What is SIP ?

A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.

A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.

Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.

With volatile markets, most investors remain skeptical about the best time to invest and try to ‘time’ their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. If are a regular investor, your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.

Other Benefits of Systematic Investment Plans

Disciplined Saving – Discipline is the key to successful investments. When you invest through SIP, you commit yourself to save regularly. Every investment is a step towards attaining your financial objectives.

Flexibility – While it is advisable to continue SIP investments with a long-term perspective, there is no compulsion. Investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested.

Long-Term Gains – Due to rupee-cost averaging and the power of compounding SIPs have the potential to deliver attractive returns over a long investment horizon.

Convenience – SIP is a hassle-free mode of investment. You can issue a standing instruction to your bank to facilitate auto-debits from your bank account.

SIPs have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments. There is no single mutual fund to call as ‘best fund’, as there are many well performing funds over a longer period of 5 to 10 years and invested through SIP mode.

SIPs have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments. There is no single mutual fund to call as ‘best fund’, as there are many well performing funds over a longer period of 5 to 10 years and invested through SIP mode.

Generally SIP returns of good mutual funds have been between 12-18%. The actual returns might differ for different investors. But for this discussion, let’s be conservative and assume the average SIP returns in 5, 10, 15 or 20 years to be 12% per annum.

Here is what a Rs 10,000 per month SIP in mutual funds can do over the years:

  1. 5 year SIP of Rs 10,000 monthly = Rs 8.05 lakh
  2. 10 year SIP of Rs 10,000 monthly = Rs 21 lakh
  3. 15 year SIP of Rs 10,000 monthly = Rs 41.93lakh
  4. 20 year SIP of Rs 10,000 monthly = Rs 75.6 lakh
  5. 25 year SIP of Rs 10,000 monthly = Rs 1.29crore
  6. 30 year SIP of Rs 10,000 monthly = Rs 2.1 crore

Wow, on a mere investment of 36 lakh rs in the course of 30 years with easy installments you will be able to amass 2.1 crore rs.

What is volatility index (VIX)?

It’s a measure of the traders’ expectation of the rate of change in stock prices in the near-term (Current month & a portion of the next month). It is also known as the fear index as it indicates the uncertainty amongst market participants. In India, the Volatility Index is calculated based on the calculation mechanism adopted by the Chicago Board Options Exchange (CBOE) by using the bid/offer prices of NIFTY ATM Options Prices.

What to make sense of the VIX levels?

  1. When Vix goes up → It means that traders are willing to pay more to get the right to buy the underlying. In essence, they foresee the risks increase in the near future. Try looking at it from an insurance buyer’s mindset. When the perceived risk is high, the buyer is willing to pay more to cover that risk.
  2. When Vix goes down → It means that traders are willing to pay less to acquire the right to buy the underlying. In essence, they foresee the risks to reduce or remain low in the near future. In insurance analogy, when the perceived risk is low and there is complacency, the willingness to pay for insurance reduces, the prices reduce.
  3. Sudden Spikes → Historically, India Vix has not spiked above 40 despite many sudden uncertainties in the market. However, when there is a fear of epic proportions, the levels have gone above and beyond 40. Such times are considered the riskiest and unpredictable when compared to other uncertainties that are part and parcel in the marketplace.

Can VIX is useful to make position in options?

It is very logical question, VIX is useful to me to create my option position. The answer is YES, by studying VIX we can ascertain the risk involved in stock market. In last 3 days as on 25 Feb the VIX was at high because of air strike done by Indian air force.

In a week period I.e. 1st March today VIX fall almost 20% from pick. So, market is showing some strength and almost every stock option fall drastically due to fall in VIX. Take any name reliance volatility was 29 and during day it reach to 26, so vix is common parameter to study overall market fear.

What is meant by Rights Issue?

A right is actually an abbreviation for the full form “Right of first refusal”. It is an option given to the existing shareholders to invest in a public issue of the company in proportion to their existing shareholding.

It is given as a privilege to the current investors to increase their holding in the company. You can think of it as a loyalty program of sorts. The option’s time value (subscription period) in India is between 15 – 30 days depending on the company. It cannot extend beyond 30 days as per the securities law.

The right to subscribe is non-transferable and if shareholders don’t do it within the stipulated time-frame, it expires. To lure shareholders to buy in the rights issue, companies issue shares at a discount to the market price. The long-term shareholders tend to subscribe for these issues if they don’t want their % ownership of the company to get diluted.

Why do companies do Right issue?

The main reason is to keep its shareholding structure unchanged!

Rights issues are a classic way to keep away from new activist investors, hostile acquiring attempts from competitors, corporate raiders etc. Unlike an IPO, a rights issue is a silent affair which does not attract any attention of the outside world.

A company that wants to do a rights issue must only issue a public notice in 3 newspapers (English, Hindi & regional). Usually, these advertisements are stuck in the notice board part of the paper which hardly invites any attention.

This source of funding is especially useful for companies that have a large promoter holding with a narrow shareholder base. Raising equity becomes easy and inexpensive through this route.

What is NAV in mutual funds?

Net asset value(NAV) is the value of a fund’s asset less the value of its liabilities such as operating expenses, marketing expenses, management fees, among other permissible expenses and charges per unit. NAV = (Value of Assets-Value of Liabilities)/number of units outstanding.

Let us assume I run a company. I have a factory, land property across the country, 100 Four Wheeler vehicle, 25 heavy pieces of machinery and I have borrowed a loan of Rs. 100/- from a bank. The company has 100 shares outstanding in the market.

The value of a factory is Rs. 1000/-, the value of a land property is Rs. 200/-, the value of 100 four wheeler vehicle is Rs. 100/- and the value of 25 heavy pieces of machinery is Rs. 500/-.

So my company’s total asset is = 1000 + 200 + 100 + 500 = Rs.1800/-

Since I have borrowed Rs. 100/- from the bank this is my liability which is to be repaid whether in the long term or short term.

So the company NAV is = 1800-100/100 = 1700/100 = 17

How to calculate the Fund NAV: The Mutual Fund invests the money in many different sectors and a bunch of companies to minimize the risk and diversify the portfolio.

Let us assume one large cap fund invests the money in 5 companies. So the companies NAV is different. To calculate the fund NAV you have to sum the respective company NAV and just average. Then you get the respective fund NAV. The companies in which the money is invested are Maruti Suzuki (NAV 400), Titan Company (NAV 300), State Bank of India (NAV 500), HPCL (NAV 500), and Interglobe Aviation ( NAV 300).

So, the Fund NAV is = ( 400 + 300 + 500 + 500 + 300 )/ 5 = 400.

What are open Ended and close ended Mutual funds?

A mutual fund is a professionally-managed trust that pools the savings of many investors and invests them in securities like stocks, bonds, short-term money market instruments and commodities such as precious metals.

Mutual funds are classified in a variety of ways. But the first classification is:

Open-ended funds: These funds buy and sell units on a continuous basis and, hence, allow investors to enter and exit as per their convenience. The units can be purchased and sold even after the initial offering (NFO) period (in case of new funds). The units are bought and sold at the net asset value (NAV) declared by the fund.

The number of outstanding units goes up or down every time the fund house sells or repurchases the existing units. This is the reason that the unit capital of an open-ended mutual fund keeps varying. The fund expands in size when the fund house sells more units than it repurchases as more money is flowing in.

Closed-ended funds: The unit capital of closed ended funds is fixed and they sell a specific number of units. Unlike in open-ended funds, investors cannot buy the units of a closed-ended fund after its NFO period is over. This means that new investors cannot enter, nor can existing investors exit till the term of the scheme ends. However, to provide a platform for investors to exit before the term, the fund houses list their closed-ended schemes on a stock exchange.

Trading on a stock exchange enables investors to buy and sell units through a broker in the same manner as transacting the shares of a company. The number of outstanding units of a closed-ended fund does not change as a result of trading on the stock exchange. The closed-ended funds are free from the worry of regular and sudden redemption and their fund managers are not worried about the fund size

What is share buy Back?


When a company issues shares to the public, it raises its capital and allots shares to the shareholders. Buyback is exactly opposite to this. In Buyback, the company purchases its own shares from the shareholders and pays them the money.

Advantages to the retail investors:

Increase in the wealth of the retail investor:

Whenever a company announces buy back, it is generally done at a price higher than the market price of the shares. Hence, buyback is profitable from the view point of a retail investor. Also, for an already existing investor, buy back will be more beneficial because as the company announces buyback, it is generally perceived as a good sign and hence there is a renewed buying in the share. This causes the price of the share to increase and hence it increases the wealth of the investor.

However, there are few things which must be kept in mind before giving your shares to the company for buyback.

  1. What is the % of the shares the company is willing to buy back? This matters the most because not all the shares held by the investor will be bought back by the company. Hence, the acceptance ratio matters a lot. If the ratio is low, then it would be prudent not to invest in the share only to get the benefit of buyback. Hence, the buyback will not be attractive option for a new investor who is thinking of purchasing the share after the company announces buyback if the acceptance ratio is low. But, for an existing old investor, who already holds the shares, the buy back announcement may be beneficial as he is already holding the shares because the company will be buying the shares at a price which is higher than the market price.
  2. What is the price of the buy back? If the buyback price is less attractive, then again it won’t be prudent to invest in the shares with the greed of buyback by the company. Les attractive here would mean that the existing market price and the price of buy back are not having much difference.

What is meant by bonus share in Share Market?


The Bonus shares refers to the distribution of company’s reserves to the equity shareholders by giving them ‘extra’ shares on the basis of their previously held shares. Thus giving bonus shares is a sign of positive financial status of a company.

Advantage to the retail investor:

Increase in the wealth of the retail investor:

Before we go to this part, let me tell you a different story. ‘Two halves are more than one full’.

You and your friend go to a restaurant. You both decide to order ‘one’ lip smacking tomato soup. But then you decide to place an order for ‘two’ half tomato soups instead of ‘one’ full tomato soup. More often than not the quantity of two halves combined will be more than one full. This same psychological thing happens when a company declares bonus.

Say a company has a share price of Rs.1000. It decides to give bonus shares in the ratio of 1:1. Thus a member with 100 shares will now have 200 shares. Logically speaking the share price must reduce to half at Rs.500. However, the psychological thing comes into play. Thus, the stock price is adjusted to a little more than Rs.500. Not just this, there will be more volume as the shares are trading at lesser price. Hence, the shareholders would be rewarded.

Tax planning:

Before we go into the details, there are few basics which everyone needs to know:

  1. If the shares are held for more than one year, the gain arising shall be long term. Otherwise, it shall be considered as short term.
  2. In case of long term capital gain on sale of shares on a recognized stock exchange where STT (Securities Transaction Tax) is paid, the gain shall be exempt to the extent of Rs.1 lakh per annum.
  3. However, if the gain in the above case is short term, then tax shall be levied at 10% of the gain.
  4. Shares are taxed on FIFO (First In First Out) basis. Simply speaking, the shares bought first shall be adjusted first while selling.

Consider this example,

Here, the investor originally had 100 shares on 1.1.18 bought at Rs.150 a piece. As the company announced bonus shares, the total shares doubled to 200.

Now, whenever a company announces bonus, the investor must sell half of the shares the next day the bonus is allotted. Selling them early would result into short term loss. The remaining half shares must be held for more than one year. This will make the gain as long term.

In the table above, the investor did the same. He sold only 100 shares on 1.6.18 at Rs.75. The buying price on 1.1.18 was Rs.150. When the company announced bonus the shares doubled but the share price was reduced to half.

Now, as per FIFO, the 100 shares sold on 1.6.18 at Rs.75 will be assumed to be the shares bought first on 1.1.18 at Rs.150. This will result into short term capital loss of Rs.75 per share. Therefore, the total short term loss shall be Rs.7500. This loss can be adjusted against other short term capital gain and one can reduce the short term capital gain tax liability which otherwise would have been taxed at 10%. The remaining 100 shares must be sold after 1 year to turn them into long term and this will now help one in claiming exemption of Rs.1 lakh.

What is market Capitalization (Market Cap) in shares?

Market capitalization is nothing but the total number of outstanding shares of a company multiplied by the market price per share.

Sounds quite easy, doesn’t it? But there is more to the concept of market capitalization than just the above basic definition.

Market capitalization of a stock shows the size of the company and most of the times, the volatility of a stock depends on its market capitalization.

Let me put this in a different way.

So we have three images. Image A- a bike, Image B- a car and Image C- a truck. If I ask you a simple question as to which of these is easy to push in case these vehicles are stuck, the answer would be the bike, then the car and the most difficult to push would be the truck.

You see this is very much comparable to the market capitalization of the stocks.

Image A depicts stocks with smaller capitalization. Image B depicts stocks with medium capitalization and Image C represents the stocks with large capitalization. The people pushing these vehicles are the investors. The more they push the more the vehicle move ahead. If they stop pushing it, the vehicle would move back.

CASE A- Pushing the bike

A bike requires one or two people to push and can be very easily pushed. So is the case with small cap stocks. A lot lesser number of investors can lift the stock up or bring it down.These small cap stocks show great movement both upwards and downwards. Hence, they tend to be more volatile. For the same reason when such small cap stocks are performing really well, they can turn out to be potential multibagger. But then again, these are high beta stocks and they are riskier than the blue chip large cap stocks.

CASE B- Pushing the car

A car requires more people than a bike to push it. Hence again this is comparable to mid cap stocks. These too tend to be more volatile than the large cap stocks. But they tend to give fancier returns than the large cap stocks.

CASE C- Pushing the truck

A truck requires many people to push it. The behavior of large cap stocks is akin to this. The large cap stocks require lot of investors showing great deal of interest in them for it to show a big move both ways. So, even if few investors sell the stock, the stock won’t fall much. The same is true the other way round as well. The stock won’t go up a lot if few investors buy it. Hence, these stocks are less riskier than the small and mid cap stocks. People who hate the volatility in the stock market and are having conservative approach of investing their money generally invest in large cap stocks. They tend to be safer bet as compared to the small or mid cap stocks.

How to see Market cap of a stock ?

The highlighted part shows the market cap

What is difference between bonus issue and split in shares

Before we understand these two concepts, let me explain you these two terms:

  1. Face Value: It is nothing but the nominal value of the share so fixed by the company in the beginning. It is the value at which the company registers itself initially. It won’t change daily with the market forces.
  2. Market Price: It is the price at which the share is trading in the stock exchange. It is always fluctuating depending on buyer(s) and seller(s).

The Market Price of Infosys ltd. is around Rs.1400 whereas its Face Value is only Rs.5.

Okay, another small basic economic concept which one must know.

More the supply, lesser would be the Market Price. Less the supply, more would be the Market Price.

Stock Split

Say, you have a rectangular piece of chocolate. It was worth Rs.10. You decide to cut this into two equal parts. So now, you have two pieces of chocolate each worth Rs.5.

This is what happens in case of a Stock Split. The company going for a stock split will reduce its ‘Face Value’ and the number of shares would increase proportionately.

Say, a company has issued 1 lakh shares of Face Value Rs.10 and the Market Price is Rs.500.

If the company is going for stock split and say the Face Value is reduced to Rs.5, then the total shares would increase to 2 lakh. Also, the Market Price would be adjusted as the supply of the share has now doubled.

That’s all about the stock split.


Bonus is something completely different from Split.

Say, I have 1 chocolate and now I am getting 1 free on this chocolate, so now I have 2 chocolates. This is how Bonus shares work.

Say, a company has issued 1 lakh shares of Face Value Rs.10 and the Market Price is Rs.500.

Now, if the company declares Bonus of 1:1, then every shareholder will get 1 extra share for 1 share held. This would double the number of shares. Here, the Face Value shall not change. It is intact at Rs.10.

If you remember the above concept, you will now know that the supply of share has doubled and hence the Market Price will also proportionately get adjusted to half.

What difference will it make to a shareholder?

The total market valuation of all the shares in totality held by the shareholder in case of Stock Split and Bonus will remain the same as before and technically it actually won’t make much of a difference to a shareholder.

But, in case of Bonus Share, you have extra shares with the same Face Value and when a company declares dividend, it is always declared on Face Value. Hence, a Shareholder will get double dividend as compared to the one in case of a Stock Split.

Hence, for a shareholder’s point of view, Bonus is more rewarding than a Stock Split.

What is support and resistance in share Market?


Say, you are driving a car. You start the engine and put the car in first gear. The car runs smoothly till the speed reaches 20 km/hr. No much harder you try, the car speed won’t increase unless you change the gear.

Now, you change the gear and the car is in the second gear. Due to this, the speed limit has increased to say 30 km/hr. And if now you want to increase the speed further, you need to shift the gear to the higher side.

This is what happens to a stock in stock market. A stock which is moving up, will go up till it reaches a level where it has exhausted. This is called as ‘Resistance Level’. When we say that a stock price is showing resistance, it means that the stock has shown signs that it will not go up further. At resistance, one needs to sell the stock because it has little room left to run further.

However, when a stock crosses resistance, it means that it has entered into a new zone. Hence, there will be more chance of it moving further up. This is akin to the car shifting the gear to a higher number and hence the car can increase the speed till the limit is exhausted.

Whenever a stock reaches its 52 weeks high (which means the highest price in past one year), there will be more chance of it moving further up if it enters a new zone and an uncharted territory. Hence, one must buy when this happens. As the stock has got new legs to run.


Say, you are driving a car uphill. Now, the car is moving slowly and steadily upwards. However, unfortunately your car runs out of fuel. Now, will you leave the car as it is and let it go down the hill with great speed or apply breaks and stop it midway?

Well, if you choose the later, then the car will stop at someplace and we can say that the hand break supported the car from falling further.

The same happens in a stock market. When a stock has fallen a lot, people who feel that the price is too low to fall further, start to buy the stock. This means that the stock price won’t fall at a certain limit. And this price level is called as ‘Support Level’.

One must buy at ‘Support Level’. This is because at this level there is more upside and less downside. Having said this, there are other associated risks too. Say, if a stock breaks it support level, this would mean that it has more room left for further downside. Hence, it will fall further, till it reaches a new ‘Support Level’.

Hence, they say, whenever a stock is at its 52 weeks low, investors must be cautious. Because, if it breaches the support level, then there will be more scope for it to fall further. So, buying a falling stock in hope of it finding the support is similar to catching a falling knife. The risk reward is high!


It is scary when a stock moves up or down fast in a short span of time. Hence, they say that for a stock it is very important to consolidate. Basically, ‘Consolidation’ means a stock is spending too much time in a particular zone. Hence, if the upper limit is crossed, we say that after spending too much time, the stock has now entered a new zone which will take it up further. Same is true for its downside.

A prudent person may think of buying cheap and selling at high price. But, when we study the technical terms like ‘Support’ and ‘Resistance’, we realize that when a stock crosses ‘Resistance’ it must not be sold even if the price is higher. As, it can move up further.

And when a stock breaches ‘Support’ it must not be bought even if the price is lower. As, it can go down further. In a way, we can say that there is little application of ‘Law of Demand’ in short run in stock market