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Net profit is an important term in business, but it can sound a bit confusing at first. Knowing what net profit is and how to calculate it can give us a clearer picture of a business’s financial health. In this article, we will understand the whole concept in a very simple way.

Let us first understand what profit means.

Profit is simply the extra money you earn after deducting your expenses.

How do you find profit?

Profit is calculated by subtracting total expenses from total revenue. The formula is:
Profit = Revenue – Expenses
If the result is positive, it’s a profit. If it’s negative, it’s a loss. This helps you understand if a business is earning or losing money.

What is Net Profit?

Net profit is the amount of money that remains after all the expenses and taxes. It is also known as net income. It’s the final profit figure that shows how much money a business actually makes after covering all its costs. Net profit is often called the bottom line because it’s the final number on an income statement.

How to Calculate Net Profit?

Let us understand it through two easy examples.

Example 1:

Imagine you run a small bookstore. You sell 100 books at ₹200 each. Your total revenue would be ₹20,000.

• Cost of Goods Sold (COGS): These are the direct costs of the products you’re selling. For your bookstore, this would include the cost of purchasing the books.

Example: If you spend ₹10,000 on purchasing the books, your COGS is ₹10,000.

• Gross Profit: This is what you get when you subtract COGS from total revenue.

Calculation: Total Revenue (₹20,000) – COGS (₹10,000) = Gross Profit (₹10,000).

• Operating Expenses: These are the costs of running your bookstore that aren’t directly related to buying the books. This includes things like rent for your bookstore, electricity bills, and salaries if you pay any staff.

Example: If you spend ₹3,000 on rent and ₹2,000 on electricity, your total operating expenses are ₹5,000.

• Operating Profit: This is what you get when you subtract operating expenses from gross profit.

Calculation: Gross Profit (₹10,000) – Operating Expenses (₹5,000) = Operating Profit (₹5,000).

• Other Income and Expenses: These might include additional earnings from other sources like interest on loans 9if you have given any).

Example: If you earned ₹1,000 from a small investment and paid ₹500 in interest on a loan, your net other income is ₹500 (₹1,000 – ₹500).

• Net Profit: This is the final profit after all expenses have been deducted from all income.

Calculation: Operating Profit (₹5,000) + Net Other Income (₹500) = Net Profit (₹5,500).

Example 2:

Suppose you have a small bakery.

Total Revenue: You make ₹5,00,000 in a month from selling cakes and cookies.

Cost of Goods Sold (COGS): You spend ₹2,00,000 on ingredients like flour, sugar, and butter.

Gross Profit: ₹5,00,000 (Total Revenue) – ₹2,00,000 (COGS) = ₹3,00,000.

Operating Expenses: You spend ₹1,20,000 on rent, utilities, and wages.

Operating Profit: ₹3,00,000 (Gross Profit) – ₹1,20,000 (Operating Expenses) = ₹1,80,000.

Other Income/Expenses: You earn ₹10,000 from a catering event and pay ₹5,000 in interest on a loan.

Net Profit: ₹1,80,000 (Operating Profit) + ₹5,000 (Net Other Income) = ₹1,85,000.

So, your bakery’s net profit for the month is ₹1,85,000. This means after covering all costs, your bakery actually made ₹1,85,000.

Why is Net Profit Important?

• True Profitability: Net profit shows the true profitability of a business. It’s the actual profit after all costs are considered.
• Business Health: A positive net profit means the business is making money, which is a good sign of health and sustainability.
• Investor Attraction: Investors look at net profit to determine if a business is a good investment. A higher net profit means more potential for returns on their investment. Knowing the net profit helps investors make informed decisions.

What is the difference between Net Profit and Revenue?

1. Revenue is the total amount of money a business earns from selling its products or services before any expenses are taken out. It’s often referred to as the top line because it appears at the top of the income statement.
2. Net profit, on the other hand, is the amount of money that remains after all expenses have been deducted from the revenue. This includes costs like materials, salaries, rent, and utilities. Net profit is often called the bottom line because it’s what’s left over at the bottom of the income statement after all costs are considered.

What is the difference between Gross Profit and Net Profit?

• Gross profit is the amount of money left after subtracting the cost of goods sold (COGS) from total revenue. COGS includes direct costs like materials and labor used to produce the products or services sold.

• Net profit is the amount of money left after subtracting all expenses (COGS, operating expenses, taxes, etc.) from total revenue.

While gross profit gives a snapshot of the efficiency in production, net profit provides a comprehensive picture of overall profitability after all costs.

Is Net Profit added to Capital on a balance sheet?

Yes, net profit is added to the equity section of the balance sheet. When a company earns a net profit, this amount is added to the retained earnings, which is part of the owner’s equity. Retained earnings represent the accumulated net profit of a company that has been reinvested in the business rather than distributed to shareholders as dividends. This increase in retained earnings boosts the overall equity of the company.

Conclusion

Net profit is an important measure of a business’s financial performance. It tells you how much money the company is actually making after paying for everything. Understanding net profit helps investors make smart decisions.

In this article, we will learn the complete concept of dividends. We often hear about the dividend payouts by companies listed on the stock exchange. Along with these, terms like Ex-dividend and Record Date can sometimes cause confusion. So, let us begin the learning.

What is Dividend?

A dividend is a portion of a company’s earnings that is paid to its shareholders. When a company makes a profit, it sometimes decides to share some of that money with the people who own its shares. This shared money is called a dividend.

Why is it called Dividend?

The word “dividend” comes from the idea of dividing something. In this case, the company is dividing its profits among its shareholders. So, it’s called a dividend because the company divides its earnings to give a part to each shareholder.

Is Dividend Good or Bad?

A dividend is generally considered good because it means the company is making enough profit to share with its shareholders. However, not all companies pay dividends. Some might choose to reinvest their profits back into the business to grow even more. Whether a dividend is good or bad depends on the goals of the investor. Some investors like receiving regular dividends, while others might prefer the company to reinvest in growth.

ALSO READ – What is the Stock Market? – Complete Basics in One Article

Are Dividends Paid Monthly?

Dividends are usually not paid monthly. Most companies pay dividends quarterly, which means every three months. Some companies pay them once a year or twice a year. It’s rare for a company to pay dividends every month.

What is Ex-Dividend Date?

The ex-dividend date is the date on or after which you will not be entitled to the company’s dividend if you purchase the share.

If you buy a stock on or after the ex-dividend date, you won’t receive the upcoming dividend. Instead, the dividend will be paid to the person who owned the stock before this date.

So make sure you buy your stocks before the ex-date to be eligible for the dividend.

What is Record Date?

The record date is typically considered the cutoff date for determining which shareholders are eligible for a particular corporate event.

In case of dividends, the record date is the date set by the company to determine who is eligible to receive the dividend. If you own the stock on this date, you will receive the dividend. The record date usually comes a few days after the ex-dividend date.

Note: The ex-dividend date is generally two days before the record date.

Why is the Ex-Dividend date and Record Date Important?

The settlement period is T+2 days, meaning if you buy a share today, you will gain ownership almost 2 days later.

And there is a 2 days difference between ex-date and record date.

If you buy stocks but your name isn’t registered with the company by the record date, you won’t get the dividend that the company gives to its shareholders. The ex-date is usually two days before the record date, so make sure you buy your stocks before the ex-date to be eligible for the dividend.

The Bottom Line

If you want to invest in the stock market for regular income in the form of dividends, it’s important to understand the full concept of dividends and the important dates. This knowledge will help you make more informed decisions.

Reference Site

Ola Electric’s stock has been performing exceptionally well since its market debut. After a flat start, the shares quickly rallied, closing at INR 91.18 on their first trading day. On August 12, 2024, the shares hit a new high of INR 109.41, representing a 20% increase from the previous close. The company’s market valuation now stands at approximately INR 48,258.89 crore.

Ola Electric went public with a valuation of $4 billion, which was a 25% reduction from its previous valuation of $5.4 billion during its last funding round in September 2023. Initially, the company had aimed for a valuation of around $10 billion for its IPO, but this was later adjusted following investor feedback.

Despite the company’s strong revenue growth, with operating revenue jumping over 90% to INR 5,009.8 crore in FY24, it reported a net loss of INR 1,584.4 crore for the same period, a 7.6% increase from the previous year.

Company Overview

Ola Electric Mobility Limited, led by Bhavish Aggarwal, is an electric two-wheeler manufacturer. The company recently made a successful debut in the stock market, with its shares experiencing a strong upward momentum. On Monday, August 12, 2024, Ola Electric’s shares jumped by 20%, hitting the upper circuit limit and reaching a new high of INR 109.41 on the Bombay Stock Exchange (BSE). This surge followed its listing at INR 75.99 per share, which was slightly below its IPO issue price of INR 76.

Also Read – What is an IPO in Simple Words? – 6 Important Steps to Know

Fundamental Overview

Ola Electric’s initial public offering (IPO) was highly anticipated, as it was the first by an electric vehicle (EV) manufacturer in India. The IPO, which opened for bidding from August 2 to August 6, 2024, was oversubscribed 4.27 times. The total value of the IPO was INR 6,145 crore, with a fresh issue of shares worth INR 5,500 crore and an Offer-for-Sale (OFS) of 8.49 crore equity shares.

The company has earmarked the funds from the IPO for several key initiatives:

• Capacity Expansion: Ola Electric plans to use INR 1,227.6 crore to expand its cell manufacturing plant’s capacity from 5 GWh to 6.4 GWh.
• Research and Development: INR 1,600 crore will be invested in research and product development to strengthen the company’s offerings.
• Debt Repayment: The company intends to use INR 800 crore to repay existing debts.
• Organic Growth: INR 350 crore will be allocated for organic growth initiatives.

Official Commentary

Ola Electric’s Red Herring Prospectus (RHP) detailed plans for the development and expansion of its Ola Gigafactory in Krishnagiri, Tamil Nadu. The first phase of this project will be funded through internal accruals and long-term borrowings secured by its subsidiary, Ola Cell Technologies Pvt Ltd. The company is focused on enhancing its manufacturing capabilities to meet the growing demand for electric vehicles and related components.

Founder Bhavish Aggarwal commented on the company’s IPO pricing strategy, stating that it was deliberately priced to attract a broad range of investors. This approach was intended to allow more people to participate in Ola Electric’s growth story, which the company believes has significant potential for future expansion.

Conclusion

Ola Electric’s successful IPO and subsequent stock market performance highlight the growing interest in electric vehicles in India. With plans to expand its manufacturing capacity and invest in research and development, the company is well-positioned to capitalize on the increasing demand for EVs. Investors will need to monitor the company’s financial progress closely as it works through the challenges of expanding its operations.

Visit the official website to learn more.

Disclaimer: This information is for educational purposes only and does not constitute financial advice. Always conduct your own research and consult with financial professionals before making investment decisions.

In this article, we will go through the basics of the stock market in simple language. The stock market is a type of financial market and is also a part of the capital markets. This market helps companies raise funds for growth.

Complete Basics of Stock Market with an easy example

Someone gets a business idea. To start a business, he needs money, also called funding.

Initially, he gets that funding through his savings. He asks for money from his family and friends, which is called seed funding.

Next, angel investors, venture capitalists, and others provide funding to the company in exchange for equity. This means they receive a share of ownership in the company in return for their investment.

When he further needs a significant amount of money for capital expenditures (capex), he has two options: either go to a bank for a loan, which will be a liability for his business, or he can ask the public for money. If he takes a loan from the bank, he will have to repay the full amount even if his business incurs losses. On the other hand, if he raises money from the public, the risk is diversified across all the investors. Moreover, it will not be an obligation to repay the money as it would be with a bank loan.

The company then decides to go public with an IPO, also called an Initial Public Offering. The IPO process is assisted by investment banks that help determine a justified price band for the company’s shares.

After that, the company prepares a Red Herring Prospectus (RHP) and submits it to SEBI, the Indian securities market regulator.

Once SEBI approves the IPO, it is launched with a price band, and the window for applying to the IPO opens for a few days.

The normal retail public can participate in this IPO process by opening a demat account through a registered broker.

Note – There is a difference between a Demat account and a Trading account, although both can be opened through a broker.

As the IPO window closes, the shares get allotted to the investors. This phase is called the primary market, where the seller is the company and the buyers are the investors.

After 1 or 2 days, the shares get listed on the stock exchange, where the already issued shares are traded between investors. This phase is called the secondary market. Trading through the stock exchange does not provide any direct monetary benefit to the company, but it helps in building goodwill for the company.

To participate in share trading in the exchanges too, the investors needs to have a demat account. They can open a demat account through a registered broker in India.

ALSO READ – What is the true purpose of the stock market?

What are the benefits of Buying Shares?

1. You will receive a portion of the company’s earnings, which is called dividend income.
2. As the company grows, the value of your shares will also increase. You can sell your shares later at a higher price.

Note – A share’s value is made up of two components: its intrinsic value, which is based on the company’s actual performance and assets, and the market value, which is influenced by supply and demand in the stock market.

How to Study Stocks?

There are two ways to study stock:

1. Fundamental Analysis – In this method, the focus is mainly on analyzing a company’s overall performance.
2. Technical Analysis -In this method, a company’s historical price and volume are analyzed.

The Bottom Line

In conclusion, understanding the basics of the stock market is important for anyone interested in trading or investing. The stock market, as a key part of the capital markets, plays an important role in helping companies raise the funds they need to grow and expand. By understanding these fundamental concepts, you’ll be able to make informed decisions within the stock market.

Reference Site – Wikipedia

In this article, we will go over the entire process from IPO announcement to allotment and listing on major Indian stock exchanges like NSE and BSE, including steps to check the allotment status.

IPO stands for Initial Public Offering. It refers to the process where a company offers its shares to the public to raise capital.

If we were to explain an IPO in simpler terms, it is a process where a private company offers its ownership to the public for the very first time and gets listed on a stock exchange. This process allows the company to access funds from a wide range of investors, including large institutional investors and everyday retail investors.

Why Do Companies Go Public?

Companies decide to go public for several reasons:

(1) Raise Funds for Expansion or Debt Repayment:

• Expansion: When a company wants to grow, whether by entering new markets, developing new products, or increasing production capacity, it often needs a lot of money. An IPO (Initial Public Offering) provides a way to raise this capital by selling shares to the public. This infusion of funds can support the company’s growth strategies and help it expand its operations effectively.
• Debt Repayment: Companies sometimes take on debt to fund their operations or growth. By going public and raising funds, they can use some of the proceeds to pay off this debt. Reducing debt lowers interest expenses and can improve the company’s financial health, freeing up resources for other uses.

(2) Provide an Exit Opportunity for Early Investors:

• Angel Investors and Venture Capitalists: These investors often provide funding during the early, riskier stages of a company’s development. In return, they typically seek a significant return on their investment. An IPO offers them a chance to sell their shares and realize their gains. This liquidity event allows them to exit their investment and often serves as a way to distribute the financial rewards of their risk-taking.

(3) Enhance Company’s Reputation and Credibility:

• Visibility and Credibility: Being listed on a major stock exchange brings a company into the public eye, which can enhance its reputation. This increased visibility can attract more attention from customers, business partners, and potential employees. A public listing also signals to the market that the company has met stringent regulatory requirements and is considered stable and trustworthy, which can enhance its credibility in the business world.

(4) Improve Access to Capital Markets:

• Easier Access to Funds: Once a company is public, it has more options for raising additional funds. It can conduct secondary offerings to issue more shares and raise more capital. Additionally, being a publicly traded company often makes it easier to secure loans or issue bonds. The ability to raise capital through these various means can provide the company with financial flexibility for future projects or to navigate economic downturns.

Stages of a Company’s Funding

(1) Promoter’s Fund:

• Initial Funding: At the very beginning, a company is usually funded by its founders and their close family members. This stage is known as the “seed” or “self-funded” stage. The promoters, or founders, invest their own savings to get the business off the ground. This initial funding is often used to develop a prototype, conduct market research, and cover initial operating expenses. This stage is crucial for laying the foundation and proving the concept of the business.

(2) Angel Investors:

• Early-Stage Investment: As the company begins to show promise, it may seek additional funding from angel investors. Angel investors are usually wealthy individuals who provide capital in exchange for equity or convertible debt. They often have experience in the industry and can offer valuable advice and connections in addition to funding. Angel investors are crucial for early-stage companies that need more capital to refine their product, expand their market reach, or scale their operations. Their investment helps bridge the gap between the initial self-funding and more substantial venture capital funding.

(3) Venture Capital:

• Growth Funding: Once a company has demonstrated potential and needs substantial capital to grow, it turns to venture capital firms. Venture capitalists (VCs) are professional investors who manage large funds and invest in startups with high growth potential. They provide significant funding in exchange for equity, and they often take an active role in guiding the company’s strategy and operations. Venture capital is typically used for scaling the business, entering new markets, or developing new products. This stage often involves multiple rounds of funding, each intended to support specific growth milestones.

(4) IPO (Initial Public Offering):

• Public Funding: When a company reaches a stage where it is ready to expand further, achieve broader market visibility, or provide liquidity for early investors, it may go public through an IPO. During an IPO, the company offers its shares to the public on a stock exchange. This process involves creating and selling new shares to raise capital from a wide range of investors, including institutional investors and individual retail investors. The funds raised through an IPO can be used for various purposes, such as further expansion, paying down debt, or investing in research and development. Going public also provides the company with ongoing access to capital markets for future funding needs.

Each of these stages plays a vital role in a company’s growth and development. They reflect the evolving needs of the business as it matures from a startup to a publicly traded entity.

The IPO Process

1. Investment Bank Hiring:

• Role of Investment Bank: The company looking to go public hires an investment bank, also known as an underwriter. The investment bank plays a crucial role in managing the IPO process. It helps the company with various aspects such as valuation, regulatory compliance, and marketing. Major banks like ICICI, Axis, SBI, and HDFC often have dedicated investment banking divisions that specialize in handling IPOs.
• Choosing an Underwriter: The company selects an investment bank based on their reputation, expertise, and the quality of their services. The underwriter’s job is to ensure the IPO is successful and to manage the risks associated with issuing new shares.

2. Due Diligence and Filings:

• Underwriting Agreement: The investment bank agrees to buy the shares from the company and sell them to the public. There are two main types of underwriting:
  • Firm Commitment: The investment bank buys all the shares from the company and assumes the risk of selling them. If the shares don’t sell, the investment bank absorbs the loss.
  • Best-Efforts Commitment: The investment bank agrees to make its best effort to sell the shares but does not guarantee the sale of all shares. The company may end up with unsold shares.
• Red Herring Prospectus (RHP): This is a preliminary document that provides information about the company’s business, financials, and management. It helps potential investors make informed decisions. The RHP includes details about the company’s promoters, business model, competitive advantages, capital structure, and financial data. It’s called a “red herring” because it often has a disclaimer stating that the final price and number of shares may change.
• Compliance and Filings: The company must comply with regulations set by authorities such as the Securities and Exchange Board of India (SEBI), stock exchanges, and other relevant regulatory bodies. This includes submitting the RHP, financial statements, and other required documents.

3. Pricing:

• Valuation of the Company: The investment bank assesses the company’s value using various methods, including financial analysis, market conditions, and comparable company analysis. This valuation helps determine how much the company’s shares should be priced.
• Issue Price: The price at which shares will be offered to the public can be set in two ways:
  • Fixed Price: The company and underwriter set a specific price for the shares.
  • Book Building: A price range (price band) is set, and investors place bids within this range. The final price is determined based on the bids received and the level of demand. This process helps find the optimal price for the shares.

4. Distribution:

• Marketing the IPO: The company, with the help of the investment bank, promotes the IPO to potential investors. This involves roadshows, presentations, and meetings with institutional investors (such as mutual funds and pension funds) and retail investors. The goal is to generate interest and demand for the shares.
• Investor Applications: During the IPO period, investors submit their applications to purchase shares. They can apply through various channels, including online platforms and brokers.

5. Application and Allotment:

• Allotment Process: Once the application period ends, the shares are allotted to investors. The allotment is based on several factors:
  • Oversubscription: If the IPO is oversubscribed (i.e., demand exceeds supply), shares are allocated based on a lottery system or proportional allocation.
  • Investor Categories: Shares are typically allocated to different categories of investors, including Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs), and retail investors. Each category has a specific quota.
• Refunds: If an investor does not receive the full allotment or is not allotted any shares, the application money is refunded.

6. Listing:

• Trading Begins: After the IPO process is completed, the company’s shares are listed on a stock exchange. Trading typically begins within a few days after the IPO closes. This allows investors to buy and sell shares in the secondary market.
• Market Performance: The performance of the company’s shares in the stock market can be influenced by various factors, including market conditions, company performance, and investor sentiment. The company’s stock price will fluctuate based on supply and demand in the market.

This detailed process ensures that the IPO is conducted smoothly and transparently, providing the company with the capital it needs while offering investors the opportunity to participate in the company’s growth.

Conclusion

Understanding the IPO process is important for investors who are looking to participate in public offerings. By raising funds through an IPO, companies can fuel their growth, pay off debts, and provide liquidity for early investors. However, investing in IPOs involves risks, and potential investors should conduct thorough research or consult financial advisors before making decisions.

Key Terms Explained

• Book Building: A method of pricing shares where investors bid within a specified price range.
• Underwriter: An investment bank that guarantees the sale of shares in an IPO.
• Syndicate Underwriting: Multiple investment banks collaborate to manage the IPO.
• QIB: Qualified Institutional Buyers, like mutual funds and pension funds, that invest large sums.
• NII: Non-Institutional Investors, typically high net worth individuals.
• ASBA (Application Supported by Blocked Amount): A system that blocks funds in an investor’s account until shares are allotted.
• UPI: A payment method that can be used for IPO applications.
• Minimum Lot Size: Investors must buy at least a minimum number of shares.
• Over-subscription: When demand for shares exceeds the number of shares available.
• Listing Time: Shares typically begin trading on the stock exchange within three days after the IPO closes.

Disclaimer: This information is for educational purposes only and does not constitute financial advice. Always conduct your own research and consult with financial professionals before making investment decisions.

Every individual should understand the relationship between the RBI’s monetary policy and the stock market. Stock market participants closely follow the RBI governor’s commentary to guide their investment decisions. In this article, we will discuss the importance of the RBI and how its monetary policies affect the stock market. So, let’s get started.

What is RBI?

The Reserve Bank of India, or RBI, is the central bank of India. Its main job is to manage the country’s monetary policy, which involves making decisions about the supply of money and interest rates. These decisions are crucial because they help control important factors like inflation and deflation.

What do you mean by monetary policy?

Monetary policy refers to the actions and decisions made by the central bank of a country, like the RBI in India. These decisions are often about how much money should be in the economy and what the interest rates should be. The RBI uses these tools to ensure that the economy remains stable.

For example, if inflation (when prices of goods and services rise) is high, the RBI might increase interest rates. On the other hand, if deflation (when prices fall too much) is a problem, the RBI might lower interest rates. By changing interest rates, the RBI can influence how much money is borrowed and spent in the economy.

How does Monetary Policy Affect the Stock Market?

Monetary policy has a direct impact on the stock market. One of the key factors here is the cost of capital, which refers to how expensive it is to borrow money. When the RBI increases interest rates, borrowing becomes more expensive. This can lead to less borrowing and spending, which might slow down economic growth. On the other hand, if the RBI lowers interest rates, borrowing becomes cheaper, encouraging more people and businesses to borrow and spend. This can boost economic growth and, in turn, affect the stock market positively.

How is the inflation or deflation is controlled by altering the interest rates?

• Interest rates are an essential tool used by the RBI to control inflation. When the RBI raises interest rates, borrowing becomes more expensive, which can help reduce inflation. This is because higher interest rates discourage people from taking loans and spending money, which can slow down the rise in prices.
• Conversely, when the RBI lowers interest rates, borrowing becomes cheaper, encouraging more spending, which can help fight deflation.

What is Repo Rate?

The RBI lends money to other banks. The rate at which the RBI lends money to other banks is called repo rate.

When the RBI increases the repo rate, the cost of borrowing money increases for banks, which can lead to higher interest rates for loans given to businesses and individuals. This can help control inflation.

What is Reverse Repo Rate?

The RBI also borrows money from other banks. The rate at which the RBI borrows money from other banks is called reverse repo rate.

By adjusting the reverse repo rate, the RBI can influence how much money banks have to lend to others. If the reverse repo rate is high, banks are more likely to lend money to the RBI rather than to businesses and consumers, which can help reduce the money supply in the economy.

The Bottom Line

The RBI plays a crucial role in India’s economy by managing monetary policy. Its decisions on interest rates and money supply not only affect inflation and deflation but also have a significant impact on the stock market. Investors closely watch the RBI’s actions because changes in monetary policy can influence their investment decisions and the overall health of the economy.

ALSO READ – What is an Investment Bank in Simple Words? – 3 Important Functions of an Investment Bank

Positional trading is a great choice if you want to invest in the stock market but don’t have time to constantly watch the market. It aims to benefit from long-term price swings by following long-term trends. This approach is different from day trading, where traders open and close positions within the same day.

What is Positional Trading in Simple Words?

In positional trading, you hold onto stocks or other financial instruments for several days, weeks, or even months. Unlike day traders, who aim to profit from quick price changes, positional traders look for significant price fluctuations over a longer period.

The idea is to capture larger market movements, which can lead to bigger profits. Positional trading requires patience, but the rewards can be well worth the wait.

What is the difference between Positional Trading and Swing Trading?

Swing trading considers short price swings over a shorter time period, while positional trading focuses on long-term trends for a longer duration.

Swing trading requires continuous vigilance of stock performance, while positional trading allows for a more relaxed approach.

Overall, positional trading is less stressful than swing trading.

How to Start Positional Trading?

• To start positional trading, first, open a demat account through a registered brokerage firm.
• Once your account is set up, you’ll be able to buy and sell stocks or other financial instruments.

Strategies in Positional Trading

1. You can do momentum-based trading, It involves buying stocks that are already showing strong upward momentum. The idea is to ride the wave of rising prices and sell the stocks only when the momentum starts to slow down. This strategy can be effective but requires careful timing.
2. Another strategy is to invest in companies that show strong fundamentals and high growth potential. By identifying these companies early on, you can buy their stocks at a lower price and benefit from their exponential growth over time. This strategy requires careful research but can lead to significant long-term gains.
3. Look for undervalued stocks—those that are priced lower than their true worth. The goal is to buy these stocks at a low price and sell them later when their value increases. This approach requires a keen eye for spotting opportunities, but it can result in higher profit margins.

Pros of Positional Trading

Positional trading has several advantages:

• More Planning Time: Since you’re not constantly buying and selling, you have more time to plan your trades and make thoughtful decisions.
• Potential for Higher Long-Term Returns: By holding onto stocks for a longer period, you can benefit from larger price movements, leading to higher profits.
• Less Monitoring Required: Unlike day trading, positional trading doesn’t require you to watch the market all day. This makes it a less stressful option.

Cons of Positional Trading

However, there are also some drawbacks to consider:

• Holding onto stocks for a long time may mean missing out on other opportunities. While your money is tied up in one investment, you might miss chances to profit from other trades.
• Positional trading requires a commitment to holding stocks, which can limit your ability to react quickly to market changes.
• Since you’re not making quick profits, you may need more capital to support your investments over time.

Conclusion

Positional trading is a relaxed and thoughtful alternative to day trading. It is ideal for those who have the capital and patience to invest in long-term strategies. By combining technical analysis with fundamental analysis, you can increase your chances of success.

ALSO READ – Are F&O and Intraday the Same? – Some Common Questions Answered

NAV, also known as net asset value, is an important metric for those who invest in mutual funds. Understanding the basics of NAV is essential. In this article, we will cover all the important aspects of net asset value in simple language. Let’s get started.

What is NAV in simple words?

NAV stands for Net Asset Value. It is the value of one unit of a mutual fund. Imagine you invest in a mutual fund, and this fund is like a big box containing different investments such as stocks, bonds, or other assets. Although mutual funds come with different schemes, the NAV is the price of one share or unit of that big box. It is calculated at the end of each day based on the value of all the investments inside the box, minus any expenses.

What does NAV tell you?

NAV tells you how much one unit of a mutual fund is worth at a given time. If you see that the NAV of a mutual fund has increased over time, it usually means that the value of the investments in the fund has gone up, so your investment has grown. However, if the NAV decreases, it indicates that the value of the investments has gone down.

How NAV is calculated?

NAV is calculated by taking the total value of all the assets in the mutual fund, subtracting any liabilities (like fees or expenses), and then dividing this by the total number of units or shares in the fund. Here’s a simple formula:

NAV = (Total Value of Assets – Liabilities) / Total Number of Units

Here is an easy example:

Let’s say you invest in a mutual fund in India that has a total value of ₹10,00,000 in assets, which includes stocks, bonds, and other investments. The fund has some liabilities, like fees and expenses, amounting to ₹50,000. The mutual fund has issued 10,000 units to investors.

To calculate the NAV:

1. Total Value of Assets: ₹10,00,000
2. Liabilities: ₹50,000
3. Total Number of Units: 10,000

First, subtract the liabilities from the total value of the assets:

₹10,00,000 – ₹50,000 = ₹9,50,000

Now, divide this by the total number of units:

₹9,50,000 / 10,000 = ₹95

So, the NAV for this mutual fund would be ₹95 per unit.

NAV is calculated daily at the end of each trading day, and therefore, it changes on a daily basis.

Is Higher NAV Better or Lower?

Many people think that a higher NAV means a better mutual fund, but that’s not always true. NAV is just a reflection of the current value of one unit of the fund. What really matters is the overall performance and return on your investment. A mutual fund with a lower NAV could be a better investment if it grows faster.

What Happens When NAV Increases or Decreases?

• When NAV Increases: It means the value of the investments in the mutual fund has gone up. This is a good sign as your investment is growing.
• When NAV Decreases: It means the value of the investments has gone down. This could be due to market fluctuations or poor performance of the assets in the fund.

The Bottom Line

NAV is an important number that helps you understand the value of your mutual fund investment at a specific point in time. However, it does not matter whether it’s high or low. What really matters is how well the fund is performing overall and whether it aligns with your investment goals. Always prioritize the overall return and consider other factors like the fund’s history and management before making investment decisions.

The full form of forex is FOREIGN EXACHANGE.

Forex is generally used to exchange currencies of different countries.

The forex market is one of the biggest financial markets in the world, with trading volumes in the trillions. Banks around the world engage in forex trading, and many amateur traders also like to trade in the forex market. In this article, we will cover all the basic concepts of the forex market that a beginner should know. So, let us get started.

Where is the Forex Market?

The Forex market, short for Foreign Exchange Market, is a global financial market where currencies are traded.

• Operating Hours: The market is open 5 days a week and operates 24 hours a day during those 5 days, without any closing time.

Where is the Forex Market Located?

The Forex market is decentralized, meaning it doesn’t have a physical location like a stock exchange. Instead, trading happens over the counter (OTC), which means trades are conducted directly between parties, often via electronic networks.

Trading Sessions in the FOREX Market

Asian Session

Euro Session

Newyork Session

Tokyo Session

What does Leverage and Margin mean in FOREX Market?

What does PIP mean in Forex Market?

What is the LOT SIZE in Forex Market?

How Do Currency Rates Change in the Forex Market?

Currency rates in the Forex market change due to several factors, including:

• Economic Indicators: Reports on a country’s economy, like employment numbers or GDP growth.
• Geopolitical Events: Political events or tensions between countries.
• Central Bank Policies: Decisions made by central banks, such as changing interest rates.

Is Gold Traded in the Forex Market?

Yes, gold is traded in the Forex market. Silver is also traded in the Forex market.

Why is Gold Traded in the Forex Market?

Gold is traded in the Forex market because it is a valuable asset that investors use to protect against inflation and economic uncertainty.

What Assets Are Traded in the Forex Market?

The main thing traded in the Forex market is money, or currencies, from different countries.

What Financial Instruments Are Present in the Forex Market?

In the Forex market, various financial instruments are used for trading, including:

• Spot: Immediate purchase or sale of a currency.
• Forwards: Agreement to buy or sell a currency at a future date.
• Non-Deliverable Forwards (NDF): A type of forward contract used where currency trading is restricted.
• Swap: Simultaneous buying and selling of the same amount of currency for different delivery dates.
• Futures: A contract to buy or sell a currency at a set price on a future date.
• Options: A contract that gives the buyer the right, but not the obligation, to buy or sell a currency at a specified price within a specific time period.

Conclusion

The Forex market is one of the largest financial markets in the world, with trading volumes in the trillions of dollars. It primarily involves interbank trading, and the main asset class traded is currencies, with the U.S. dollar being the most prominent.

Get the more detailed insights in Wikipedia

We must have heard about commodity trading. In this article, we are going to cover the basics of the commodity market and commodity trading in simple language. So, let us get started.

What are Commodities?

Commodities are natural resources or agricultural products that are not processed or manufactured. They are raw materials used in the production of goods and services. Examples of commodities include aluminum, crude oil, natural gas, maize (corn), zinc, gold, and silver.

What is Commodity Market?

The commodity market is a platform where buyers and sellers trade raw materials and primary products. This market allows people to buy and sell commodities like metals, energy resources, and agricultural products.

This market operates through two major exchanges in India:

• MCX – Multi Commodity Exchange
• NCDEX – National Commodity & Derivatives Exchange

There are also other exchanges like ICEX (Indian Commodity Exchange), , NMCX (National Multi Commodity Exchange of India) etc.

ALSO READ – What is Options Trading?-Understanding the Basics of Options Trading

How Many Types of Commodities are Traded in India?

Commodities in India are broadly classified into two main categories: Agricultural Products and Non-Agricultural Products.

1. Agricultural Products

These are commodities that come from farming and agriculture. Examples include:

• Cereals and Grains: Wheat, Maize (corn), Rice, Barley
• Pulses: Chana (Chickpeas), Moong (Green Gram)
• Oilseeds: Soybean, Mustard, Castor Seed
• Spices: Turmeric, Jeera (Cumin), Coriander, Pepper
• Other: Cotton, Sugar, Rubber

2. Non-Agricultural Products

These are commodities that include metals and energy products. Examples include:

• Metals:
  • Precious Metals: Gold, Silver
  • Base Metals: Copper, Zinc, Aluminum, Lead, Nickel
• Energy Products:
  • Fossil Fuels: Crude Oil, Natural Gas
  • Coal: Various grades of coal

Who Regulates the Commodity Market in India?

The regulator of the commodity market in India is the Securities and Exchange Board of India (SEBI). Previously, the Forward Markets Commission (FMC) was the regulatory body, but now SEBI oversees the commodity market.

What is the timing of the Commodity Market?

The trading hours for the commodity market in India vary by season:

• In Summer: The market opens at 10:00 AM and closes at 11:30 PM.
• In Winter: The market opens at 10:00 AM and closes at 11:55 PM.

The market timings are slightly extended in winter compared to summer.

The Bottom Line

Commodity trading involves buying and selling natural resources and agricultural products. It provides opportunities for investors to diversify their portfolios and hedge against inflation. Understanding the basics of the commodity market can help you make informed investment decisions.