge is usually dependent on the valuation of shares present in your demat account. Every time you sell a share, and it gets debited to your demat account, a charge is incurred by NSDL or CDSL to the Depository Participant, which is also billed to you. You could also be charged a fee every time you request a physical statement, apart from any other charges that may be covered under the fine print. It is important to know and understand all of these charges since they are important and cannot be avoided, which will impact the returns you see from your trades. Is the banking, broking and custody seamless? In case your broker is a bank, the banking, broking and custody charges can be handled entirely seamlessly by the bank. The major advantage of having the same entity function as your banker and broker is that you can use NEFT, RTGS or UPI payment methods since they are usually free. Most brokers, on the other hand, charge a nominal amount in case you use an authorized payment gateway. The more seamless the process is, the easier your life gets. Does the DP provide high quality support services? Trading in the stock market is time sensitive and faster services result in more efficient trading and returns on investment. A Depository Participant should not be judged just on the basis of routine transactions, but also on the basis of the ancillary services they provide. You should consider the time duration taken by them to get your physical shares dematerialized and whether your account is automatically credited with corporate actions. Moreover, you should also consider the efficiency with which issues like customer complaints, lien and pledge are dealt with. Ensuring all these meet your requirements helps you get a more satisfactory service experience. Are there pending complaints against the DP? Through checks about the service standards of the DP are essential to judge their work hygiene and quality. A major red flag is if a Depository Participant has many pending complaints on the service level with SEBI. Furthermore, you should also ensure that there are no ongoing regulatory investigations against them. While it is true that everything you read online may not be correct, a large percentage of reviews being negative is definitely a point of concern. If you are looking to make investments and are in need of a demat account, you can create one with KFintech here https://ipo.kfintech.com/ Featured Posts How to Improve Your Chances of Getting IPO AllotmentIPO vs FPO: Understanding the Difference for Smarter InvestingHow to check your IPO Allotment Status: Key factors you need to know?IPO Investment: Strategies, Allotment Status, and Key Updates. Explained!5 Myths and Misconceptions of IPO Investments. Debunked in this blog.
Back to Blog What’s the deal with IPOs? March 24, 2022 As the name suggests, an IPO, or an Initial Public Offering, can be considered to be a company’s debut on the stock market as a publicly traded company, changing from being a privately held entity. The company that is issuing the IPO raises the capital in the primary market, and after the completion of the IPO, all investors can trade its shares, which is then referred to as the secondary market. While from the perspective of an investor, an IPO presents an opportunity to attain shares of a company that showcases the potential to grow, to the company, it is an opportunity to raise capital from the public market and use the funds for purposes that will help them achieve their ambitions of growth. Why does a company launch an IPO? While it may seem to be a simple process to bring a company into the public market, the process is long and involves a lot of steps that need to be completed. Starting from making the choice of an investment bank to ensuring the regulatory filings, there are several stages before a business can offer the shares of their company to the public. This may raise a question about why companies should trade their companies publicly, and dilute their shares. To answer this question, it is important to understand the following advantages of going public. Increased Capital: By publicly trading their company, a business has the opportunity to raise a higher capital than they could have been able to as a privately held company. The other methods of raising capital, in the form of loans, are riskier and more expensive than launching an IPO. Furthermore, a loan limits the capital raised, while an IPO allows the company to raise capital from the public market. Publicity gain: Offering an IPO allows a company to gain publicity by being listed on the stock exchange. This results in the company becoming more recognisable to the public, increasing consumer trust in the brand, its products and services. This increase in publicity also facilitates smoother acquisitions and mergers along with higher cash flow due to the publicly listed shares. Credibility Formation: A result of being a publicly listed company after an IPO causes the company to have an increased visibility, which also increases the credibility of the company. Assessment of Valuation: After a company is listed in the stock exchange, the valuation of the organisation is bsaically equal to the amount that investors are willing to pay for it. This allows investors to know and understand the valuation of the company. A proper valuation assessment also makes it easier to carry out mergers and acquisitions when needed. What kind of companies are launching IPOs? In the current scenario, a lot of companies, including new-age consumer tech companies and startups are pursuing an IPO. The year 2021 proved to be a record year for IPOs, witnessing investments worth over Rs 1.3 lakh crore across 65 IPOs. This record amount was more than four times the entire amount that was raised in 2020 by IPOs, which amounted to Rs 26,628 crore. With the Indian IPO ecosystem growing at a rapid pace, it is expected that 2022 will also bear witness to a very active IPO market. For you as an investor, it is expected to be one of the best seasons to take part in the IPO boom, and secure your future. While investors will see increased chances of investing in the market, it should be noted that in 2021, a lot of companies experienced a downturn after launching their IPO, which has resulted in investors becoming much more cognisant of current market situations. Companies likely to have an IPO in 2022 include the likes of the highly anticipated LIC, along with companies like Pharmeasy, MobiKwik and Ixigo. In 2021, new age digital firms like Zomato and Nykaa succeeded in gaining the highest amounts in fresh capital. However, PayTM, which raised Rs.18,300 crores through their IPO, surpassing Coal India in the amount of capital raised, saw a decline in their share prices. Should you invest in an IPO directly? Many investors buy the shares of an IPO with the intent of associating themselves with a company and earning long term gains for themselves in the process. However, there are also investors who invest in IPOs with the specific purpose of listing short-term gains. Depending on the demand of a company’s shares, the listing price (the price that you actually see for a stock on the stock market) of a company can be either higher or lower than the offer price. If the demand for a company’s shares is high, the listing price becomes higher than the offer price, and you stand to make significant returns on your investment. However, according to financial experts, when it comes to well-managed companies, it is usually advisable to stay invested for the long term after investing in their IPO to give yourself the best chance of maximising your returns. Many investors are not fulfilling their maximum potential gains by exiting their investments too quickly after listing. In such cases, a thematic fund, or an equity mutual fund serves you well because they hold investments for a longer time after listing. With the IPO frenzy currently going on, it is also possible that many investors do not get shares allotted to them in the IPO. In such cases, you can also choose to take the mutual fund route to an IPO. However, it is always best to consult your financial advisor before you make an investment decision. Featured Posts How to Improve Your Chances of Getting IPO AllotmentIPO vs FPO: Understanding the Difference for Smarter InvestingHow to check your IPO Allotment Status: Key factors you need to know?IPO Investment: Strategies, Allotment Status, and Key Updates. Explained!5 Myths and Misconceptions of IPO Investments. Debunked in this blog.
Back to Blog 3 Reasons Why You Need A Demat Account March 22, 2022 To understand why we need a Demat account, we should first understand what a demat account is and what it does. Just like a bank account protects your money, a demat account is responsible for holding your shares and securities in a consolidated electronic format. A demat account aims at making your trades in the equity market easier and simpler by gathering all your crucial information together in one place. It allows you to conduct transactions of shares and stocks conveniently under a single roof without the hassle of needless paperwork. The stock market is now open for everyone who desires to generate wealth from investments in the equities market. In years past, it used to be the case that a broker was hired to seek their opinion on which investments to go for. You, as an investor would not have been able to enter the stock market without having a broker. The advent of online trading, however, has made this huge opportunity available for the masses. Online trading gives you the provision to make trades directly in the market without having a broker. However, a demat account is mandatory before you begin your investment journey. If you are already an investor, you are surely familiar with the term Demat account, even if you do not hold one yourself. There are many investors who feel conflicted on the opinion of holding a demat account, or have a certain trust ingrained in the traditional trading methods. The following points would hopefully help you make up your mind about opening a demat account. Time saving Stock market trades are time sensitive and require heavy observation to make the right decisions. In such a time sensitive market, traditional methods of trading, that take a lot of time to complete a single transaction, can cause you to miss out on precious moments that could have been used for making additional purchases and sales of security holdings. It is hugely beneficial to have a demat account since the trading process is conducted electronically and requires much lesser time than traditional methods. In today’s day and age, a demat account has become a necessity for investors who are entering the stock market. Easy Storage Physically held shares and security certificates come with the hassle of storing them securely, as they are prone to theft and damage. A demat account changes the form of the shares and securities, from being a physical document to a virtual one. This makes storing them easy, and these electronic forms of shareholding are easily bought, sold or transferred. With traditional trading methods, you were required to put in a lot of effort into acquiring the shares of your choice, and it used to be a difficult process since you would not be allowed into the stock market directly. Your only gateway possible was by having a broker. With a demat account, you are free from all these problems. The Mandate SEBI has issued a mandate wherein all investors are required to hold a demat account in order to conduct transactions. Therefore, it is essential for all investors, who are interested in making trades online, to hold a demat account. They are required to choose their depository participant and ensure that their demat account is ready before they begin trading in stocks and shares in the equity market. In case you are interested in making trades in the stock market, and are looking for a demat account, you can open one here https://ipo.kfintech.com/ with KFintech. You have the option to choose a depository participant from a list of 50+ DPs. If you already have a Demat account, you can refer your family and friends, and earn upto Rs. 400 for every account that is successfuly opened. While they can go with the depository participants of their choice, you also have the option to choose a depository participant for them. Featured Posts How to Improve Your Chances of Getting IPO AllotmentIPO vs FPO: Understanding the Difference for Smarter InvestingHow to check your IPO Allotment Status: Key factors you need to know?IPO Investment: Strategies, Allotment Status, and Key Updates. Explained!5 Myths and Misconceptions of IPO Investments. Debunked in this blog.