New Pension System (NPS)

Point of Presence (POP)
  • What do we mean by Pension? Pension is a social and income security during post retirement life.
  • What is Defined Benefit (DB) and Defined Contribution (DC) pension schemes? DB: The pension is determined based on predetermined parameters. Dc: Contribution is decided and pension is based on market driven returns of the accumulated contribution. NPS is based on defined contributions.
  • Who can join NPS? All resident and non-resident Indian citizens aged between 18 and 60 years can enroll themselves into it to make voluntary contributions for the post retirement income.
  • How can I register myself for NPS? You need to submit the Registration Form and KYC documents along with a contribution to the POP-SP of your choice.
  • What is POP under NPS? POP acts as the customer interface for the Non-Government Subscribers/Individual Citizens who wish to open Permanent Retirement Account (PRA) with Central Recordkeeping Agency (CRA) for the purpose of subscribing to the New Pension System (NPS).
  • What are functions of Point of Presence (POP)?
    • Verification of documents & collect cheques, cash etc.
    • Updating files to CRA
    • Maintaining records of all transactions as per PML act 2002
    • Subscriber Servicing e)Grievance Handling
  • What is Point of Presence - Service Providers (POP-SP)?
  • Branches of the registered POPs designated as POP Service Providers (POP-SP) will act as the initial point of contact and collection point for all citizens other than Government Employees desiring to obtain a Permanent Retirement Account Number (PRAN) under NPS.
  • How can I voluntarily open a Permanent Retirement Account (PRA) through POP?
    • Step 1: You have to fill in the Registration Form, provide proof of identity and address, hand over the form and documents along with registration charges of POP.
    • Step 2: POP verifies the documents and digitizes them.
    • Step 3: POP connects to the CRA server and transmits its code and information to you.
    • Step 4: CRA verifies POP code and non-existence of any PRA, if any. Having confirmed these, CRA generates a unique ID and transmits it to the POP.
    • Step 5: POP hands over the new PRAN to you.
    • Step 6: CRA sends you a Welcome Kit along with I-Card, T-PIN, I-PIN, within one business week.
  • What are charges for account opening? New Account Opening Charges (Tier 1 & II both) - Rs. 40/- Tier II activation for existing subscribers of Tier I - Rs. 20/- The subscriber can contribute the amount through cash, local cheque or demand draft at any chosen POP-SP. No outstation cheques shall be accepted.
    • POP/POP-SP shall collect duly filled NPS Contribution Instruction Slip (NCIS) along with the application form. POP/POP-SP shall also ensure the following points:
    • If the Subscriber is a central government employee who has joined government service on or after 1st January, 2004 (and mandatorily covered under NPS), then he/she can contribute only for Tier II.
    • If the subscriber is a pre 1st January 2004 Government employee, he/she can contribute for both Tiers I as well as for Tier II.
    • The subscriber other than Government Employee can contribute to both Tiers! As well as Tier II Account.
  • When and how can I make my contribution? You are required to make the first contribution at the time of applying for registration, subject to further conditions: Minimum Amount per contribution Rs.500/- Minimum Contribution per year Rs.6,000/- Minimum Number of Contributions in a year 4 Over and above the mandated limit of a minimum 4 contributions, you may decide on the frequency of the contributions across the year as per your convenience. No maximum limit has been mandated.
  • How much contribution received from me shall be invested? NPS offers choice of investment of your funds:
    • Active Choice: You will have the option to decide as to how your pension wealth is to be invested in Equities, Corporate Bonds and Government Securities.
    • Auto Choice: In case you are unable/unwilling to exercise any choice, your funds will be invested in above instruments in accordance with Auto Choice option during your life cycle.
    • The maximum investment in equity could be 50% of your fund.
  • Who will manage and invest my fund? You can choose any of 6 Pension Fund Managers (PFMs) appointed by Pension Fund Regulatory and Development Authority (PFRDA) which regulate NPS to protect the interest of investors.
    • ICICI Pension Funds Management Company Limited
    • IDFC Pension Funds Management Company Limited
    • Kotak Mahindra Pension Funds Limited
    • Reliance Capital Pension Funds Limited
    • SBI Pension Funds Private Limited
    • UTI Retirement Solutions Limited
  • What will happen if I relocate to another city or country? The PRAN shall remain the same & you shall be able to access your PRAN from anywhere in India, based on the I-Pin allotted to you by CRA.
  • Under what circumstances can my account be closed before attaining NRA status?
    • Death
    • Account value reduces to zero
    • Citizenship status changes
  • Can I be a part of the system after attaining the age of 70 years? No, you have to compulsorily withdraw from the system on or before attaining the age of 70 years.
  • What if I don’t exit the system at or before 70 years? Then on attaining the age of 70 years, your account would be automatically closed with the benefits Transferred to you.
  • Can I exit the system in phases over the age band 60 to 70 years? Yes, you can exit.
  • Can I make contributions of less than INR 500 at a time? In case of Tier II Account, contribution can be made of INR 250 but it is mandatory to contribute INR 500 in Tier I Account.
  • Can someone else make a contribution on my behalf? Yes, it is acceptable.
  • Are there any investment return guarantees? Returns depend upon the amount contributed & the investment growth.
  • Will I be permitted to change my Pension Fund Preference? Yes, you shall have the first opportunity to switch from one Pension Fund to another Pension Fund commencing form May 2010.
  • What if I do not select any Investment option? All your contributions will be channeled into Auto Choice Investment.
  • I am 30 years old & would like to retire at 60, I want a pension of INR 2000 per month at today’s prices when I retire. How much do I need to contribute? You would need a pension wealth of INR 3, 19,000 (at today’s prices) at age 60 to get a pension of INR 2,000 p.m. (at today’s prices). To release this pension wealth, you would need to contribute approx INR 16,600 every year.
  • On my death, can my nominee continue to operate the account in my name? No, the balance standing to the subscriber’s account may be transferred into the nominees account after following regular KYC procedure.
  • What if I contribute less than Rs. 6000 in a year in Tier I Account? Your Account would become dormant.
  • How can I reactivate my dormant account? You would have to bear the default penalty of Rs. 100/year along with minimum contributions due for the period of dormancy in order to reactivate the account.
  • What happens if my citizenship status changes? The account under NPS will be closed.
  • Is it possible to get PRAN CARD in Hindi? es, you can get PRAN CARD in Hindi, for that you have to check the option that PRAN is required in Hindi and the annexure to form UOS-SH1 on page 8 should be properly filled up.
  • Who regulates NPS ? To protect the interest of subscribers, Pension Fund Regulatory and Development Authority (PFRDA) Regulates NPS
  • What is the role of NPS TRUST under the NPS? PFRDA has established the NPS Trust under Indian Trust Act 1882 which is responsible for taking care of funds under the NPS. The Trust holds an account with the Bank of India, which is designated as the NPS Trustee Bank.
  • What are functions of NPS Trust?
    • Call for any information or report etc from PF Trustee Bank and Custodian.
    • Issue directions to PF for protecting the interest of subscribers.
    • Appoint a panel of independent auditors to undertake compliance audits.
    • Verify that the Trustee Banks and PFs are strictly performing as per the provisions of the agreement.
  • What is the role of the Central Recordkeeping Agency (CRA)? NSDL has been appointed as the CRA which provides periodic consolidated PRAN statements, performs centralized record keeping, administration and customer service functions for all the subscribers.
  • What are services provided by CRA?
    • Providing subscribers with periodic PRAN account statements.
    • CRA sends the status of the grievances to the subscriber for the requests registered by them.
    • Acting upon the instructions of subscribers.
    • Provision of Retirement Account Information to subscribers as to pension wealth accumulated or withdrawable amount.
  • What do mean by NPS Trustee Bank under NPS? Bank of India is functioning as a NPS Trustee Bank that would manage the banking of pension funds, the schemes, the guidelines issued by PFRDA, Ministry of Finance and Govt of India.
  • What does Annuity Services Provider (ASP) stand for? ASP is responsible for delivering a regular monthly pension to the subscriber for his/ her life.

Capital Market Derivatives

  • Q.1 What are derivatives? Derivatives, such as options or futures, are financial contracts which derive their value of a spot price time-series, which is called \the underlying". The world over, derivatives are a key part of the financial system. The most important contract types are futures and options, and the most important underlying markets are equity, treasury bills, commodities, foreign exchange and real estate.
  • Q.2 What is a futures contract? Futures markets are exactly like forward markets in terms of basic economics. However, contracts are standardized and trading is centralized, so that futures markets are highly liquid. There is no counterparty risk (thanks to the institution of a clearinghouse which becomes counterparty to both sides of each transaction and guarantees the trade). In futures markets, unlike in forward markets, increasing the time to expiration does not increase the counterparty risk.
  • Q.3 What is an option? An option is the right, but not the obligation, to buy or sell something at a stated date at a stated price. A “call option" gives one the right to buy, a “put option" gives one the right to sell. Options come in two varieties {European vs. American}. In a European option, the holder of the option can only exercise his right (if he should so desire) on the expiration date. In an American option, he can exercise this right anytime between purchase date and the expiration date.
  • Q.4 Why are derivatives useful? The key motivation for such instruments is that they are useful in reallocating risk either across time or among individuals with different risk-bearing preferences. One kind of passing-on of risk is mutual insurance between two parties who face the opposite kind of risk. For example, in the context of currency fluctuations, exporters face losses if the rupee appreciates and importers face losses if the rupee depreciates. By forward contracting in the dollar-rupee forward market, they supply insurance to each other and reduce risk. This sort of thing also takes place in speculative positions taking { the person who thinks the price will go up is long a futures and the person who thinks the price will go down is short the futures. Another style of functioning works by a risk- averse person buying insurance, and a risk- tolerant person selling insurance. An example of this may be found on the options market: an investor who tries to protect himself against a drop in the index buys put options on the index, and a risk-taker sells him these options. Obviously, people would be very suspicious about entering into such trades without the institution of the clearing-house which is a legal counterparty to both sides of the trade. In these ways, derivatives supply a method for people to do hedging and reduce their risks. As compared with an economy lacking these facilities, it is a considerable gain. The ultimate importance of a derivatives market hence hinges upon the extent to which it helps investors to reduce the risks that they face. Some of the largest derivatives markets in the world are on treasury bills (to help control interest rate risk), the market index (to help control risk that is associated with fluctuations in the stock market) and on exchange rates (to cope with currency risk). Derivatives are also very convenient in terms of international investment. For example, Japanese insurance companies fund housing loans in the US by buying into derivatives on real estate in the US. Such funding patterns would be harder without derivatives.
  • Q.5 What are the instruments traded in the derivatives? Interest rate futures, Interest rate options, Currency futures, Currency options, Stock futures, Index futures, commodity futures, Stock Index options, Interest rate swaps, Currency swaps, etc. are traded.
  • Q.6 At the security level, are futures or options better? The international experience is that at the security level, options markets are almost always more successful than futures markets.
  • Q.7 Why have index derivatives proved to be more important than security derivatives? Security options are of limited interest because the pool of people who would be interested (say) in options on ACC is limited. In contrast, every single person in the financial area is affected by index fluctuations. Hence risk-management using index derivatives is of far more importance than risk-management using individual security options. This goes back to a basic principle of financial economics. Portfolio risk is dominated by the market index, regardless of the composition of the portfolio. In other words, all portfolios of around ten stocks or more have a pattern of risk where 80% or more of their volatility is index-related. In such a world, investors would be more interested in using index {based derivative products rather than security-based derivative products. The actual experience of derivatives markets worldwide is completely in line with this expectation.
  • Q.8 Who uses index derivatives to reduce risk? There are two important types of people who may not want to bear the risk of index fluctuations:
    • A person who thinks Index fluctuations are peripheral to his activity: For example, a person who works in primary market underwriting effectively has index exposure {if the index does badly, then the IPO could fail {but this exposure has nothing to do with his core competence and interests (which are in the IPO market). Such a person would routinely use measure his index exposure on a day-to-day basis, and index derivatives to strip off that risk. If full edged book building becomes important in India, then there is a very important role for index derivatives in the \price stabilization" that the underwriter does in the book building process Similarly, a person who takes positions in individual stocks implicitly suffers index exposure. A person who is long ITC is effectively long ITC and long Index. If the index does badly, then his \long ITC position suffers. A person like this, who is focused on ITC and is not interested in taking a view on the Index would routinely measure the index exposure that is hidden inside his ITC exposure, and use index derivatives to eliminate this risk. The NYSE specialist is a prime example of intensive use of index derivatives in such an application.
    • A person who thinks Index fluctuations are painful: An investor who buys stocks may like the peace of mind of capping his downside loss. Putting options on the index is the ideal form of insurance here. Regardless of the composition of a person's portfolio, index put options will protect him from exposure to a fall in the index. To make this concrete, consider a person who has a portfolio worth Rs.1 million, and suppose Nifty is at 1000. Suppose the person decides that he wants to never suffer a loss of worse than 10%. Then he can buy himself Nifty puts worth Rs.1 million with the strike price set to 900. If Nifty drops below 900 then his put options reimburse him for his full loss. In this fashion, \portfolio insurance" through index options will greatly reduce the fear of equity investment in the country. More generally, anytime an investor or a fund manager becomes uncomfortable, and does not want to bear index fluctuations in the coming weeks, he can use index futures or index options to reduce (or even eliminate) his index exposure. This is far more convenient than distress selling of the underlying equity in the portfolio. Conversely, anytime investors or fund managers become optimistic about the index, or feel more comfortable and are willing to bear index fluctuations, they can increase their equity exposure using index derivatives. This is simpler and cheaper than buying underlying equity. In these ways, the underlying equity portfolio can be something that is \slowly traded", and index derivatives are used to implement day-to-day changes in equity exposure.
  • Q.9 How do derivatives trade? In the cash market, the basic dynamic is that the issuer puts out paper, and people trade this paper. In contrast, in derivatives, there is no issuer. The net supply of all derivatives contracts is 0. For each long, there is an equal and opposite short. A contract is born when a long and a short meet on the market. There would be a clear \contract cycle" which the exchange defines. For example, using quarterly contracts, we would have something like this: On Jan 1, four contracts start trading. The nearest contract expires on 31 Mar. On 31 Mar, this first contract ceases to exist, and the next (30 June) contract starts trading. In the case of options, the exchange additionally defines the strike prices of the options which are allowed to trade.
  • Q.10 What is the role of arbitrage in the derivatives area? All pricing of derivatives is done by arbitrage, and by arbitrage alone. In other words, basic economics dictates a relationship between the price of the spot and the price of futures. If this relationship is violated, then an arbitrage opportunity is available, and when people exploit this opportunity, the price reverts back to its economic value. In this sense, arbitrage is basic to pricing of derivatives. Without arbitrage, there would be no market efficiency in the derivatives market: prices would stray away from fair value all the time. Indeed, a basic fact about derivatives is that the market efficiency of the derivatives market is inversely proportional to the transactions costs faced by arbitrageurs in that market. When arbitrage is fluent and effective, market efficiency is obtained, which improves the attractiveness of the derivatives from the viewpoint of users such as hedgers or speculators.
  • Q.11 What is the role of liquidity in enabling good derivatives markets? The role of liquidity (which is defined as low transactions costs) is in making arbitrage cheap and convenient. If transaction costs are low, then the smallest mispricing on the derivatives market will be removed by arbitrageurs, which will make the derivatives market more efficient.
  • Q.12 How does liquidity matter for market indexes? At one level a market index is used as a pure economic time-series. Liquidity affects this application via the problem of non-trading. If some securities in an index fail to trade today, then the level of the market index obtained reflects the valuation of the macro economy today (via securities which traded today), but is contaminated with the valuation of the macro economy yesterday (via securities which traded yesterday). This is the problem of stale prices. By this reasoning, securities with a high trading intensity are best-suited for inclusion into a market index. As we go closer to applications of market indexes in the indexation industry (such as index funds, or sector-level active management, or index derivatives), the market index is not just an economic time-series, but a portfolio which is traded. The key difficulty faced here is again liquidity, or the transactions costs faced in buying or selling the entire index as a portfolio.
  • Q.13 What is special about Nifty for use in index derivatives? The methodology created for the NSE-50 index explicitly isolates a set of securities for which the market impact cost is minimized when buying or selling the entire index portfolio. This makes Nifty well-suited to applications such as index funds, index derivatives, etc. Nifty has an explicit methodology for regular maintenance of the index set. It is successful at expressing the market risk inherent in a wide variety of portfolios in the country.
  • Q.14 What should be done to minimize disasters with derivatives? At the level of exchanges, position limits and surveillance procedures should be sound. At the level of clearinghouses, margin requirements should be stringently enforced, even when dealing with a large institution like Barings. At the level of individual companies with positions on the market, modern risk measurement systems should be established alongside the creation of capabilities in trading in derivatives. The basic idea which should be steadfastly used when thinking about returns is that risk also merits measurement.
  • Q.15 Why are commodity futures markets important? India's farmers, and downstream industrial users of agricultural output, are exposed to extremely high risks. The creation of commodity derivatives markets will provide them with the choice of obtaining insurance against price fluctuations. It will improve liquidity and price discovery in the underlying spot markets. Once futures markets exist, the private sector will maintain buffer stocks which will reduce spot price volatility, and the private sector will do this far more efficiently than government-sponsored efforts at maintaining buffer stocks. In addition, the creation of these markets is consistent with the growth of skills in India's financial industry in the area of derivatives.
  • Q.16 How should regulation of exchanges work? The most important intuition in regulation of exchanges is to view the exchange as a manufacturer of liquidity services. If exchanges do this well, they will get satisfied customers. Exchanges that fail to do this well will fail to get business and go bankrupt. In India we have seen numerous industries and services where competition and the steady process of entry and exit have proved to be a great success in producing high quality and low price. The area of trading services is no exception. The key role for public policy is to keep entry barriers low and therefore keep the competitive pressure upon the incumbents high. It should be easy to start new exchanges; even for business houses to start exchanges. It should be easy (say) for CBOT to come to India and start an exchange. That will serve to keep up competitive pressure and steadily improve the services and costs that end-users, the investors, face.
  • Q.17 How should margining for derivatives work? Margining systems are accepted as being the foundation through which the clearing-house guarantees the trade on a futures market, all over the world. This has become extremely Important in India where futures-style settlement is used in \the cash market" at all stock exchanges. At futures markets worldwide, margining works in two steps:
    • 1. An initial margin is charged, which depends upon the position taken. In India, unlike in other countries worldwide, the banking system is unable to move funds swiftly. However, a situation where initial margin is paid after the position is adopted is unsafe for the clearinghouse. Hence the solution, which has been widely utilized in India, is the exposure limit. This can be interpreted as an advance payment of initial Margin and members are constrained to not take a position larger than that supported by the funds deposited in advance. For example, if an exposure limit of 33 times base capital is in place, and then it means that the exchange requires a 3.33% initial margin.
    • 2. The net profit or loss on a position is paid out to or in by the member on the very same day, in the form of daily mark-to-market (MTM) margins. A large loss, when accumulated over several days, generates a temptation to default at settlement. To prevent this from happening, the loss of each day is paid up on that day itself. The member will not default on the MTM payments as long as the one-day loss is smaller than the initial margin (which the exchange forfeits if the member defaults).
  • Q.18 How is daily mark to market (MTM) margin calculated? The calculation of daily MTM margin is easily done as the net loss associated with a position. This is paid up each evening after trading has ended. Two nuances are of interest here:
    • 1. The correct computation of MTM margin is to focus on the net loss across all different securities on which positions are held by the member.
    • 2. On futures markets all over the world, profits are paid by the clearinghouse to members on a daily basis, just like losses are paid into the clearinghouse by members. The margins reflect the symmetry in taking positions on The futures markets {the losses made by one side of the contract are the profits made by the other side.
  • Q.19 What are the risks that derive from usage of derivatives? Because all derivative instruments are equivalent to combinations of existing securities, they cannot introduce any new or fundamentally different risks into the financial system. What derivatives do accomplish, however, is a facility for transferring these risks, and concentrating their risk management into a few entities. A common classification of the risks in the derivatives area uses three areas (a) risks to individual users owing to mistakes in their positions, (b) risks to the clearinghouse owing to large market fluctuations and (c) risks to the economy from a breakdown of all the markets in the country.

Mutual Funds

Mutual Fund, or Unit Trust as it is called in some parts of the world, has a long and successful history. In developed financial markets, like the United States, Mutual Funds have almost overtaken bank deposits and total assets of insurance funds. In India, the Mutual Fund industry started with the setting up of Unit Trust of India in 1964. Public sector banks and financial institutions began to establish Mutual Funds in 1987. The private sector and foreign institutions were allowed to set up Mutual Funds in 1993. This fast growing industry is regulated by the Securities and Exchange Board of India (SEBI).
  • Q.1 What Is a Mutual Fund? A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investable surplus of as little as a few thousand rupees can invest in Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy.
  • Q.2 Where the fund is invested? The money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives. The income earned through these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
  • Q.3 What Are the Types of Mutual Fund Schemes by structure?
    • Open-Ended Schemes
      These do not have a fixed maturity. You deal directly with the Mutual Fund. The key feature is liquidity. You can conveniently buy and sell your units at net asset value ("NAV") related prices.
    • Close-Ended Schemes
      Schemes that have a stipulated maturity period are called close-ended schemes. You can invest directly in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unit holders' expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows. Some close-ended schemes give you an additional option of selling your units directly to the Mutual Fund through periodic repurchase at NAV related prices.
    • Interval Schemes
      These combine the features of open-ended and close- ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.
  • Q.4 What are the types of Mutual Fund Schemes by Investment Objectives?
    • Growth Schemes
      Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short- term decline in value for possible future appreciation.
    • Income Schemes
      Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures.
    • Balanced Schemes
      Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities as indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls.
    • Money Market Schemes
      Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter- bank call money. Returns on these schemes may fluctuate, depending upon the interest rates.
  • Q.5 What other types of schemes of Mutual Funds available?
    • Tax Saving Schemes
      These schemes offer tax rebates to the investors under tax laws as prescribed from time to time. This is made possible because the Government offers tax incentives for investment in specified avenues. For example, Equity Linked Savings Schemes (ELSS) and Pension Schemes.
    • Special Schemes
      This category includes index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50, or industry specific schemes (which invest in specific industries) or sectoral schemes (which invest exclusively in segments such as 'A' Group shares or initial public offerings). Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. Sectoral fund schemes are ideal for investors who have already decided to invest in a particular sector or segment. Keep in mind that any one scheme may not meet all your requirements for all time.
  • Q.6 What is Net Asset Value (NAV)? Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
  • Q.7 What is the Sale Price? Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.
  • Q.8 What is Repurchase Price? Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.
  • Q.9 What is Redemption Price? Redemption Price Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.
  • Q.10 What is Sales Load? Sales Load Is a charge collected by a scheme when it sells the units. Also called, 'Front-end' load. Schemes that do not charge a load are called 'No Load' schemes.
  • Q.11 What is Repurchase or 'Back-end' Load? Repurchase or 'Back-end' Load Is a charge collected by a scheme when it buys back the units from the unit holders.
  • Q.12 What are the advantages of investing in Mutual Funds? Professional Management : You avail of the services of experienced and skilled professionals who are backed by a dedicated investment research team which analyses the performance and prospects of companies and selects suitable investments.
    Diversification : Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks declare at the same time and in the same proportion.
    Convenient Administration : Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential. Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
    Low Costs : Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
    Liquidity : In open-ended schemes, you can get your money back promptly at net asset value related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically.
    Transparency : You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.
    Flexibility. Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

    Choice of Schemes : Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
    Well Regulated : All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI
  • Q.13 How do you understand and manage risk? All investments whether in shares, debentures or deposits involve risk: share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy; generally, however, longer the term, lesser the risk; companies may default in payment of interest/ principal on their debentures/bonds/deposits; the rate of interest on an investment may fall short of the rate of inflation reducing the purchasing power. While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them build a diversified portfolio that Minimizes risk and maximizes returns.


  • What is an IPO? An Initial Public Offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. Companies fall into two broad categories, private and public. A privately held company has fewer shareholders and its owners don't have to disclose much information about the company. Anybody can go out and incorporate a company, just put in some money, file the right legal documents and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. It usually isn't possible to buy shares in a private company. You can approach the owners about investing, but they're not obligated to sell you anything. Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as "going public." Public companies have thousands of shareholders and are subject to strict rules and regulations. They must have a board of directors and they must report financial information every quarter. From an investor's standpoint, the most exciting thing about a public company is that the stock is traded in the open market, like any other commodity. If you have the cash, you can invest." Going public raises cash, and usually a lot of it. Being publicly traded also opens many financial doors:
    • Because of the increased scrutiny, public companies can usually get better rates when they issue debt.
    • As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal.
    • Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent.
    Being on a major stock exchange carries a considerable amount of prestige. In the past, only private companies with strong fundamentals could qualify for an IPO and it wasn't easy to get listed.
  • Getting In On An IPO Getting a piece of a hot IPO is very difficult, if not impossible. To understand why, we need to know how an IPO is done, a process known as underwriting. When a company wants to go public, the first thing it does is hire an investment bank. A company could theoretically sell its shares on its own, but realistically, an investment bank is required. Underwriting is the process of raising money by either debt or equity (in this case we are referring to equity). You can think of underwriters as middlemen between companies and the investing public. The company and the investment bank will first meet to negotiate the deal. Items usually discussed include the amount of money a company will raise, the type of securities to be issued and all the details in the underwriting agreement. The deal can be structured in a variety of ways. For example, in a firm commitment, the underwriter guarantees that a certain amount will be raised by buying the entire offer and then reselling to the public. In a best efforts agreement, however, the underwriter sells securities for the company but doesn't guarantee the amount raised. Also, investment banks are hesitant to shoulder all the risk of an offering. Instead, they form a syndicate of underwriters. One underwriter leads the syndicate and the others sell a part of the issue. Once all sides agree to a deal, the investment bank puts together a registration statement to be filed with the SEBI. This document contains information about the offering as well as company info such as financial statements, management background, any legal problems, where the money is to be used and insider holdings. Once SEBI approves the offering, a date (the effective date) is set when the stock will be offered to the public. During the cooling off period the underwriter puts together what is known as the red herring. This is an initial prospectus containing all the information about the company except for the offer price and the effective date, which aren't known at that time. With the red herring in hand, the underwriter and company attempt to hype and build up interest for the issue. As the effective date approaches, the underwriter and company sit down and decide on the price. This isn't an easy decision; it depends on the company and most importantly current market conditions. Of course, it's in both parties' interest to get as much as possible. Finally, the securities are sold on the stock market and the money is collected from investors.
  • Don't Just Jump In Let's say you do get in on an IPO. Here are a few things to look out for.
  • No History It's hard enough to analyze the stock of an established company. An IPO company is even trickier to analyze since there won't be a lot of historical information. Your main source of data is the red herring, so make sure you examine this document carefully. Look for the usual information, but also pay special attention to the management team and how they plan to use the funds generated from the IPO. And what about the underwriters? Successful IPOs are typically supported by bigger brokerages that have the ability to promote a new issue well. Be more wary of smaller investment banks because they may be willing to underwrite any company.
  • The Lock-Up Period If you look at the charts following many IPOs, you'll notice that after a few months the stock takes a steep downturn. This is often because of the lock-up period. When a company goes public, the underwriters make promoters and employees in case ESOP signs a lock-up agreement. Lock-up agreements are legally binding contracts between the underwriters and insiders of the company, prohibiting them from selling any shares of stock for a specified period of time. The problem is, when lockups expire all the insiders are permitted to sell their stock. The result is a rush of people trying to sell their stock to realize their profit. This excess supply can put severe downward pressure on the stock price.
  • IPO Basics: Conclusion Let's review the basics of an IPO:
    • An initial public offering (IPO) is the first sale of stock by a company to the public.
    • Broadly speaking, companies are either private or public. Going public means a company is switching from private ownership to public ownership.
    • Going public raises cash and provides many benefits for a company.
    • Getting in on a hot IPO is very difficult, if not impossible.
    • The process of underwriting involves raising money from investors by issuing new securities.
    • Companies hire investment banks to underwrite an IPO.
    • An IPO company is difficult to analyze because there isn't a lot of historical info.
    • Lock-up periods prevent insiders from selling their shares for a certain period of time. The end of the lockup period can put strong downward pressure on a stock.
    • Flipping may get you blacklisted from future offerings.
    • Road shows and red herrings are marketing events meant to get as much attention as possible. Don't get sucked in by the hype.

Depository Participant

  • Q.1 What is a depository? A depository can be compared to a bank. A depository holds securities (like shares, debentures, bonds, Government Securities, units etc.) of investors in electronic form. Besides holding securities, a depository also provides services related to transactions in securities. There are two depositories:
    • National Securities Depository Limited (NSDL)
    • Central Depository Services Limited (CDSL)
  • Q.2 How can I avail the service of a depository? A depository interfaces with the investors through its agents called Depository Participants (DPs). If an investor wants to avail the services offered by the depository, the investor has to open an account (known as Demat Account) with a DP. This is similar to opening an account with any branch of a bank in order to utilise the bank's services.
  • Q.3 What are the benefits of participation in a depository?
    • Immediate transfer of securities
    • No stamp duty on transfer of securities
    • Reduction in paperwork involved in transfer of securities
    • Reduction in transaction cost
    • Nomination facility etc.
  • Q.4 What are the facilities offered by the Depository?
    • Dematerialisation
    • Rematerialisation Electronic settlement of trades
    • Pledging/hypothecation etc.
  • Q.5 Who is a DP? DPs are the agents of depositories. Depositories provide its services to investors through its agents called depository participants (DPs). These agents are appointed by NSDL and CDSL with the approval of SEBI. According to SEBI regulations, amongst others, three categories of entities i.e. Banks, Financial Institutions and Members of Stock Exchanges [brokers] registered with SEBI can become Dps. Alankit is DP, both for NSDL and CDSL.
  • Q.6 What should I do when I want to open an account with a DP? You can approach any DP of your choice and fill up an account opening form. At the time of opening an account, you have to sign an agreement with the DP in a NSDL/CDSL prescribed standard agreement, which details your and your DP’s rights and duties. You have to submit the following with the prescribed account opening form. In case you want to open an account jointly with other person(s), the following should be submitted for all the account holders.
    I. Proof of Identity (POI)
    • Passport
    • Voter ID Card
    • Driving license
    • PAN card with photograph

    II. Proof of Address (POA)
    • Ration card
    • Passport
    • Voter ID Card
    • Driving license
    • Bank passbook

    III.Passport-size photograph.
    IV. Copy of PAN Card.
  • Q.7 Can I open more than one account with the same DP? Yes. You can open more than one account with the same DP. There is no restriction on the number of accounts you can open with a DP.
  • Q.8 Can someone else operate my account on my behalf on the basis of a power of attorney? Yes. If you authorise any person to operate your account by executing a power of attorney and submit it to your DP, that person can operate the account on your behalf.
  • Q.9 What is 'Standing Instruction' given in the account opening form? In a depository account 'Receipt in' form has to be submitted to receive securities in the account. However, for the convenience of investors, a facility of 'standing instruction' is given. If you say 'Yes' for standing instruction, you need not submit 'Receipt in' slip every time you buy securities.
  • Q.10 Can I close my demat account with one DP and transfer all securities to my account with another DP? Yes. You can submit an account closure request to your DP in prescribed form. Your DP will transfer all your securities, as per your instruction, and close your demat account.
  • Q.11 Who is the registered owner of Securities? When securities of a company are held in physical form by an investor, Name of the investor is recorded in the books of the company as a ‘Registered Owner of the Securities. Each certificate is identified by Folio number, certificate number and distinctive range numbers.
  • Q.12 Who is a Beneficial Owner (BO)? When physical shares are converted into electronic form, the depository becomes ‘Registered owner" in the books of the company and investors name is removed from books of the company. Depository is holding shares in its records on behalf of the investors who have opened a demat account with the depository. Hence all benefits are given to the actual investor who is called as a "Beneficial Owner" (BO) of the securities.
  • Q.13 Who is an Issuer? "Issuer" means any entity such as corporate / state or central government organizations Issuing securities which can be held in depository in electronic form.
  • Q.14 Who is an RTA? An RTA i.e. Registrar and Transfer Agent is an agent of the issuer. RTA acts as an intermediary between the issuer and depository for providing services such as Dematerialization, Rematerialisation, Initial Public Offers and Corporate actions.
  • Q.15 What is an ISIN (International Securities Identification Number)? "ISIN" is a unique 12 digit alphanumeric code given to a security, shares, Debentures, Bonds etc. when the security is admitted in the depository system. First two digits of the ISIN code indicate the country of registration for the security. All securities registered on depositories in India, the first two digits of the ISIN code are ‘IN’.
  • Q.16 What is Power of Attorney (POA) in the demat scenario? Power of Attorney is authority given by a demat account holder to some other entity operating his demat account.
  • Q.17 What is Transposition-cum-demat? Transposition-cum-demat facility enables an investor to transpose names of the joint holders in desired order along with the process of dematerialization of certificates. Transposition-cum-dematerialization facilitates dematerialization of certificates held in different order of names through one demat account, provided the securities to be transposed are held in the same joint names, but, in a different order.
  • Q.18 What is an On Market Transaction? Any transaction involving receipt of delivery of securities to a clearing corporation / Clearing House for sale and purchase of securities done on a stock exchange is generally termed as On Market transaction.
  • Q.19 What is an Off Market transaction? Off Market transaction is one which is settled directly between two BOs with or without using the broker and where Clearing Corporation / Clearing House is not involved. Both BO accounts will be within CDSL. Accounts may be with the same DP or different DP but within CDSL.
  • Q.20 What is an Inter Depository transfer? Any transfer of securities between two BOs not having demat accounts within the same depository is termed as an "Inter Depository" transfer.
  • Q.21 What is the meaning of Pledge? Pledge is an activity of taking loans against securities by the investor. The investor is called as ‘pledgor’ and the entity who is giving the loan against the securities is called as ‘pledgee’.
  • Q.22 Who can nominate? Nomination can be made only by individuals holding beneficiary accounts either singly or jointly only.
  • Q.23 Can there be more than one nominee? No, only one nomination can be made for one depository account.
  • Q.24 What does transmission mean in relation to demat accounts? Transmission is the process by which securities of a deceased account holder are transferred to the account of the surviving joint holder(s)/nominee/legal heirs of the deceased account holder. Documents required are
    • Transmission form,
    • Notarised copy of death certificate, and
    • An affidavit
  • Q.25 What do you mean by dematerialisation? Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor's account with its DP.
  • Q.26 What do you mean by Rematerialisation? 'Rematerialisation' is the term used for converting electronic holdings back into certificates.
  • Q.27 What is the procedure for selling dematerialised securities? You sell securities in any of the stock exchanges linked to NSDL through a broker:
    • Give instruction to your DP to debit your account and credit the broker's [clearing member pool] account
    • Before the pay-in day, your broker gives instruction to its DP for delivery to clearing corporation;
    • Your broker receives payment from the stock exchange [clearing corporation] ;
    • You receive payment from the broker for the sale of securities
  • Q.28 How can I purchase dematerialised securities? You purchase securities through a broker:
    • You make payment to your broker who arranges payment to clearing corporation on the pay-in day,
    • Your broker receives credit of securities in its clearing account (clearing member pool account) on the pay-out day, and
    • Your broker gives instructions to its DP to debit clearing account and credit your account
  • Q.29 What is SPEED-e? SPEED-e is a common Internet Infrastructure that enables the Depository Participants (DPs) to provide depository services to their clients. Demat account holders (including Clearing Members) subscribing to this facility can submit delivery instructions to their DPs through SPEED-e website, instead of submitting delivery instruction slips (in paper form) to their DPs.
  • Q.30 What is Electronic Access to Securities Information (EASI) ? EASI is a convenient, easy to operate internet based facility, which allows registered Beneficial Owners (BOs) & Clearing Members (CMs) to access their demat account through the internet to check the details of their holdings / valuation and transactions, corporate announcements, anytime anywhere, through CDSL’s website
  • Q.31 What is Electronic Access to Securities information and Execution of Secured Transactions (easiest) ? CDSL’s internet based facility, EASIEST(electronic access to securities information and execution of secured transactions), permits CMs of BOs to submit off-market, on-market, inter-depository and early pay-in debit online instructions from their demat account by using the Internet facility from their home. Moreover, all the facilities and benefits of easi are automatically made available to a subscriber of easiest.
  • Q.32 What are the benefits of the easiest? Easiest, not only provides all the benefits of easi, but also gives a BO/CM the convenience of executing debit/credit instructions from their demat account, over the internet, anytime anywhere. Easiest permits CMs to submit off-market, on-market, inter-depository and early pay-in debit instruction from their demat account. For more details, please visit

Cash Segment

  • Q.1 What are the formalities for registering as a client of a NSE trading member/ SEBI registered sub-broker? All investor’s should register themselves with registered trading members/ sub-brokers by: Filling a Client Registration Form, and Signing a Member-Constituent Agreement (copy available with all NSE trading members). The Member-Constituent Agreement contains the terms and conditions including order/ trade confirmation, brokerage charged by a trading member, delivery of securities and funds and therefore helps reduce the chances of disputes in respect of the same. This Agreement is mandatory for all persons registering as a new client of a NSE trading member/ SEBI registered sub-broker.
  • Q.2 What precautions should I take before signing the Member-Constituent Agreement? You should read the various terms and conditions carefully and understand their implications before entering into this agreement with your trading member. 1.Check whether it is on a Stamp Paper of requisite value and whether the Stamp Paper is valid. Ensure that the date of agreement is not prior to the date mentioned on the stamp paper. 2.Check whether your name and the name of the trading member are clearly mentioned in the agreement. 3.Ensure that the trading member and you have signed on all the pages of the agreement. Also, check that the witnesses have signed and put their names against their signature. 4.Check whether the trading member or their representatives have the authority (such as Board Resolution, Power of Attorney, etc.) to sign the Member-Constituent Agreement
  • Q.3 How should I give my purchase/ sale instructions to my trading member/ sub-broker? A trading member/ client relationship is one of trust. However, it is very important that all your order instructions are given in writing and are duly acknowledged by the trading member. The order instructions should clearly indicate the scrip name, whether order is for buy or sell, the quantity for each of the Scripps, rate specifications if any, and other relevant instructions. This reduces chances of miscommunication between you and your trading member/ sub-broker at the time of placing deals on your behalf.
  • Q.4 What is price-time priority? The system arranges all orders in the priority of price and within price by time. You have, let us say, placed a buy order for 100 shares of company A at Rs.285 and another investor has placed a buy order at Rs.290. So, anyone who places a sell order in company A will be first matched with the buy order of the second investor as he has given a better price. This is price priority. Let us say both of you have quoted Rs. 285 as the price at which you want to buy shares of company A, then sell the order which comes into the system at this price will be matched against the order which was placed first.
  • Q.5 How do I know my trading member has given me the best price? The NSE trading system matches orders in such a way that the order gets executed at a price which is either equal to or better than the specified price but never worse than it. Therefore, if you have given an order for selling 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a sale price of Rs.50 or more but never less. Similarly, if you have given an order for buying 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a buy price of Rs.50 or less but never more.
  • Q.6 How do I ascertain the correct rate at which my deal has been executed? The NSE trading system (NEAT) generates and maintains an audit trail of the orders entered on the system by assigning a unique order number to all the orders placed on the NEAT system. You should therefore ask your trading member to give you the unique order number that the system has assigned to your order. Further, as soon as your order is executed, a trade confirmation slip is generated which displays the trade number, trade time, quantity and price at which your trade took place and the corresponding order number. Trading members are obligated to give their clients a trade confirmation slip the moment a trade takes place. By looking at the trade slip, you can actually verify the rate at which your order was traded. At the end of the day, the trading member should give you a contract note.
  • Q.7 How do I ensure that the trading member does not give me trade price pertaining to some other client or trade prices for deals executed in his personal account? You can verify this by checking that the price given to you pertains to the unique order number provided to you by the trading member. The Exchange maintains details of the order/ trade number and other details pertaining to the transaction for a period of eight years and the investor can counter check these details with the Exchange.
  • Q.8 What are the documents I should receive from my NSE trading member/ registered sub-broker pertaining to my trade and when should I get them? Order confirmation slip - After the order has been placed. Trade confirmation slip - After the trade has been executed. Contract note - Within 24 hours of the trade being executed Purchase/ sale note where deal is routed through a registered sub-broker of a NSE trading member - Within 24 hours of the trade being executed You should always insist on getting your contract notes or purchase/sale notes from your trading member or sub-broker respectively.
  • Q.9 What if the details contained in the contract/ purchase/ sale notes are incorrect or the notes include some transactions not pertaining to my orders/ trades? You should counter check the details contained in the contract/ purchase/ sale notes with those on the order and trade confirmation slip. Check whether the order number, trade number and other details on the trade confirmation slip match with those on the contract/ purchase/ sale notes. In case of any discrepancy, you should bring the same to the notice of the trading member/ sub-broker immediately by way of written communication duly acknowledged by the trading member/ sub-broker, clearly mentioning the deals (in dispute) which do not pertain to you.
  • Q.10 What is a contract note and why is it essential? Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client. A contract note issued in the format and manner prescribed by NSE establishes a legally enforceable relationship between the trading member and client in respect of settlement of trades executed on the Exchange as stated in the contract note. Contract notes are made in duplicate, and the member and client both keep one copy each. The said contract notes should be signed by a trading member or by an authorized signatory of the trading member. After verifying the details contained therein, the second copy of contract note should be returned to the trading member duly acknowledged by you.
  • Q.11 Why should I insist on getting contract/ purchase/ sale notes for trades executed? These documents are very important to enforce the deals transacted through the trading member/ sub-broker. In case of disputes/ claims/ differences, these documents would help you prove that the transactions have been executed on the Exchange through NSE TM/ registered sub-broker. These documents are a prerequisite for filing a complaint or arbitration proceeding against TM/ registered sub-broker.
  • Q.12 Will I get a contract note even if I have dealt with a registered sub-broker? In case you have dealt through a registered sub-broker, the sub-broker is required to issue purchase/sale notes to you. However, the trading member would issue to your sub-broker back-to-back contract notes giving details of all the transactions done by the sub-broker through the trading member’s terminal. The said notes should be signed by an authorized signatory of the registered sub-broker. After verifying the details contained therein, the second copy of purchase/ sale notes should be returned to the sub-broker duly acknowledged by you.
  • Q.13 What are the points to be checked by an investor to check the validity of a contract note? To ensure that the contract note issued to you by the trading member is valid, you must verify the following details:
    • The contract note should be in prescribed format
    • Name and address of the trading member.
    • The SEBI registration number of the trading member
    • Details of trade viz. Order number, trade number, trade time, security name, quantity, rate, brokerage, settlement number, details of other levies
    • The trade price should be shown separately from the brokerage charged.
    • Signature of authorized signatory and the arbitration clause stating that the trade is subject to the jurisdiction of Mumbai must be present on the face of the contract note.
  • Q.14 What are the points to be checked by an investor to check the validity of a purchase/sale note?
    • The purchase/sale note should be in prescribed format •Name, address and SEBI registration number of the registered sub-broker
    • Name, address and SEBI registration number of the affiliated trading member
    • Details of trade viz. order number, trade number, trade time, security name, quantity, rate, brokerage, settlement number, details of other levies.
    • The trade price should be shown separately from the brokerage charged.
    • Signature of authorized signatory and the arbitration clause stating that the trade is subject to the jurisdiction of Mumbai must be present on the face of the contract note.
  • Q.15 What is the maximum brokerage that a NSE trading member/registered sub-broker can charge? As stipulated by SEBI, the maximum brokerage that can be charged is 2.5% of the trade value. This maximum brokerage is inclusive of the brokerage charged by the sub-broker (sub-brokerage cannot exceed 1.5% of the trade value).
  • Q.16 What are the additional charges other than brokerage that can be levied on the investor?
  • The trading member can charge: •Service tax @ 5% of the brokerage
    • Transaction charges levied by NSE
    • Penalties arising on behalf of client (investor) The brokerage and service tax is indicated separately in the contract note.
  • Q.17 What is an Account Period Settlement? An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.
  • Q.18 What is a Rolling Settlement? In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day. In NSE, the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.
  • Q.19 If I have sold securities when do I deliver them to the trading member? You have to deliver the securities to the trading member immediately upon getting the contract note for sale but in any case, before the prescribed securities pay-in day.
  • Q.20 When can I expect to receive funds/securities from the trading member? The securities and the funds are paid out to the trading member on the pay-out day. The NSE regulations stipulate that the trading member should pay the money or securities to the investor within 48 hours of the pay-out.
  • Q.21 What are the prescribed pay-in and pay-out days for funds and securities for Normal Settlement ? The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:
    Table data

    Note: The above is a typical settlement cycle for normal (regular) market segments. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of pay-in/ pay-out notified by the Exchange for each settlement from time-to-time.
  • Q.22 How do I pay-in demat shares towards my sale obligation? You should instruct your Depository Participant (DP) to give ‘Delivery Out’ instructions to transfer the shares from your beneficiary account to the Pool Account of your trading member through whom you have sold the shares. The details of the Pool A/C(CM-BP-ID) of your trading member to which the shares are to be transferred, scrip quantity etc. should be mentioned in the Delivery Out instructions given by you to your DP. The instructions should be given well before the prescribed securities pay-in day. SEBI has advised that the Delivery Out instructions should be given at least 24 hours prior to the cut-off time for the prescribed securities pay-in to avoid any rejection of instructions due to date entry errors, network problems etc.
  • Q.23 How do I receive demat shares in my beneficiary account towards my purchase transaction? You should give Standing Instructions for ‘Delivery-In’ to your DP for accepting shares in your beneficiary account. You should give the details of your beneficiary account and the DP-ID of your DP to your trading member. The trading member will transfer the shares directly to your beneficiary account on receipt of the same from the Clearing Corporation. Pursuant to SEBI directive (vide its circular SMDRP/ Policy/ Cir-05/2001 dated February 1, 2001) NSCCL has introduced a settlement system for direct delivery of securities to the investor’s accounts with effect from April 2, 2001.
  • Q.24 What is the Settlement Guarantee Fund? The Clearing Corporation has set up the Settlement Guarantee Fund (SGF) through contributions of its trading members. The SGF is intended primarily to guarantee completion of settlement up to the normal pay-out for trades executed in the regular market and will not act as guarantee for company objection cases i.e. replacement of bad paper or payment of its equivalent financial value. The SGF therefore ensures that the settlement is not held up on account of failure of trading members to meet their obligations and all market participants (trading members, custodians, investor’s etc.) who have completed their part of the obligations are not affected in any manner whatsoever.
  • Q.25 Are investors affected, in case a counter trading member fails to pay-in funds as per his settlement obligation? No, the investor is not affected in case the counter trading member fails to meet his obligation since National Securities Clearing Corporation Limited (NSCCL) guarantees the net settlement obligations. The Clearing Corporation guarantees completion of settlement through the Settlement Guarantee Fund (i.e. NSCCL steps in on behalf of the trading member who failed to bring in funds).
  • Q.26 What is an Auction? The securities are put up for auction by the Exchange on account of non-delivery of securities by the selling trading member to ensure that the buying trading member receives the securities due to him. The non-delivery by the trading member could arise on account of short delivery, bad deliveries not rectified and company objections not rectified by them. The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member.
  • Q.27 If I have shares to deliver, can I take the benefit of the auction mechanism? Yes, you can ask your trading member to sell your securities in the Auction. However you should ensure that:
    • Shares are readily available for delivery (pay-in day of securities for auction is held within 1 or 2 days of auction)
    • Shares delivered are good delivery (no opportunity provided for rectification of bad delivery) Securities not delivered on auction pay-in day or bad delivery of securities delivered in auction are directly squared off at a price specified by the Exchange/ Clearing Corporation.
  • Q.28 What happens if the shares are not bought in the auction? If the shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are squared up as per SEBI guidelines. As per the guidelines in force, the transaction is squared up at the highest price on the NSE from the relevant trading period till the close-out day or at 20% above the last available trading price on the NSE, whichever is higher.
  • Q.29 What are Good and Bad Deliveries? SEBI has formulated uniform guidelines for good and bad delivery of documents. An exhaustive list of instances of good or bad delivery of documents – transfer deed and share certificate is included in the said guidelines. For example, bad delivery may pertain to transfer deed being outdated (date not valid), torn, mutilated, overwritten, defaced; or spelling mistakes in the name of company/ transferor or mistakes in writing the folio/ certificate/ distinctive number etc.
  • Q.30 What is the recourse available to me if I receive a bad delivery? All bad deliveries have to be reported to the Clearing House by the buying trading member within 48 hours of pay-out day.
  • Q.31 Is it obligatory on the part of the investor to check that the deliveries given to him is good? Investors should ensure that deliveries given and received by them are good. This would reduce complications and additional paperwork for rectifying the same at a future date.
  • Q.32 What are company objections? After buying the shares, the investor sends the certificate along with the transfer deed to the company for transfer and registration in their name. In certain cases, the registration is rejected by the company for reasons such as signature difference or fake/forged/stolen shares or court injunction preventing transfer. In such cases the company may return the share certificate and transfer deed along with a letter termed as Objection Memo. All such cases are identified as Company Objections
  • Q.33 What is a Stop Transfer case? Stop transfer is the process whereby the transfer of shares is stopped by the company under grounds provided for in the Companies Act 1956. The stop transfer is generally affected by the company on the strength of a copy of FIR or court order when some securities are reported missing/ lost/ stolen by the holder of the securities.
  • Q.34 What should I do with shares returned by the company as company objections? What is the time frame for reporting company objections? You should submit the documents (company objection memo, transfer deed, share certificate and other relevant documents) received from the company to your trading member immediately. The shares returned by the company should be reported as Company Objection to the Clearing House within 12 months from the date of issue of the objection memo. Company objection cases can be reported by the trading members to the Clearing House typically on Tuesday and Wednesday every week.
  • Q.35 After submitting my shares under objection to the trading member, how do I get my rectified/replaced shares? The trading member will report these shares to the Clearing House who in turn will forward the documents to the trading member who first sold the shares on the Exchange (introducing members of NSE) for rectification/ replacement. The introducing members are required to rectify/ replace the shares reported under objection within 21 days failing which the shares are put up for auction subject to Bye-laws, Rules and Regulations of the Exchange.
  • Q.36 What about the corporate benefits (dividend, bonus, rights etc) lost by me due to shares returned as company objection? The introducing member is also required to pay to the buyer, the equivalent value of corporate benefits that may have been announced by the company after he delivered the shares to the Exchange for the first time till the date he delivers the rectified/ replaced shares.

Commodity Derivatives

  • Q.1 What is a commodity market? A Commodity market is a place where trading in commodities takes place. It is similar to an Equity market, but instead of buying or selling shares, stock futures and index futures, one buys or sells commodities and commodity futures. Commodity markets are mainly exist in two forms:
    • Spot Market
    • Future Market.
  • Q.2 What is Spot Market ? Spot Market is a market where delivery based trade of commodities takes place. Forward deals also take place in these markets but they too happen on a delivery basis and hence are restricted to the participants in the spot markets. Spot markets, sometimes also called cash markets, are mostly fragmented Over the Counter markets.
  • Q.3 What is Future Market ? Future Market is primarily intended for Hedging and Speculation. Contracts in Futures Market results mostly in Cash Settlement and do not frequently result in delivery. The Clearing House guarantees trades executed on the exchange. Contracts that are not closed out and are due for delivery will be delivered and settled through the warehouse receipts. All contracts are settled on a daily basis at the daily settlement price till the final delivery of the commodity on the expiry date. Futures market is expected to help the market participants through two vital economic functions, viz., Price Discovery and Price Risk Management. With convergence of bids and offers emanating from a large number of buyers and sellers from different parts of the country – and possibly from abroad - futures trading is a very efficient means of forecasting the price for a commodity.
  • Q.4 What do we mean by Auction Market ? Auction Market is meant to close out the positions of the members who have failed to pay-in their obligations. In the Auction market, the trading member can participate in the auctions initiated by the Exchange only. The counter orders can be entered only during the Auction period.
  • Q.5 What are futures contracts? A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future for a certain price. These contracts have standardized features. They are normally traded on the exchange. The exchange also provides a mechanism that gives the two parties a guarantee to the effect that the contract will be honored.
  • Q.6 What are commodity futures? Ans. A commodity futures contract is an agreement between two parties to buy or sell the commodity at a future date at today's future price. Futures are standardized contracts among buyers and sellers of commodities that specify the amount of a commodity, grade/quality and delivery location.
  • Q.7 What are forward contracts? A forward contract is an agreement to buy or sell an asset at a certain future time for a certain price. It is traded over the counter market- usually between two financial institutions or between a financial institution and its clients. They are commonly used to hedge foreign currency risk.
  • Q.8 How are forward contracts useful? Forward contract is very valuable in hedging and speculation. It can help a farmer to hedge himself against any unfavorable movement of the prices of the commodity by forward selling it at a known price. In case of a speculator, if he has information, which forecasts an upturn in a price, then he can go long on the forward market instead of the cash market. The speculator would go long on the forward, wait for the price to rise and then take a reversing transaction. The use of forward market here supplied leverage to the speculator.
  • Q.9 What is the difference between the futures contracts and forward contracts ? Some of the basic differences between the futures and forward contracts are as follows:
    While futures contracts are traded on the exchange, forward contracts are traded over-the-counter.
    In case of futures contracts the exchange specifies the standardized features of the contract, while no per-determined standards are there in the forward contracts.
    Exchange provides the mechanism that gives the two parties a guarantee that the contract will be honored whereas there is no surety/guarantee of the trade settlement in case of forward contract.
  • Q.10 What are the benefits in futures trading/investing in commodities? Benefits of trading/investing in commodity futures : Transparency and Fair Price Discovery:Futures trading in commodities results in transparent and fair price discovery on account of large scale participation of entities associated with different value chains and reflects views and expectations of a wider section of people related to that commodity. Price discovery and price risk management flow more easily from an Order-driven system rather than a Quote-driven system. Anonymity of trading participants and effective risk management system strengthens the trust of the participants in the trading system, which is a precondition for enhancing breadth and depth of the market. Online Platform:This also provides an effective platform for price risk management for all segments of players ranging from the producers, the traders, processors, exporters/importers and the end users of the commodity. The trading on futures contract on our platform will be facilitated on an online platform for market participants to trade in a wide range of commodity derivatives driven by the best global practices of professionalism and transparencies. Hedging:Price Risk Management is very closely related to Hedging, which means transfer of some or all of that risk to those who are willing to accept it, which are in turn called Speculators. Price risk is managed by taking opposite positions on the two legs of the market e.g. spot and futures. The futures prices are linked to the spot prices through carrying cost, which comprises cost of storage, interest, wastage, shrinkage etc. Therefore, the two prices tend to move in parity. Taking opposite positions in the two legs of the market therefore tends to offset loss in any market on account of adverse price fluctuation. All the participants in the physical markets, like, producers, processors, manufacturers, importers, exporters and bulk consumers can focus on their core activities by covering their price-risk in the futures market. Their operations become more competitive since the price-risk involved in procurements, supply is transferred to the futures market. No Insider Trading: Dealing in commodities is free from the evils of insider trading. Besides, there are no company specific risks as those seen in stock markets. Simple Economics: More the demand for a commodity is its price and vice versa. Trade on Low Margin:Commodity Futures traders are required to deposit much lower margins compared to other asset classes. The low margin, which again varies across exchanges and commodities, facilitates the taking of large positions at lower capital. Seasonality Patterns:Quite often provide clues to both short and long term players. No Counterparty Risk:Much like the exchanges in the equity market, Commodity Futures market have Clearing Houses, which guarantee that the terms of the contracts are fulfilled, thereby eliminating the counterparty risk. Wide Participation: The emergence of online trading would enable growth in the commodity market, much akin to the one seen in the equity market. It would also ensure bringing the market closer to both, the user and the trader. Evolved Pricing: The rise in participation would decrease the risk of cartelisation, ensuring a holistic view on the commodity. Hence, pricing would be more practical and less irrational leading to Fair Price Discovery Mechanism.
  • Q.11 What are the different types of traders/participants in derivatives/futures markets ? There are three types of traders in the Derivative market namely:-
    Hedgers: They are in the position where they face risk associated with the price of an asset. They use derivatives to reduce or eliminate risk.
    Speculators:Speculators wish to bet on the future movement in the price of an asset. They use derivatives to get extra leverage. A speculator will buy and sell in anticipation of future price movements, but has no desire to actually own the physical commodity.
    Arbitrators: They are in the business to take advantage of a discrepancy between prices in two different markets.
    Investors: Producers / Farmers, Importers / Exporters, Commodity financers, Agricultural credit providing agencies, Hedgers, speculators, arbitrageurs, Large scale consumers. For e.g. refiners, jewelers, textile mills, Corporate having risk exposure in commodities.
  • Q.12 What is the background of the Commodities exchanges/markets in India ? Commodity derivatives started in India during the later part of 19th century when the first commodity exchange, viz. The Bombay Cotton Trade Association Ltd was set up for organizing futures trading. Forward markets started in Cotton (1875) at Bombay, in oilseeds (1900) at Bombay, in raw jute and jute goods (1912) at Calcutta, in Wheat (1913) at Hapur and in Bullion (1920) at Bombay. Forward markets in Sugar were also functioning at Bombay, Calcutta, Kanpur and Muzaffarnagar. In the absence of uniform regulations, these markets were regulated by social control of close-knit groups. Meanwhile, steps were taken to regulate these forward markets: Bombay Contract Control (War Provision) Act 1919 was passed by the Govt of Bombay and the Cotton Contract Board was set up. The Govt of Bombay passed Bombay Options in Cotton Prohibition Act 1939. In 1943, the Defence of India Act was used extensively for prohibiting forward trading throughout India. Orders were issued to ban forward trading in oilseeds, food-grains, spices, vegetable oils, sugar and cloth. The orders were retained in the Essential Supplies Temporary Powers Act 1946, after the Defence of India Act had lapsed. To have unified systems, Bombay Forward Contracts Control Act 1947 was enacted. The Govt of India passed Forward Contracts (Regulation) Act, 1952 which empowers the Govt/FMC to notify a commodity for prohibition of forward contract. The Act envisages three-tier regulations: The Exchanges can prepare its own rules, regulations and byelaws. . The Forward Markets Commission (FMC) approves the rules and byelaws and provides regulatory oversight. The Govt has full control over FMC. Ministry of Consumer Affairs, Food and Public Distribution, the Govt. of India - is the ultimate regulatory authority. This framework continues to exist even today all over India. A large number of commodities were notified for prohibition during the 1960s which left only a few insignificant commodities open for forward trade. This scenario continued for about four decades. During the Post-Liberalization Era since 1990-91 onwards, initiatives were taken for opening up of futures trading in selected commodities, strengthening of FMC, amendments to Forward Contracts Act, 1952, linkage of spot and forward markets, introduction of electronic warehouse receipt system, inclusion of more commodities and promotion of national system of warehouse receipt. In 2003, a group of 54 prohibited commodities was opened up for forward trading, along with establishment and recognition of 3 new national exchanges with on-line trading and professional management. The new exchanges brought capital, technology and innovation to the markets which notched up phenomenal growth in terms of number of products, participants, volumes and other associated fields, viz. research, education, training, media, collateral management, commodity finance, ware-housing, assaying and certification, software development, electronic spot exchanges etc. Today, forward markets and associated fields attract significant mind-share nationally and internationally.
  • Q.13 Which are tradable commodities? Starting with trade in 7 commodities till 1999, more than 100 commodities have been permitted for trade after liberalization of futures in 2003. But trade could gain liquidity in a few dozen commodities. Futures trading is now available in agro products, metals, oil and oilseeds, food grains, pulses, vegetables, fibres, spices, energy products, polymers, petrochemicals, carbon credits etc.
    • Precious Metals: Bullion, Gold and Silver
    • Oil & Oilseeds: Castor Seeds, Soya Seeds, Castor Oil, Refined Soya Oil, Soya meal, Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed, Furnace Oil, Light Crude Oil, Mentha Oil,
    • Spices : Pepper, Red Chilli, Jeera, Turmeric, Cardamom,
    • Metals : Steel Long, Steel Flat, Copper, Nickel, Tin, Steel, Aluminum Zinc ingots, Zinc.
    • Fibre : Kapas, Long Staple Cotton, Medium Staple Cotton,
    • Pulses : Chana, Urad, Yellow Peas, Tur, Yellow Peas, Chana,
    • Grains : Rice, Basmati Rice, Wheat, Maize, Sharbati Rice, Jeera,
    • Energy : Crude Oil, Natural Gas, Brent Crude,
    • Others : Rubber, Guar Seed, Guar gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk, Sugar. Thermal Coal, Polypropylene, carbon credits.
    FMC/the Govt. of India can ban or allow trade of any commodity.
  • Q.14 Which commodities are generally suited for trade ? All commodities are not suited for futures trading. For future trading, a commodity must possess the following characteristics:
    • Suitable volume
    • Sufficient marketable surplus,
    • volatility of price to necessitate hedging,
    • Free from Govt. control and regulations,
    • Homogeneity,
    • Standard grade, and
    • Storable
  • Q.15 Which are the major commodity exchanges in India? There are three national level commodity exchanges to trade in permitted commodities:
    • Multi Commodity Exchange of India Ltd (MCX)
    • National Commodity and Derivative Exchange of India Ltd. (NCDEX)
    • National Multi Commodity Exchange of India Ltd, (NMCE)
  • Q.16 Who regulates the commodity market? Forward Markets Commission (FMC) is a Regulatory Authority which is overseen by the Ministry of Consumers Affairs, Food and Public Distribution, Govt. of India. FMC is a Statutory Body set up in 1953 under the provisions of the Forward Contracts (Regulations) Act 1952.
  • Q.17 Who can be a Member of the Commodity Exchanges ? Trading rights on the Exchange can be acquired by Individuals, Registered Firms, Corporate bodies and Companies (as defined in the Companies Act 1956) by complying with the admission norms. Alankit Imaginations Limited, a profit making company of the Alankit Group is a Member of all major commodity exchanges i.e. MCX, NCDEX, NMCE, IEX etc.
  • Q.18 What are the trading days and hours? Ans. The Exchanges operate on all days except, Sundays and Exchange specified holidays. Trading Timings: Monday to Friday : 10.00 am - 11.55 pm (except agri commodities upto 5.00 p.m.) Saturday : 10 am - 2.00 pm (SAT) The Exchange may vary the above timings with due notice.
  • Q.19 How many months contracts will be available for futures trading? At NCDEX, three consecutive calendar month contracts are available. MCX provides different numbers of contracts for different commodities.
  • Q.20 What are the different terms in contract specifications? The quality specification of each commodity is mentioned in the contract. Each participant will be trading in that particular quality only. Trading unit - The Trading unit is the minimum quantity for a contract that can be bought or sold. e.g. If a member is buying 1 lot of cardamom, he has to buy a minimum 100kg of cardamom given a trading unit of 100kg. Quotation / Base value – It is the Quantity in Lot or Weights for which the prices are quoted for online trading e. g. If the quotation or base value for Gold contract is given as 10 grams and the price available for trading is Rs. 16000 for 10 grams of the Gold. Maximum order size – Maximum order size is the maximum no. of lots that can be bought or sold in one Single order. The maximum order size of each commodity is given in its contract specifications. Tick Size – Tick size is the minimum price difference between the bids and asks for a particular contract. The tick size is given in the contract specifications. DPR – Daily Price Limit i.e. circuit filter limit is the percentage of variation allowed in the price of a commodity in a day with respect to the previous day’s close price for the day DDR - Due date rate is the final settlement price for a particular future contract and calculation process called computation of DDR.
  • Q.21 What is the base price? Base price is a reference price used for launching / commencing new futures Commodity/Contract. On the basis of that daily price range gets adjusted.
  • Q.22 What does open Interest in the market mean? The open interest is the number of contracts outstanding in the market (It can be called an outstanding position at any point of time.)
  • Q.23 Please indicate the permissible brokerage structure and brokerage pattern. The exchange does not stipulate any directives in this regard and it is free to be bilaterally decided between client and member of the exchange.
  • Q.24 What is Initial Margin ? The initial margin (IM) is levied on all open positions (Buy or sell positions) of the members and their clients. The IM percentage on each commodity varies depending upon its market volatility. The margin so calculated is reduced from the total margin of the member available with the exchange and accordingly further exposure is given on the balance amount. As the IM increases, the exposure shall decrease.
  • Q.25 What are Mark to Market (MTM) Margins ? MTM is a mechanism devised by the exchanges to prevent the possibility of the potential loss accumulating to the level where the participants might willingly or unwillingly commit default. All trades done on the exchange during the day and all open positions for the day are marked to closing price for the respective delivery/contract and notional gain or loss is worked out. Such loss/gain is debited/credited to respective member’s account at the end of each day. The outstanding position of the members is then carried forward the next day at the closing price.
  • Q.26 What are Price Bands/Caps ? Price bands have been imposed on all commodities to prevent extreme volatility and unhealthy practices of cornering the market.
  • Q.27 What is a circuit filter? The Exchange notifies a daily circuit filter limit for futures Contract in terms of percentage of intra day variation allowed in a day with respect to the close price of the previous day. Circuit filter provides the maximum range within which a contract can be traded during the day. Such a circuit filter is different for different commodities. The orders, which are in violation of such circuit filters, are rejected by the system.
  • Q.28 What does a long position in the market mean ? Taking a long position means buying futures contracts or owning the cash commodity.
  • Q.29 What does a short position in the market mean? Taking a short position means selling futures contracts.
  • Q.30 How will the clearing and settlement take place? The clearing and settlement will take place through institutions/banks arranged by the exchanges. NCDEX has arranged with NSCCL for clearing purposes and the clearing banks are Canara Bank, HDFC, ICICI and UTI Bank. MCX has tied up with HDFC Bank, BOI, UTI Bank, UBI and IndusInd Bank for providing clearing and settlement facilities.
  • Q.31 How would contracts settle? All contracts with open positions not intended for delivery and non-deliverable contracts would be cash settled. All contracts with open position which is intended for delivery would have to be settled by delivery and in case of delivery defaults compensation as per the Exchange norms would be paid to the buyers.
  • Q.32 What would be the settlement period? All contracts settling in cash would be settled on the following day after the contract expiry date. All contracts materializing into deliveries would settle in a period of 2-7 days after the expiry. The exact settlement day would be specified in the settlement calendar released by the Exchange for every expiry month.
  • Q.33 Do physical deliveries happen in commodity futures exchanges? The future contracts are mostly settled in cash. Another method of settling the contracts is by taking or making delivery. For open positions on the expiry day of the contract, the buyer and the seller can give intentions for delivery through the trading system. However, positions, market lots and delivery period vary from exchange to exchange and commodity to commodity. Delivery of the underlying commodities is permitted only through a Central Warehousing Corporation (CWC) receipt, which meets highest contemporary international standards.
  • Q.34 In case the seller does not have the materials sold by him in his possession, how will settlement take place ? What will be the penalty imposed on the seller by the Exchange ? First of all we have to see the conditions under which the question of making delivery arises. If the price of an expiry month contract converged to the spot price, why should the seller or buyer hold the position, they would square off. However if the price of the expiring contract is lower than spot market, seller must arrange to procure material to tender during expiring month. If sellers fail, then the exchange will fix the due date, rate on the basis of spot price of the last 3 days of the month and the seller will have to pay the difference between due date rate and contract rate plus penalty prescribed by the exchange for failing to deliver. Also in case of delivery default, compensation is paid to the buyers as per the Exchange norms intimated to market vide various circulars from time to time.
  • Q.35 Would additional margins be levied for deliverable positions? Yes, the Exchange levies delivery margins.
  • Q.36 How would a buyer take physical delivery from the warehouse? Any buyer intending to take physical delivery would have to submit a Remat request to its Depository Participant, who would pass on the same to the registrar and the warehouse. On a specified day, the buyer would go to the warehouse and pick up the commodity after confirmation from the warehouse.
  • Q.37 How would a seller get the electronic balance for the physical holdings? The process is called dematerialization. The seller intending to make delivery would have to take the commodities to the designated exchange accredited warehouse. These commodities would have to be assayed by the Exchange accredited assayer. The assayer report must confirm the quality of commodities to be meeting the contract specifications with allowed variances. If the commodities meet the specifications as required, the warehouse would accept them. Warehouses would then ensure updating the receipt in the warehousing system, then the R&T agent intimates the concerned depository which finally provides the demat credit in the form of electronic balances(ISIN's) into the beneficiary account of the depositor.
  • Q.38 How would the seller give an invoice to the buyer? The seller would issue and dispatch the respective invoices to its clearing member, who would then dispatch the invoice to the buyer's clearing member.
  • Q.39 How would you accredit warehouses? NCDEX would prescribe the accreditation norms, comprising financial and technical parameters, which would have to be met by the warehouses. NCDEX would take an assayer's/Structural Engineer's certificate confirming the compliance of the technical norms by the warehouses.
  • Q.40 Who would decide the warehousing charges? The respective warehouse service provider would decide the warehousing charges. However the tentative warehouse charges are available on our website. The charges are based on the services provided by respective warehouses.
  • Q.41 Would health checks and inventory verification be carried out? The assayers and or other experts on behalf of NCDEX would carry out surprise health checks and inventory verification/audits at the warehouses.
  • Q.42 How will you ensure uniformity in delivered grades / varieties? The exchange will specify, in its contract specifications, the particular grade / variety of a commodity that is being offered for trade. A range will be specified for all the properties and only those grades / varieties, which fall within the range will be accepted for delivery at the Exchange platform. In case the specifications fall within the range, but differ from the benchmark specifications, the Exchange will specify a premium / discount.
  • Q.43 Would there be any premium / discounts for the difference in quality? Yes, These would be per-defined and made available on the website. The settlement obligation would be impacted on account of the premium / discount in case of deliverable positions. The parameters which would be considered for premium / discount computation as well as the methodology would be specified by NCDEX.
  • Q.44 What happens when the commodities reach the validity date? Those commodities cannot be delivered till it is again revalidated. A revalidation request is to be submitted at the warehouse and once the commodities are certified acceptable by the accredited assayer then a new ISIN no. is allotted. If the commodity fails the revalidation test then such commodities will have to be taken out of the warehouse by remat.
  • Q.45 Can commodities be re-deposited in the warehouse after the validity period of the assayer's certificate? Commodities are only accepted if they pass the assayer test and confirm to NCDEX quality specifications.
  • Q.46 What is the procedure for handling bad delivery / part delivery? Partial delivery as well as bad delivery would be considered as delivery default and appropriate penalties would be levied.
  • Q.47 How would disputes be resolved? Any disputes in regard to the quality / quantity will be referred to the Exchange customer service department for redressal. After verification of the facts a view will be taken on further course of action. The Exchange will take only complaints which have been referred within the FED of the commodity under dispute.
  • Q.48 Can a member enter into a common member client agreement with the client for all the Exchanges? No. Separate member client agreement is to be executed for each of the commodity Exchange for which member is offering broking services to the client.
  • What are the guidelines for Brokerage to be charged by the member? Here is no directive or a circular by the Exchange on any limit on the Commission/Brokerage that can be charged by the member. There is no minimum brokerage prescribed by the Exchange till date
  • Q.49 What are the guidelines for Brokerage to be charged by the member? Here is no directive or a circular by the Exchange on any limit on the Commission/Brokerage that can be charged by the member. There is no minimum brokerage prescribed by the Exchange till date
  • Q.50 Is Sales Tax applicable on all future contracts/trades in Commodities ? Sales tax i1s not applicable if the trade is squared off. The sales tax is applicable only if a trade turns into delivery. Normally it’s the seller’s responsibility to collect and pay the sales tax. The sales tax is applicable at the place of delivery.
  • Q.51 How sales tax is settled? Prices quoted for the futures contracts would be basis warehouse and exclusive/inclusive of sales tax applicable at the delivery center. For contracts materializing into deliveries, sales tax would be added to the settlement amount. The sales tax would be settled on the specified day after the payout as mentioned in the settlement calendar.
  • Q.52 Does the trading / clearing member need to have local sales tax registration? No. The member need not have a local sales tax registration. However, if the member intends to undertake the delivery, then he needs to have a proper local sales tax registration, where the commodity is located or alternatively he can appoint a C&F agent.
  • Q.53 Do the market participants need to have sales tax registration? The market participants who intend receiving/giving delivery should ensure that they have all the proper local sales tax registration numbers/documents on or before the settlement of the delivery. Deliveries given by market participants who are not registered as per the local sales tax guidelines or whose registration is not valid on the date of settlement / delivery shall not be liable to collect the sales tax from Buyer members.
    Further the seller member would be obliged to fulfill any appropriate monetary compensation demanded by the APMC authorities/ sales tax department due to the unregistered sale. Or alternatively they can appoint a C&F agent.
  • Q.54 In which state sale tax registration is to be obtained? Sales tax registration is to be obtained in the State where the delivery is affected.
  • Q.55 Who is responsible for payment of sales tax? It is obligatory on the part of the registered seller to collect the sales tax from the buyer (in case the commodity is covered under the local sales tax) and file the returns as per the defined procedure of the relevant local sales tax laws. However, in the case of commodities which are liable to be taxed on purchases only, the buyer will have to discharge the liability for payment of tax. Further, payment of sales tax to the seller will be the sole responsibility of the Buyer
  • Q.56 When is the sales tax payable by the buyers? Sales tax has to be paid by the buyer members on the day of sales tax settlement only as specified in the settlement calendar. The local sales tax levied would be based on the Final Settlement Price. The sales tax settlement is generally executed after two (2) days of pay in / pays out day.
  • Q.57 How to start trading in Commodities? To trade in commodities, you need to 1. Open a trading account with Alankit Imaginations Limited (AIL) 2. Complete required KYC norms
  • Q.58 Why AIL for commodity trading ? AIL is a member of all major Commodity Exchanges i.e. MCX, NCDEX, NMCE and Indian Energy Exchange. AIL provides efficient and effective personalized services and advice for all the commodities.