Thursday, November 20, 2008

Introduction to Options

There are two fruits, say banana and apple, in a basket. If you were given an OPTION to take one of the fruit, which one will you take?
Notice the word OPTION in the above sentence. You are given a choice between two fruits.

Say, now a security is at Rs.5000/-. You think it will go to Rs.5500/- in a month.
If you have Rs.20000/- for trading, you can buy only 4 now and sell it after a month. If you opt for OPTIONS, you can buy at a lesser price and gain more. For Rs.20000, you could get an option for buying 80 (approx.) securities (each Rs.5000/-).

After a month, if the security price is Rs.5500/-,
You would gain => (5500 - 5000) * 80 = 40000.
But you have already given 20000 to get the option.

So, your profit would be Rs. 20000/- => 100% return in just a month :-)

After a month, if the security price is Rs.4000/-
you have already spent Rs.20000/- on getting the option.

Total Loss: Rs. 20000/-
(Already spent on getting option. You will not execute this one.)

You will be given an option to execute it. You will execute only in the case of CASE I and not CASE II.

If you are executing the options, you will end up paying brokerages for buying and selling the securities.

Coming to the JARGONS of Options.

(1) CALL - Right to buy.
(2) PUT - Right to sell.

If you think, the security is going to go down, you can BUY PUT.
If you think, the security is going to go up, you can BUY CALL.

Let me tell you, the OPTIONS are always riskier. Most of them will be illiquid.
One of the highly liquid instrument is NIFTY Options.

When you BUY CALL, to get out of options before the date of expiry, what should you do?
If your answer was BUY PUT, Please don't try trading options. You should WRITE/SELL CALL.

Brokerages on Options:

Buying/Selling an option - Rs. 100/- or 1% (whichever is higher)
While exercising an option - Intra-day brokerage charges. (vary depending on the customer and brokerage houses.)

The real advantage of OPTIONS, you can gain more from less money. Even 100% Return on Investment is easily possible (Beware, the reverse is also possible :-P)
There is a cap on the downside but there is no cap on the upside.

Wednesday, November 5, 2008

Make the train journey more delightful

For those who are new to booking ticket in IRCTC, take a look at my previous post.

There is some good news for the IRCTC users. You are in no need to search for your ID card while booking your ticket. Also, you can take the print-out of the mail sent to you and travel with that.

The only thing is at least one person mentioned in the booked ticket should have his ID card to show it to the TTE/TTR.

These are the recent set of instructions for e-Ticket bookers in IRCTC

There is a introduction of "Side Middle" in few of the trains and it does improve the revenue for the government. But it puzzles even frequent travellers!!
More puzzle comes on the way when you booked a upper birth and got a side middle birth. Sometimes TTEs rectify this and sometimes they don't.

Even if the ticket say S5 35/ UB, you will be alloted Side Middle. Can you spot out why?
When you booked the ticket the system was programmed to have 8 births / compartment. Now, after the introduction of Side Middle birth, it is 9 births / compartment.

Reminder for 35/8 => 3, which is the upper birth in the compartment of 8.
Reminder for 35/9 => 8, which is the side middle in the compartment of 9.

Each and every one will have some comfort while travelling on a specific birth and ask for a specific birth while booking the tickets. He is annoyed on seeing the TTEs response when he is of second type (not resolving the issue in the proper way).

They end up compromising or swapping their seats with the fellow-passengers.

This is acceptable for a limited period, in the interim, of course. But that period doesn't seem to end even after 3 months. The train journey is always more safe and comfortable than any other journey. It will be even more delightful if the peers look and fix these kind of issues as soon as possible.

Tuesday, September 16, 2008

Points to Ponder - IRCTC

Computers are ubiquitous and it hasn't left Indian Railways behind. IRCTC is a site for booking train tickets online.

Unlike the booking of air tickets, IRCTC accept your debit cards as well. So, those who don't like credit cards (for any matter), can use this site to book tickets online without any fuss. Even now, I can see so many people standing in a long queue to book their tickets! If you know how to create a e-mail online, then you can book a train ticket as well.

It will take about 5 minutes to book a ticket online when you have all the other information handy. You can use many other sites to check for the availability and then carry on to this site to book the ticket online.

Better use e-ticket option
There are two options in the site. one is i-ticket and the other e-ticket. When you choose i-ticket, the ticket booked will be delivered at your doorstep. When you choose e-ticket, the ticket will be instantly delivered through your printer! Even if you don't have a printer, go to the nearest xerox shop which takes print-out, and take one. This does saves time and you needn't have to wait to get your ticket.

Booking Wait listed tickets - Beware!!
Now, IRCTC has come up with an option for booking wait listed tickets as well as e-ticket. But, If you book the wait listed ticket and it is not confirmed on time, you will considered ticket less.
So, Have this in mind while booking the wait listed tickets.

Can I take a print-out of the ticket from my mail?
IRCTC does a good job in making a secure connection gateway with various banks and books your ticket online. It also sends an email to you regarding the ticket booked.
If you want to take the print-out of the ticket, Go to the booked tickets and enter your ID no and take the print out. Don't ever take the print-out of the mail sent by IRCTC.
I saw few people in train having the print-out taken from the mail sent by IRCTC. TTR was completely against that and asked for the fine. More than the fine, the horrifying time that you spend in there will make you miserable.
The problem is actually, the mail doesn't contain the ID (License,Passport etc.,) number and TTR is supposed to check the ID number for confirmation.
If you are booking tickets for your friends/relatives and you are not traveling, Please make sure to copy the needed print-out in some format and attach that in your mail to them. Don't ever just forward the mail sent by IRCTC. This will make the journey more merrier without any hassle with the TTR.

Money lost while booking ticket - This will not happen
Sometimes, when you are booking the ticket through IRCTC, money will be taken from your account but the browser says there was some problem while booking the ticket. Don't worry. This happens once-in-a-while in IRCTC and they reverse the money taken from your account in couple of days.
But before you try to book the same ticket, please check if the ticket is booked under the Booked tickets. If this is the case, you might end up booking the same ticket twice and there will be no refund.

For these things, the service charge is around Rs.10/- per ticket per person. you can book for max. 6 persons at a time (one of them should carry ID with them) and for each person added, the service charge of Rs.5/- will be added.
If you have a bigger group, you can book in a group of 6.
Other than this there will be service charge from the bank/card as well.
But considering the advantages we get by booking tickets from home, it clearly outweighs booking tickets through counter on all cases.

Thursday, September 11, 2008

Why Avoid ULIP?

I will demystify the ULIP plan, which is widely used everywhere now-a-days!

To state it fast and simple, it is a plan with both Investment and Insurance with Tax benefit. Sounds cool? But it isn't really. Lets see how.

ULIP is Unit Linked Insurance Plan, which means they are going to invest in shares (similar to mutual fund) and also give insurance in the meantime as well. There are charges (hidden) everywhere. There are Fund Management charge, Mortality charge, Allocation charge etc., for a ULIP plan and this will be more in the first few years based on the plan.

Usually, based on the plan,
I year - 15% to 65%
II year - 3% to 15%
III year - 3% to 15%

There is not much charges from the third year in plans offered by few companies out there. So, where these high charges go? Do they really need this much for managing your fund?

1. There should be some amount for giving you insurance and this can't and shouldn't be invested. So, it constitutes fair percentage based on your age. As your age increases, the amount to insure you also increase naturally.

2. For managing your money. Proper allocation of funds in shares by analysts.

3. Fees for agent. Agent may be your friend/cousin. He will get a big share when you invest in ULIP under his guidance.

4. Other charges based on the fund you are choosing.

Does it provide ample insurance?
If you think it provides ample insurance for you, then the amount going to investment will be less and vice versa. Finally, I have seen many thinking of ULIP as a investment opportunity. Even the agents, who has to clarify these things, are making things more complicated by projecting huge returns at the end of 3 years. I can assure you that this will not be the case. There are stories in the net showing how they even lost their money in spite of market moving up at the same time.

Take this case.
John invests Rs. 1 Lakh in ULIP plan every year for 3 years. He takes an insurance for 1 Lakh.

We will see how much will get invested in share market as his share.

Commissions from 15000 to 65000. For 1 Lakh, Mortality charges will be Rs. 150/-
S0, totally Rs.35000 to Rs.85000 gets invested and he gets shares worth it under him.
If you see the average of commissions in ULIP plans, it comes to around 50% in the first year. Thus, we will take Rs.49850/- as his share to market in the first year.

I year -> Rs. 49850/-

Commissions from 3000 to 15000 in the second year. On an average, it is around 5% in the second year. Mortality charges would have increased in the second year. So, let us take it as Rs.175/-

II year -> 94825/-

Commission from 3000 to 15000 in the third year. on an average, it is around 4% in the third year. Mortality charges would have increased and let us take it as Rs.200/-

III year -> 95800/-

Most of them are investing in ULIP for tax saving purpose and want money after 3 years. This is because the minimum lock-in period in case of tax-saving instruments is 3 years.

If we consider a secure investment like PPF, it gives 8% interest in a secure manner. Considering Share market also gives the same interest (for the sake of discussion), John may end up losing Rs.43644/- after 3 years without considering any profit on his principal.

When will I get at least the amount I put in?
Here, John has invested 3 Lakhs (A lakh every year). To get back 3 Lakhs at the end of 3 years, Stock market should have performed really well to give 40% return every year. Sometimes, the stock market may give 40% in a year. But it won't be consistent.
At the end of 3 years, even your principal is not returned to you in full!!

If I consider 8% secure return on my principal amount, I need to get a return of 55% in the stock market every year, which is almost impossible.

I can hear you saying, I get insurance coverage during this period. For getting insurance coverage, please use a Term Insurance. To see the advantages of having Term insurance, you can see this post.
Even if you consider this insurance taken as term insurance, you need to either get 35% return to find no return on your capital or 50% to get 8% return on your capital.

The best one to choose among the lot for tax saving is
PPF - For secure returns without insurance.
ELSS - For high returns with risk without insurance. (This is a mutual fund)
Term insurance - For insurance

Don't combine both insurance and investment. They are different and are meant to be different.

Friday, September 5, 2008

Google Chrome - First Look

I downloaded Google chrome and using it for the past few days.

Google chrome is the new browser just released by Google, which is going to compete against the giants Microsoft's Internet Explorer and Mozilla Firefox.
Recently released Firefox 3.0 made records in downloads.
Google chrome released its BETA version recently as a open source only for WINDOWS Operating system to get some quick feedback.

A quick snapshot of Google chrome is here.

Really Good things about Google Chrome:

(1) No Browser Crash Anymore :
When you open many sites in the browser, it might cause it to act slow or crash sometimes. The crash sometimes happen when it downloads some data recursively or some large data or for numerous other reasons. Yesterday, I was using Google chrome. I opened a page which had some flash page running and it was actually crashed! But it didn't crash the whole browser. Yeay!!! I love it...
Actually, it displayed that there was something crashed in all the other windows without crashing the whole browser.

(2) Google Touch :
There is a Google touch in here. A browser from web developer's cabin. It shows Loading page at the bottom.

(3) Get the cached page :
Sometimes the site you are looking may be down. The world's best search engine would have caught it just before it was down and it will give you that cached page from Google.

(4) Great Look :
I should rather say, Different look. The new page shows the snapshot of frequently opened pages. It also shows 'Recently closed pages' and 'Recently Bookmarked Pages'. Also, the tabs are opened at the top of the page. The new tabs are opened just near the page unlike Firefox which is worthwhile to mention here.

Few Enhancements I would really like to see:

(1) Much faster loading of the page. We don't compromise on speed any time and this doesn't mean it is slower than its counterparts.
(2) Error Console for debugging. This would be of great help to Web developers. I think its getting ready for the release.
(3) Beware, when you close the window with many tabs in it, it just closes it without any word. May be a word of caution would do good.
(4) There is no Menu bar. This may affect those who are used to Menus!

It is great move from Google to get the browser with so many products.
Want to get this browser right now - Click here

Finally, I am writing my first post using 'Google Chrome' Browser!

Thursday, August 28, 2008

Nokia E51 WLAN Settings

Nokia E51 is a smart phone with almost all the features available in it. It looks really slim and comes in three colors. It has loads of features and highlight of them all is the connection through the Internet through WLAN.

You can get a Internet connection from the service provider and ask for the wi-fi router. With the wi-fi router, you can connect to the Internet through various other devices like Laptop, Nokia E51 etc., You will be provided with the password for the WLAN connection and only if you enter the password correctly you will be connected to the Internet through that WLAN. As you may expect, this password will be asked only when you connect to Internet through this WLAN for the very first time.

In Laptop/Computer, you have Network settings to identify and modify the settings if wrongly entered. But this is somewhat tricky in case of Nokia E51!

In Nokia E51, You have the option of Browse WLAN right at the home page for you. If you have customized for something different, use Menu -> connectivity -> WLAN Wizard.
This will give you presently available networks (if any) around you to connect.

If you did everything right in the first time, you are well placed. But there could be settings in some WLAN where the password will be changed every month. Here, you are forced to change the password even you entered the password right the first time.

You will not be allowed to access the network until you define the access point. So, automatically it will ask for the access point when you try to connect. In E51, you can enter the access point (other name for password) for the second time in two ways.

Go to Menu -> Connectivity -> conn. mgr. -> Available WLAN networks.
Find the network to define access point.
Click on Options -> Define access point
You are done.

Check now whether it works?
No. It doesn't! This seems to be a small bug in Nokia E51.

How to solve it?

Go to Menu -> Tools -> Settings -> Connection -> Access Points
You can find as many access points added for each network.
Say, If you are seeing for network A, there will be A,A(1),A(2) and so on.
Delete all of them.
Try to connect to the network as if you are connecting for the first time.
It will ask for the access point, give the access point and you're done!

WLAN is one of a very cool feature available in Nokia E51. Enjoy Browsing through your phone. The browsing experience with the speed of your DSL in mobile is great!

Saturday, August 23, 2008

Olympics Vs Cricket (applicable only in India)

The final day of the Olympics fever has come and one of the famous topic debated among the sport freaks is this one OLYMPICS Vs CRICKET especially in India.

One of the big reasons for this debate in question is Cricket is not included in Olympics. Otherwise, certainly Cricket should have been a part of a very big event called Olympics.
In India, When you consider the athletes known to people well, you will end up seeing more number of cricketers in it and because of this, cricketers get one of the biggest remuneration in India. There cannot be anyone who knows Bindra and not Sachin but the reverse can still be true. That is the mass following for cricket in India.

Certainly, Olympics is at a bigger stage compared to cricket. Olympics contains many games in it and cannot be certainly compared as such with Cricket in any other country other than India.

The other reason for the significance of Cricket over Olympics in India is the PERFORMANCE of cricket over olympics. This doesn't mean India is performing really well in cricket but really not that well in olympics. Enjoy all the jock's performance, be it on any sport.

Friday, August 22, 2008

Axis Bank - IRCTC Offer

There are many offers always available worldwide but not always useful (with most of them eye-catching discounts at perfectly wrong time)

Coming to the offer of discussion, Axis bank has come up with an offer for increasing the awareness of its VISA debit card in doing transactions online (buying and selling goods). It is not linked with IRCTC but giving Rs.50/- on the first successful transaction made on the VISA debit card (with registration between July 1st to August 31st). This amount will be remitted to your account only after a month.

Even if you are a infrequent traveler in train, you can use this IRCTC site to book tickets right at your desk. These things are of great convenience with the increase in the pace of technology. Also, You can book tickets 3 months in advance. For those riders who prefer to make the decision at the end, there is TATKAL which opens 5 days before the journey date and you can book these tickets as well in IRCTC

Here comes the funny part.
For those who are customers of AXIS bank for more than 2 years (it was called UTI Bank then), you would have got a VISA debit card without a CVV number. For those who doesn't know what is CVV, it is Card Verification Value code and it is the last 3 numbers in the back of the card. This offer requires you to book using the credit card gateways given in the IRCTC site. This credit card gateway requires CVV number, which is not available with the AXIS bank customers who were loyal for more than 2 years. This offer is not valid for those people and they have to get a new debit card from AXIS bank to avail this offer.

Finally, it's campaign ends up with AXIS bank customers who are less than 2 years old.

Wednesday, August 20, 2008

Bindra, Sushil, Vijendar - Is there more?

A great news for all those Indians in the world.

The above three people has made us proud by winning medals in OLYMPICS 2008 in Beijing.
Shooting - Gold - Abinav Bindra - Really a Great performance.
Wrestling - Bronze - Sushil - A great news for all the wrestling fans watching TEN Sports in night ;)
Boxing - Silver or Gold - Vijendar - Again a great performance from the youngster.
Did anyone ever imagine we would get 3 (or more) medals in this Olympics? Certainly, there was no expectations from the people of India as they are used to Olympics news every four years.

This three medals for India (though beyond expectation) is considerably very less compared to the whole population of 110 million people.

There are so many youngsters waiting to be groomed and waiting to make our coutry proud. We should try and give training to those people and groom those young talent.

Kudos to those who have made our country proud by winning a medal in Olympics. Let us expect our people to win more medals in forthcoming olympics.


Tuesday, April 29, 2008

How to give my Igate shares to the Company @ Rs.410/-

This is the question that is in the mind of everyone who is having some Igate shares in his hand. I have been getting this query for the past few days from many sides.

First, to make it clear, If you are selling it to the company @ the exit price, you are not going to pay STT (Service Transaction Tax) and there will be huge tax applicable.

Case 1:
If you are holding the shares for more than a year (Long term capital gains) - 20% on the profit as tax.

Case 2:
If you are holding the shares for less that a year (Short term capital gains) - 30% on the profit as tax.

The better option is to sell directly in the market @ current market price. If you are selling directly in the market, the tax would be zero (Long term) or 15% (Short term). Note there might not be any brokerage if you are selling directly to the company but if you sell in the market there will be brokerage and STT.

For those, who don't want/like to sell in the market for different reasons (Illiquidity, more profit), You will be getting a form from Igate within 6 months asking you to fill the number of shares. Fill the form with the details and the company will send the check worth the amount 410*No. of shares.

You people can be happy as the stock didn't decrease in the recent downturn because of the intrinsic price known to the whole crowd. :-)

Disclosure: I sold the shares in the market when it was around 400.

Happy Investing!!

Friday, February 29, 2008

What's in store for a Salaried Employee in Budget 2008 - 2009

Good News finally from the Budget of this year. our FM has reduced the tax we are paying by Rs.44000/- for people earning above Rs.5 Lakhs.

The snippet on Income tax ..,

I propose to make some changes in the slabs for personal income tax. I propose to increase the threshold limit of exemption:

  • In the case of all assesses, from Rs. 1,10,000 to Rs. 1,50,000, thus giving every assessee a relief at a minimum of Rs.4000/- Consequently, the four slabs and rates will be as follows:
  • Upto Rs.1,50,000 - NIL
  • 1,50,000 to 3,00,000 - 10% tax
  • 3,00,000 to 5,00,000 - 20% tax
  • Above 5,00,000 - 30% tax.
  • Women Assessee - 1,45,000 to 1,80,000 -Minimum slab.
  • Senior citizen - 1,85,000 to 2,25,000 - Minimum slab.

The Income tax for almost everyone has been decreased at least to some extent after the budget.

Here comes the bad news for short term traders/Speculators.(Investors?)

Dividends that are distributed attract a tax of 15%. Short term capital gains attract a tax of 10% under Section111A. There is merit in equating the rates and hence I propose to increase the rate of tax on short term capital gains under section 111A and section 115AD to 15%. This will also encourage investors to stay invested for a longer term.

Simply put, The short term capital gains tax is increased from 10% to 15%.
Also, dividends attract a tax of 15%. Can we say no to dividend giving companies? :-)

There is no change on Long term capital gains tax (which is NIL, of course)

He has also increased the Mediclaim premium that can be paid under 80D by 15000/-
Is there any change on the 80C limit of 1Lakh? No.

Complete Budget speech is available at MoneyControl

Over all, the Income tax is reduced a lot when compared with the last year.