FAQs

Because you want to avoid SCCARS

Let's be clear: if you are not diversified globally, you will suffer SCCARS. That is: Single Country, Single Currency, Single Asset Risk (SCCARS).

See this Graph. As is crystal clear, investing in India has delivered abysmal returns in US Dollar terms. Over 10 years, 100 dollars invested in the Indian market has remained 100 dollars whereas that invested in various global indices has become between 170 to 430 dollars (data as of November 2019)

Avoid SCCARS with First Global's two Global Investment Products.

Remember: There is always a bull market and a bear market, in some asset class, somewhere in the world...at the same time!

First Global, through its overseas affiliates, offers two global investment products Global Multi Asset Allocation Portfolio (GMAAP) and FG Capital SPC - Global Freedom Fund (FG-GFF), which is a global multi-asset fund to invest globally.

For further details, please see or contact us

The Global Multi Asset Allocation Portfolio (GMAAP) is meant for Investors with under USD 100,000 to invest, in global markets and is offered by an overseas affiliate of First Global.

It's part of the First Global Family of SWAW (Single Window-All Weather) Managed Investment Products, which also includes FG Capital SPC - Global Freedom Fund (FG-GFF), which is meant for Investors with over USD 100,000 to invest.

The GMAAP is a Multi Asset Portfolio,that invests across all major Asset Classes across the world (including Global Equities, Global Fixed Income, Global REITS, Global Commodities). The target is to deliver reasonable, steady, low volatility USD returns, between a target compound annual return of USD 8-12%.

A 8-12% US dollar return translates to between 12-16% return in Indian Rupee terms.

The key lies in First Global's systematic approach called Risk and Return Optimisation (RARO).

Our central learning over 30+ years is that top-down, global asset allocation based Investing works excellently in delivering long term dollar compounding.

For more details, click here

Global Investment Fund

FG Capital SPC - Global Freedom Fund (FG-GFF)

FG Capital SPC - Global Freedom Fund (FG-GFF), offered by a First Global overseas affiliate is an international fund, based out of Cayman Islands.

The FG-GFF is part of First Global's Single Window-All Weather (SWAW) Investment Products.

FG Capital SPC - Global Freedom Fund (FG-GFF) targets steady, low volatility, US Dollar return CAGR of 9-14%, which equates to INR returns of 13-18%.

The FG-GFF uses First Global's proprietary Risk and Return Optimisation (RARO) tech, which seeks to deliver enhanced, "excess" return for a given level risk.

The FG-GFF's core strategy follows our central learning that nearly 90% of returns in Investing, come from getting the Top Down Asset Allocation (markets, asset classes) right.

Specific stock selection adds only 10% or so to the returns.

Hence, the FG-GFF invests globally across markets, across Asset Classes: Stocks, Bonds, Commodities, REITs.

For more details, please click here

If you are an Indian resident, the investment can be made using RBI’s Liberalized Remittance Scheme (LRS) whereby each Indian resident can remit upto USD 250,000 every year abroad, for investment and other purposes.

It's a very simple process, easily done in a few hours, via your local Indian bank, by filling a simple form. We will guide you in this process.

If you are a resident of any other country, your investment will be subject to the laws and regulations of that country.

Please Contact us for a custom plan.

This is a Global Multi-Asset Allocation fund, which will have diversified Investments across the world, across markets and asset classes - be it US, Europe, Emerging Markets; in Equity, in Fixed income, as well as REITs, Commodities, precious metals etc.

The FG-GFF offers a Single Window-All Weather (SWAW) Fund investment, wherein you don't have to worry about which Asset Class you should be invested in.

The FG-GFF invests across all Asset Classes, so you get a Single Window exposure to all Asset Classes.

Asset allocation will be dynamically adjusted: depending on our analysis of which Asset classes look like best, the Fund's weighting will be dynamically increased towards that class and decreased towards the others.

All research on investments shows that 85 to 92% of the returns of a portfolio come from asset allocation.

Specific security selection contributes only 10 to 15% of the returns. It, therefore, does not make sense to concentrate your resources and time on security or stock selection.

The key to successful investing is to have every major Asset Class in your consideration set.

This is because at any point in time, some Asset Class is going to be in a Bull Market (For example, Technology in 1998, Emerging Markets 2004-07, Commodities: 2003-08, US equities- Tech: 2010 onwards, Japan: 2013-15, Global Fixed Income: 2009 onwards), even as others are in a bear market.

Through FG's top down Global Asset Allocation Single Window-All Weather (SWAW) Investment Products, you/ your clients can always participate in bull markets, irrespective of where (and in which asset class) they happen in the world.

Prudent investing requires that one does not expose one's life’s entire savings to SCCARs.

Keeping all your investment eggs in a single country, single currency basket is not at all safe or advisable.

The depreciation of the INR Vs USD, either in a steady fashion or in a step function every few years, means that an investment solely in INR assets, keeps making one poorer in US Dollar terms.

Just to give you an idea, an investment in the Dollex (the Dollar Sensex) has given an return of 0% over 10 years upto 2019! If you had been invested in global markets, you would have seen your 100 dollars compound to 170-430 dollars depending on the index, over the same period.

This is what you forgo on an ongoing basis, but there are also other systemic and event risks.

Many countries have had currency collapses, macro meltdown, corporate problems, earnings declines, hyperinflation and other issues in the past from the high growth Asian markets in the 1990s to Greece, Spain etc….

Investors from those countries who were only exposed to their home markets took a very big hit.

Our dynamic Asset Allocation model ensures that through a single window, an Investor gains exposure across all major asset classes, and the weighting of each Asset Class will be changed to suit the view on that Asset class

A person who is rational and careful about her/ his investments will understand the above risks clearly.

It is most important to get the big top down, Global Asset Allocation decisions right.

Various studies have shown that the bulk of a portfolio’s returns are determined by the asset allocation decisions ie the mix of asset classes.

How much of the returns are attributable to asset allocation alone? Depending on the study, this percentage varies between 85 to 92%.

Individual stock selection accounted for only 8 to 15% of the portfolio performance!

The product will have a mix of Global Equities (both developed & emerging markets), Fixed income, REITs, and Commodities, including precious metals, in a dynamic allocation model. The allocation pie chart will change based on the outlook and consequent decisions on what weighting to allot to each asset class at a particular point in time.

First Global has been in the Investment, Research and Advice business for 30 years, and with an established presence in Global Markets, for over 20 years.

First Global was the very first Indian securities firm to go truly global. We were the first Asian firm to become a member of the London Stock Exchange and then entered the US market as well.

First Global's Research on Global companies and economies has been covered widely in Wall Street Journal, Business Week, CBS, Financial Times, CNBC, Etc, and rated very high in Institutional Surveys.

So far, we have used these Global Asset Allocation capabilities to assist large global institutional clients, who manage trillions of dollars, to invest globally.

Now, due to popular demand, we have decided to open these capabilities to help individuals HNIs and Family Offices, get the same expertise that large multi-billion funds get.

As explained above, this is not an equities only fund (or portfolio). The mandate of the fund is to provide exposure across asset classes, including debt.

We don't have fixed, predetermined allocations to any asset class, and that's the uniqueness of our dynamic allocation strategy.

The allocation pie chart will change based on our decisions on what weighting to allot to each asset class at a particular point in time.

Depending on the situation, the weighting across asset classes will be adjusted dynamically, and within each asset class as well. (For example, Developedvs Emerging Equity weight; Developed vs Emerging Debt weight; Industrial Commodities vs Precious Metal commodities, and so on)

The range of moderate allocations is typically defined as 10-30% of investible surplus. This may be a good starting point. Of course, one can go even higher if one wishes, or wants to limit single market exposure further.

10-30% is a broad guideline, but each Investor can decide within this range or even go beyond this range.

Investment horizon depends on personal preferences, but we recommend 3-5 years as a reasonable horizon

There is no taxon the Fund's income.

Tax will be applicable in Shareholder’s country of residence

The tax consequences of acquiring, holding converting, repurchasing or disposing of the Participating Shares will depend on the relevant laws of the jurisdiction to which the Shareholders are subject. These consequences will vary with the law and practice of the Shareholder’s country of residence, domicile of incorporation and with his own personal circumstances. Potential Shareholders are advised to consult their professional advisers in this regard.

If an Individual Indian Resident Investor holds Participating Shares of the Fund for more the 3 years from the date of its acquisition, such holding of more than 3 years of Participating Shares of the Fund would qualify as long term capital asset under the Income Tax Act, 1961 and qualify for concessional rate of tax @20% plus surcharge plus cess on the profit made on the redemption of the said shares. However, Potential Shareholders are advised to consult their professional tax advisers in this regard.

The most common investment myth that is peddled day in and day out, is that diversification is the enemy of high returns.

In reality concentrated portfolios are a recipe for disaster more often than not.

Any fund manager who professes to run deeply concentrated portfolios is going to be a fund manager who will do well for some time and then flame out when even one or two stocks in the portfolio run into bad weather.

At First Global, our research and learning’s have been exactly to the contrary.

As a result of our strategy of diversification, we have found that you can generate tons of alpha without adding proportionately to risk.

Across market cycles.

In the Global asset Allocation products, creating multiple uncorrelated streams of returns is the key to improving performance, without increasing risk.

Therefore, one can actually decrease risk and increase return, with diversification, as long as one constructs the portfolio properly.

We have used these Global Asset Allocation capabilities to assist large global institutional clients, who manage trillions of dollars, to invest globally.

Now, due to popular demand, we have decided to open these capabilities to help individuals HNIs and Family Offices, get the same expertise that large multi-billion funds get. Here is the data from our rigorous backtests run on our strategies

An investor can certainly invest in ETFs, which are low cost. However, the core proposition of our product is not that at all.

An ETF gives you exposure to a single asset/ sub- asset class. No single ETF can give global asset allocation access, as that becomes a managed product, as to what weighting to give to each asset class, each country, each sector, and each commodity.

This dynamic asset allocation is beyond the scope of any and all ETFs.

In our dynamic asset allocation model, we actively decide which Asset class to be overweight/ underweight in, on an on-going basis.

For example, from 2010, it was amply clear based on valuation, dividend yield, and several other parameters in our proprietary models, that US equities would handsomely outperform Emerging Markets equities. We went overweight US equities. Within US equities, we went overweight Tech. Within Tech, we went overweight Consumer Tech ( e.g., Netflix, Dominos, etc).

You can see how this top down, drill down approach works, in a single class such as Equity, and across classes (in Debt: Emerging Debt vs. Developed debt as well as across countries), or which commodities in the commodity basket.

All these top down, drill down, allocation pie-chart decisions are simply not possible via ETFs.

The Feeder funds offer no solution: they will give you exposure to a single country/ single asset (largely, the US Equity market).

Those funds will not give you global asset allocation access, as to what weighting to give to each asset class, each country, each sector, each commodity.

This dynamic asset allocation is beyond the scope of any feeder fund.

In First Global's dynamic asset allocation, Single Window-All Weather (SWAW Investing) Model, we actively decide which Global Asset class to be overweight/ underweight in, on an on-going basis.

The key to successful investing is to have a presence in every Asset Class, because at any point in time, some Asset Class is going to be in a Bull Market (For example, Technology in 1998, Emerging Markets 2004-07, Commodities: 2003-08, US equities- Tech: 2010 onwards, Japan: 2013-15, Global Fixed Income: 2009 onwards), and some will be in a bear market.

You can see how this top down, drill down approach works, in a single class such as Equity, and across classes (in Debt: Emerging Debt vs. Developed debt, which commodities in the commodity basket etc.).

FG's Single Window-All Weather (SWAW) Investing Model is one point access into all Asset Classes, across the world, be it Developed Market Equities, Emerging Market Equities, Global Bonds, Global REITs, Global commodities.

This top down, Asset Allocation Portfolio/ Fund ensures that an investor doesn't have to waste her/ his time deciding on Asset Allocation decisions: The Single Window-All Weather (SWAW investing) approach does it for you.

And as tons of research shows, Asset Allocation decisions determine 85+ % of your returns. Individual stocks determine just 10-15%! No feeder fund can ever give you such single window exposure across all Asset Classes across the world.

So there is no benchmark that covers all the above in one product. The FG-GFF offers a Single Window-All Weather (SWAW) Fund investment, wherein you don't have to worry about which Asset Class you should be invested in. The FG-GFF and GMAAP invest across all Asset Classes, so you get a Single Window exposure to all Asset Classes.

Answer: Below is the CAGR table for the last 20 years which is the starting point:

Answer: It is 20 Years.

Answer: We work with dozens of hypotheses on what works in investing strategy. All these hypotheses are run into an AI and ML systems. The system then tests every strategy standalone, then uses a combinatorial approach to take components of each strategy, to come up with a refined, filtered strategy. These strategies are again tested, and a "supervised machine learning" system is employed to "learn" from every new data set that appears (e.g., new corporate news/ events/ etcetera), and hence, keep improving.

All of the AI and Ml system outputs are then deeply scrutinized by our human team, and any anomalies are scrubbed out. This combination of human intelligence with artificial intelligence ensures that emotions, biases are kept out of the investing process.

Answer: The investment strategy/philosophy for both FG-GFF and GMAAP are broadly similar but not the same, wherein a Global Asset Allocation Strategy is being implemented dynamically and tactically.

In our FG-GFF/GMAAP fund, funds are invested globally. Across countries. Across Asset classes. Weights adjusted dynamically according to whatever looks best at a point in time. And the weighting of each Asset Class, will be decided by First Global, based on its Dynamic Global Asset Allocation Model (DGAAM), using vast amounts of data, analyzed using deep data science, artificial intelligence and machine learning.

1. FG-GFF, on account of its Fund Structure and larger size, is able to get access to better pricing for transactions.

2. Moreover, the FG-GFF is able to get access to placement level offerings for international fixed income and IPO products which are not possible/available to smaller ticket size individual portfolios.

3. The fee structure for the FG-GFF, too, is different and lower, than the GMAAP, because of the shear element of economies of scale. Please contact us for further elaboration.

4. The FG-GFF is also able to access more Structured Products with excellent risk-return characteristics, owing to its Fund structure and size. Hence, a wider range of investment instruments and markets could be accessed.

5. FG-GFF provides greater diversification, thus scope for a higher Return Profile.

A Portfolio Management Service (PMS) is a sophisticated investment service which is provided by dedicated and veteran team of investment professionals also known as money managers and their principal objective is to create wealth for investors or generate alpha.

It aims to cater those investment needs of an individuals or entities that require high level of engagement, sophistication and professional service.

The Following category of persons can open a PMS account:

• An Individual
• A Hindu Undivided Families
• An Association of Persons
• A Limited Companies
• An NRI, overseas company, firm, society or an overseas trust (subject to RBI regulations/ approval)

There are two India PMS products offered by FG (for Global Investing, please see these FAQs):

The India Super 50 (IS50), which is a pure equity product and the India Multi-Asset Allocation Portfolio (IMAAP), which is a multi-asset allocation product

The India Super 50 (IS50) is a curated list of the best 50 stocks (approximately) in the Indian stock market, at any given point in time.

These stocks are identified from a larger list that is thrown up using cutting edge Artificial Intelligence and Machine Learning technologies, that comb through mountains of financial data, annual reports, conference call transcripts, press coverage, social media chatter, macroeconomic data, quantitative sentiment indicators, etc.

For more details about the product, click here

The IMAAP (India Multi-Asset Allocation Portfolio) Product has been carefully designed to get you the highest possible return for a given, diversified level of Risk.

Taking exposure across major Indian Asset Classes, the IMAAP seeks to deliver consistent, low beta, return, based on top down allocation decisions

The IMAAP is part of First Global's Single Window - All Weather (SWAW) Investment Products. The IMAAP's core strategy follows our central learning that nearly 90% of returns in Investing, come from getting the Top Down Asset Allocation right.

Specific stock selection adds only 10% or so to the returns.

Hence, the IMAAP invests across Asset Classes: Stocks, Bonds, Commodities, REITs etc available in India.

The weightings of each Asset Class in the Portfolio is adjusted dynamically and tactically, depending on the relative attractiveness of each Asset Class.

The objective of the IMAAP is to deliver steady, low volatility returns. IMAAP

This depends on your investment objectives. As a general guideline, you can consider a higher allocation to IS50 upto your 40s. For the over 50s, we would, in general, recommend IMAAP.

Yes, NRIs can opt for our portfolio management services provided that he/she will have to open a Portfolio Investment Scheme - PIS account as required under RBI guidelines in order to invest in the PMS scheme.

Our Account manager will help and assist you in aforementioned activity.

Please contact your nearest FIRST GLOBAL branch or please send your request at: pms@firstglobalsec.com or enquiry@firstglobalsec.com

Off-course, you can use your current stock holdings to invest in PMS; but stocks which are transferred to First Global will have to be liquidated. The sale proceeds from those stocks should be equal to or greater than Rs.50 Lakhs.

You can do so; provided once the holdings so transferred are liquidated, the sale proceeds plus the cash component transferred from your bank account should be equal to or greater than Rs.50 Lakhs.

FIRST GLOBAL provides discretionary Portfolio Management Services wherein the Portfolio Manager along with the team manages your portfolio on a day-to-day basis. The decisions are taken on your behalf by them.

These decisions are supported by systems and models, including Artificial Intelligence based systems, built over a number of years.

You are advised to consult your tax advisor for your specific tax consequences. The portfolio manager shall not be responsible for assisting you in fulfilling your tax obligations. Provisions of the Income Tax Act, 1961 shall be applied subject to the tax slab you fall into which in turn is a function of your total income is earned for that financial year.

You will receive the following reports to help you monitor the performance of your portfolio.

a) Monthly reporting: This gives you information on latest monthly holding statement, its total mark to market value and cash balances (if any)

b) Quarterly reporting: This gives you details of quarterly holdings, what’s in and what’s out report, total mark to market value, ledgers, fees charged, corporate benefits etc...

The minimum initial investment amount for these products is Rs.50 Lakhs.

Yes. The PMS service provide before taking up an assignment of management of funds or portfolio of securities on behalf of the client, enters into an agreement in writing with the client, clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations relating to the management of funds or portfolio of securities.

Yes. All investments involve a certain amount of risk. It is advisable for investors to read the offer document and risk related document carefully.

There is no guarantee of returns/income generation in the scheme. Further, there is no assurance of any capital protection/capital guarantee to the investors in the Scheme.

To open your trading account Click Here

Individual

• Resident Individuals
• NRIs

Non-individual

• Private Limited Company
• Public Limited Company
• Body Corporate
• Partnership Firm
• Trust / Charities / NGO’s
• HUF
• FI
• FII
• FPI, Category I, II & III
• Association of Persons (AOP)
• Bank
• Government Body
• Non- Government Organization
• Defense Establishment
• Body of Individuals
• Society
• LLP (Limited Liability Partnership)

a. INDIVIDUAL ACCOUNTS:

i. Resident Indian Individual account

• Proof of Identity (PAN with photograph mandatory)
• Proof of Address (Aadhaar /Passport/ Voters Identity Card/ Ration Card/ Registered Lease or Sale Agreement of Residence/ Driving License/ Flat Maintenance bill/ Telephone Bill (only land line)/ Electricity bill/
• Gas bill/Bank Account Statement/Passbook – (Not more than 1 months old – as on date of receipt for documents).
• Proof of Bank account
• Income Poof (Mandatory in case of derivatives/Currency Segment )

ii. NRI Account

• Two types - NRE and NRO
• India address proof (not required in case of NRE)
• Foreign address proof (Mandatory both cases)
• PIS Letter (issued by RBI)
• PAN card
• Bank Account Statement/ Passbook Bank proof should indicate NRE/NRO saving a/c bank details
• If NRE or NRO is not mentioned (pre-printed) on cheque, then bank verification letter is required.
• All the photocopy of the KYC document should be attested by the any of the entities: Notary Public, any Court, magistrate, judge, Local banker, Indian embassy, Consulate General of the country where NRI is residing.

b. NON INDIVIDUAL ENTITY:

Your application is processed at our central processing unit (CPU), and your securities trading account is opened and the details of your account and passwords etc. are sent to you. In case your application is not processed because of any missing details, you may be contacted by our representative.

It takes between two to five working days for any account to be opened, depending on the type of account and provided all the required documents have been furnished by the applicant.

You may start trading immediately subject to the funds being transferred from your bank account to FGSL’s bank account as necessary margin. This will happen only upon actual realization and confirmation. Your trading account gets credited to that effect immediately.

You can link up to five Bank accounts and five Demat accounts to your trading account with us.

Yes. It is mandatory since daily or Trade Contract notes, Trading Account ledgers, P & L, etc… are being routinely sent to your registered email id for your ease and convenience.

Pay-out of funds / securities is credited within a business day post receipt of the funds / securities from the exchange. As an internal practice, we try and execute the payout in T+2 business days. Any disruption in the exchange, banking system or general disruption may impact this.

The user ID and the Password will be sent to you once we open your account, along with all the account details and the same shall be shared with you separately by a secured mail on your registered email id.

The generated UCC (User Client Code) and password are unique and is different for different clients and the same is kept such that, which cannot be accessed through the internet. Only you with exact user id & password can access the user ID and password, and all precautions are taken so no one can manually or electronically access it. It is strictly advisable that you should not share your user id and password with anyone.

One must send a request from his / her registered email id for resetting / generating new password to it@firstglobalsec.com, following which a new password will be sent to you.

For BOMBAY STOCK EXCHANGE LTD. (BSE) CASH SEGMENT

For NATIONAL STOCK EXCHANGE OF INDIA LTD. (NSE) CASH SEGMENT

For NATIONAL STOCK EXCHANGE OF INDIA LTD. (NSE) F & O SEGMENT

FIRST GLOBAL STOCKBROKING PVT LTD
DETAILS OF DP A/C

Non-Resident Indian (NRI) means a "person resident outside India" who is a citizen of India or is a person of Indian origin as per FEMA regulations. As per current Indian laws and regulations at the time of writing, these are the definitions:

• Under the Foreign Exchange Management Act, 1999 (FEMA), a person who is NOT a 'person resident in India', as defined under Section 2 (v) of the Act is considered as a 'person resident outside India'.
• The most important change in definition (since FERA 1973) is that the citizenship of a person no longer has a bearing in determination of residential status.

• 'Person of Indian Origin' (PIO) means a citizen of any country other than Bangladesh or Pakistan, if
  1. he at any time held Indian passport; or
  2. he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or
  3. The person is a spouse of an Indian citizen or a person referred to in sub-clause [a] or [b].

• Portfolio Investment Scheme (PIS) is a scheme of Reserve Bank of India under which Non Resident Indian (NRIs) can purchase/sell securities permitted by RBI from time to time of Indian companies on Stock Exchanges under Portfolio Investment Scheme.
• For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/purchase transactions are to be routed through the designated branch.

Two types of rupee accounts viz. Non Resident (external) Rupee Accounts (NRE) and Ordinary Rupee Accounts (NRO) are permitted to be maintained by NRIs. Funds in NRE Account are repatriable.

• NRO account
  1. A NRO bank account is an ordinary saving bank account opened for NRIs. The funds standing to the credit of this account cannot be repatriated outside India in foreign exchange, without prior permission of RBI.
  2. NRIs can open NRO account for transactions in rupees without any approval. NRO account can be maintained in the nature of current, savings, recurring or fixed deposit account.
• NRE account
  1. A NRE bank account is an external saving bank account opened for Non resident Indians. NRE account can be opened without any approval as the funds for this account are transferred in freely convertible foreign currency.
  2. Credits to the accounts should be in the form of remittance in foreign exchange from outside India, as well as other funds, which are eligible to be remitted outside India, in free foreign exchange.
  3. This account can be maintained in the form of saving or current or recurring or fixed deposit account.

• Indian address proof (not required in case of NRE)
• Foreign address proof (Mandatory both cases)
• PIS Letter (issued by RBI)
• PAN card
• Bank Account Statement/ Passbook Bank proof should indicate NRE/NRO saving a/c bank details
• If NRE or NRO is not mentioned (pre-printed) on cheque, then bank verification letter is required.
• All the photocopy of the KYC document should be attested by the any of the entities: Notary Public, any Court, magistrate, judge, Local banker, Indian embassy, Consulate General of the country where NRI is residing.

• NRIs can invest under the Portfolio Investment Scheme (buying through the secondary market) and through the Direct Subscription Route (Investments though IPOs). The customer can invest in the following segments:
• Equity – Only Cash
• IPO
• Mutual Fund
• Futures
• Options
• Exchange Traded Funds.

Yes, the customer needs to open a new trading account.

Derivatives are financial instruments which derive their value from the price of underlying assets / other financial prices.

Derivatives are financial instruments used for risk management as they allow risks to be spread and controlled. Derivatives are used to shift elements of risk and therefore can act as insurance.

The commonly used derivatives are as follows:

• Forwards
• Futures
• Options
• Swaps

Underlying assets can be of several types, such as:

• Shares, currencies and bonds.
• Share indices.
• Commodities (agriculture & metals)

Futures

A forward or a future contract is an agreement between two parties to buy or sell an underlying asset at a certain time and price in the future for a certain price, decided today.

Forwards are contracts to buy or sell an asset at a certain future time for a certain price. These contracts are usually traded over the counter and do not have standardized quantity and time period. These transactions are normally between two institutions or an institution and a corporate client.

On the other hand, Futures contracts have standardized quantity, a standardized expiry period, are exchange traded and usually fully covered from the counter party risk.

Derivatives are financial instruments which derive their value from the price of underlying assets / other financial prices. The benefits are as follows:

• Hedge against risk
• Financial leverage
• Commodities.
• Manage funds more efficiently
• Timing of inflow and outflow of funds can be determined well in advance.

Futures price is spot price plus carrying cost. The futures price is, therefore, usually higher than the current spot price. The future price also takes into consideration the percentage dividends. The difference b/w the spot price and future price is called the Basis.

Financial futures are futures where the underlying asset is a financial instrument. Commonly traded financial futures are Currency futures, Interest rate futures Equity Index Futures and Equity Futures

The main difference between financial futures contracts and commodities futures are:

• Financial futures usually have a limited range of delivery dates based on a 3-month cycle: commodities futures often have monthly or seasonal delivery dates.
• Most financial futures are cash settled, commodities futures contracts specify a delivery location.

The exchange standardizes futures contracts in terms of the following features:

• Value or size: All futures contracts based on a particular underlying instrument, would be of the same size.
• Month of delivery: Usually 90-day contracts expire in March, June, September and December. Together with the month of delivery, the days on which delivery can be made are also fixed, if possible.
• Range of fluctuation: It is the tick or amount by which price of futures contract can move up or down. For example, in a futures contract, the tick could be 0.05 paise. Options

Options are contracts, which gives the buyer (holder) the right, but not the obligation, to buy or sell specified quantity of the underlying assets, at a specific (strike) price on or before a specified time (expiration date).

The right to buy is called a call option and the right to sell is called a put option. These are the two basic types of options which can also be bought and sold. A Call Option is an option where the Buyer of a Call option gets the right to buy the underlying asset. A Put Option is an option where the Buyer of a Put option gets the right to sell the underlying asset.

The price at which the holder of an option can Buy (in the case of a call option) or Sell (in the case of a put option) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.

Option Premium is the price paid by the buyer (of the option) to the seller to acquire the right to buy or sell.

American style option is the one which can be exercised by the buyer on or before the expiration date.

The European kind of option is the one which can be exercised by the buyer on the expiration day only and not any time before that.

At the Money - An option is said to be 'at-the-money', when the option's strike price is equal to the underlying asset price. This is true for both puts and calls.

In the Money
In case of call options:
A call option is said to be in-the-money when the strike/exercise price of the option is less than the underlying asset price
In case of Put Options:
A put option is in-the-money when the strike price of the option is greater than the spot price of the underlying asset.

Out of the Money
In case of call options:
A call option is said to be out-of-the-money when the strike/exercise price of the option is greater than the underlying asset price.
In case of Put Options:
A put option is in-the-money when the strike price of the option is less than the spot price of the underlying asset.
Options are said to be deep in-the-money (or deep out-of-the-money) if the exercise price is at significant variance with the underlying asset price.

The Stock Index Options are options where the underlying asset is a Stock Index.

If you anticipate a stock to move in a certain direction, then acquire the right to buy/sell the stock at a predetermined price, for a specific duration of time. There can't be a more attractive investment opportunity. The decision as to what type of option to buy is dependent on whether your outlook for the respective security is positive (bullish) or negative (bearish). If your outlook is positive, buying a call option creates the opportunity to share in the upside potential of a stock without having to risk more than a fraction of its market value (premium paid). Conversely, if you anticipate downward movement, buying a put option will enable you to protect against downside risk without limiting profit potential (talk of short selling on the sly!). Purchasing options offer you the ability to position yourself with your market expectations in a manner that you can both profit and protect.

Currency Derivatives are available as futures and options contract where one can buy or sell specific standardized quantities of a particular currency pair at a pre-determined future date.

Currency Derivative trading is very similar to that of a Stock Futures and Options trading. But here the underlying assets are currency pairs instead of Stocks.

A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

The participants in Currency Trading in India are banks, corporations, exporters and importers.

• One can reduce or mitigate risk of currency depreciation
  Example: INR has continuously depreciated since past 40 years against USD between 3 % - 5% CAGR.
• It offers some amount of diversification to your portfolio.
• It provides Hedging opportunities to Importers & exporters, for their future payables and receivables.
• It also provides trading opportunities to traders and speculators because of volatility in currency.
• It further provides transparency with respect to rates as far as User / Participant is concerned since it is exchange-traded globally.

Following are the Currency Pair available to Participants for Forex trading:

• US Dollar –Indian Rupee Contract (USD-INR)
• British Pound –Indian Rupee Contract (GBP –INR)
• Japanese Yen –Indian Rupee Contract (JPY-INR)
• Euro –Indian Rupee Contract (EUR-INR)

Hedging is basically nothing but it is taking a position in the future market which is exactly opposite in nature to the position in the spot market. The very objective of hedging is to reduce or limit the down side risk associated therein due to unpredictable macro factors affecting the change in the exchange rates.

In capital market domain parlance commodity market is basically a buying and selling platform for exchange of commodity products between a buyer and a seller i.e. commodities are traded on a separate, authorized commodities exchange.

Commodities include agricultural products and natural resources such as timber, oil and metals. Commodities are the basis for futures contracts traded on these exchanges. These are classified as follows:

• Agricultural Commodity (Agro) An Agricultural Commodity includes food grains, oilseeds complex, sugar, plantation crops, horticulture crops etc.
• Non-Agricultural Commodity

Non-Agro commodity includes base metals, precious metals etc.

Securities Exchange Board of India (SEBI) is the regulator of commodity market.

Monday to Friday

Trading on exchange platform takes place on all days of the week (except Saturdays, Sundays and holidays declared by the Exchange) Market timings are as follows:

• In India there are two prominent Commodity Trading Exchanges and they are:
• Multi Commodity Exchange of India Ltd., Mumbai (MCX). www.mcxindia.com
• National Commodity and Derivative Exchange, Mumbai (NCDEX). www.ncdex.com

The settlement in the Commodity Market is as follows

• Daily MTM will be cash-settled by exchange on T+1 basis i.e., next working day after the trading day.
• However in case of delivery, the settlement date may be five to seven days after the expiry as per contract specifications and Exchange rules.
• It is mandatory to open an account in COMTRACK ® with any of the listed COMTRACK® Participant for receiving and tendering commodities trading through NCDEX system since the pay-out would be received in the designated COMTRACK® account only

COMTRACK ® is an electronic web based system developed and implemented by Exchange which facilitates electronic accounting of commodities deposited in the warehouses approved by the Exchange

Yes. But it depends on the intention of buyer & seller and varies on the type of contracts. The buyer and the seller have to express their intention for delivery. Deliveries would be matched randomly at client level open positions. Contracts not assigned for delivery would be settled in cash as per the Final Settlement Price (FSP).