Brokerage Liability: Develop A Comprehensive Risk Management: Fill & Download for Free

A comprehensive guide of financial tips:Do not fall in DEBT Traps- Do you get tempted to take a personal loan to buy a phone or go for vacation? This is called DEBT Trap. If you want to buy something, try to save first. Don’t just buy because it is on EMI.Understand the difference between asset and liability: Having a car is not an asset. It consumes fuel and has a maintenance cost. Though a car is required, but make sure you invest more on things that generate income for you rather than things that cost you more.Plan your financial goals: When do you plan to buy a car? When do you want to go on a Europe tour? Plan your financial goals as this will help you save money and invest in right platforms. A short-term financial goal like buying a car should be invested in the debt instrument. Long-Term financial goals like retirement should have more exposure to equity. A medium-term financial goal like Europe trip should have a balance of both equity and debt.An emergency fund is a must: Always have a handy budget of at least 6 months of your expense. It might be required in any personal emergency. This will also ensure you don’t break your monthly investments in SIP.Life insurance is not an investment: While life insurance is a must, it is not an investment. Hence you should always opt for a term plan and never go for the endowment plan.Medical insurance is extremely important: With the rising cost of healthcare, medical cost is raising multifold times. A few days of hospital care can cost you a fortune. Hence make sure you get medical insurance for you and your family.A credit card is a boon if you pay on time: Credit card can help you save a lot of money, get awesome rewards like free airport lounge access, buy 1 get 1 movie ticket, etc. However, if you don’t pay on time, you would end up paying 30–40% of annual interest and mess up your life. So make the best use of it!It is not about how much you earn, it is about how much you save: You might earn a fortune but if you spend everything then your wealth would still be nil. A person earning Rs 100k a month and spending 95K saves less than a person earning 50K and spending 40k. Make sure you save and invest your money.Understand the power of compounding - It might sound cliche but a lot of people do not understand the power of compounding. Compounding is nothing but interest on interest. The amount of money it generates in long-term is unbelievable. Hence, plan your retirement from day one of your income.Saving is a habit - Develop a habit of saving your money right from a very young age. Even if it is a small amount, please save. It is about developing a mindset for savings and making it a habit. Small savings today will compound to huge returns tomorrow.Learn the basics of finance - Just like we learn a language, it is equally important to learn the basics of finance including how to read a balance sheet and profit and loss statement. This knowledge is the foundation of your investment knowledge.Do not depend upon anyone for investment - It is your hard earned money and you should know where is your money invested. A lot of so-called experts would recommend you the investment option but you should first understand the instrument where your money is invested. It can be stock market, mutual fund, real estate, etc. Once you learn the basics of finance, learn more about each investment option.Investing is not rocket science - You don’t have any financial background? Don’t worry. If you can do basic math of addition, subtraction, division, and multiplication then you can learn about investments. It is my personal experience.You don’t need a broker for stock, mutual fund, and life insurance - With the introduction of brokerage free platform, you can save up to 1% of commission. This 1% can save a lot of money in the long term. However, you need to follow point number 11, 12 and 13.Expense ratio has an important role in mutual fund retuns: If you see a mutual fund generating 12% return then you will not get 12%. It excludes the expense ratio. So if the expense ratio is 1.5% then your returns would be 10.5%. On top of this, you have to pay a 10% tax on LTCG (Long Term Capital Gain) in India. So effective return is 9.45% (90% of 10.5%). Always ensure you chose a mutual fund with a lower expense ratio.Don’t be greedy, have patience - You can’t expect to double your money in 6 months or a year. Don’t be greedy and stay away from day trading in stock and futures and options. Have patience and wait for your investment to give you a good return in the future.You can save a lot with Discounts - Always make sure to check for discounts before spending your money. Be it shopping, buying groceries, restaurants, flight booking, hotel booking, taxi booking, entry fee to a famous place, etc.When it comes to investment, there is no “One Size Fit All Approach” - Your dad investment options would not be the same as your investment options. Do not spend in a stock or mutual fund just because your friend is also investing. Each individual has a different risk profile, different financial goal, different investment horizon and hence a different investment profile.Make an excel file to keep a track of your expenses - Most of the people complain that they don’t know where is their money flowing. They earn a lot but their pockets are empty by the end of the month. Hence always keep a track of your expenses and budget according to your plan. If not everything, at least note down the major expenses.The best investment is on yourself - A bit cliche statement but a most important one. Make sure to invest in yourself by reading books and gaining more knowledge, eating healthy and having an active lifestyle, updating your skill set and increase your value.There is a difference between being frugal vs cheap - A frugal person values the money and spends economically whereas a cheap person just saves money irrespective of value. Be frugal but don’t be cheap.Inflation shrinks your money - With 5% inflation, Rs 100 would be equivalent to Rs 95. Hence, make sure you do not keep your money in a savings account as it gives 4% return. Therefore if you have Rs 100 in your bank then after a year it will be Rs 104 but with 5% inflation, it is equivalent to Rs 99. Today, you might think that Rs 5 crore is enough after 20 years but with 5% annual inflation, the value of Rs 5 crore would be just 1.8 Crore.Avoid lifestyle inflation - An urge to move from 2 BHK to 3 BHK or upgrade the car is a part of lifestyle inflation. If you get a hike of 20% but your expenses also increase by 20% then it is lifestyle inflation.It is not about the destination but about the journey - You can’t spend everything as well as can’t save everything. It is important to maintain a balance between savings and expenses.In case we are meeting for the first time,Hi, I am Sahil and I educate people on personal finance.Thanks for reading my answer.Follow me for more answers on money management: Sahil Bhadviya

The Indian law makes it mandatory for the drivers to have a valid car insurance. It protects the owner from the liability that may arise due to loss, theft, injuries and other physical damages. There are basically two types of insurance- third-party and comprehensive. Third-party insurance is the basic plan and covers damages to third party by the insured vehicle. On the other hand, comprehensive plan covers damages to the third party as well as damage to the insured vehicle.Now, there are a couple of ways to shop for an auto insurance. First being, you can approach the insurance companies individually and choose from any of their plans. However, this is a long process and can take up a lot of your time since it involves meeting a lot of agents, understanding every detail of the policy and then settling on one plan. Or you can opt to buy your insurance through an insurance brokerage firm and do away with the hassles that come with meeting each insurance company’s representative, over and over again. The concept of insurance brokerage firms is becoming popular as it is the only distribution channel which represents the policyholders and is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). Insurance brokers work for policyholders’ interests and are therefore the fastest growing distribution channel, contributing to 23% of the non-life insurance premiums.PolicyBoss, the insurance arm of Group Landmark, is one such brokerage firm and has helped over 3,00,000 people secure what matters to them. Its offices are present across 24 cities in India and the tie-up with over 40 major insurers has helped the company deliver a seamless experience, right from choosing the right product to claim assistance.There are some advantages of going through an insurance brokerage firm like ours and can definitely make your insurance-buying experience a convenient one. Some of the benefits can be listed belowa) The experienced, expert personnel help the customers understand the details of their policy which can otherwise be hard to comprehend and hence safeguard the interest of the customersb) Insurance brokerage firms help the customers to find a great plan and negotiate premiums on their behalfc) Brokers can prepare a customized insurance and risk management programme for the policyholder and negotiate terms with the insurance companiesd) A risk management programme enables the policyholder to share the responsibility of loss prevention and loss minimization and thereby reduce premium costse) Going through an insurance brokerage firm costs the same as buying an insurance through the company directly minus the hassles that come with the latterf) An insurance brokerage firm makes sure that the claim settlement process is smooth sailingAs it is apparent from the above given benefits, the best way to shop for an auto insurance, probably, is going through a channel like an insurance brokerage firm which will help you zero in on a plan which matches your requirements to a T. So, if you are planning on buying a motor vehicle insurance, it’s advisable to consult an insurance brokerage firm and leverage their expertise to choose the best policy for you.

WHY DO WE INVEST?To make sure we have enough funds to be prepared for the future. Simply earning and saving is not enough. Inflation – the price-rise beast – eats into the value of your money. To make up for the loss through inflation, we invest and earn extra. This is the investment fundament. The stock market is one such investment avenue. It has a history that goes way back to the 1800s.Earlier, stockbrokers would converge around Banyan trees to conduct trades of stocks. As the number of brokers increased and the streets overflowed, they simply had no choice but to relocate from one place to another. Finally in 1854, they relocated to Dalal Street, the place where the oldest stock exchange in Asia – the Bombay Stock Exchange (BSE) – is now located. It is also India’s first stock exchange and has since then played an important role in the Indian stock markets. Even today, the BSE Sensex remains one of the parameters against which the robustness of the Indian economy and finance is measured.In 1993, the National Stock Exchange or NSE was formed. Within a few years, trading on both the exchanges shifted from an open outcry system to an automated trading environment.This shows that stock markets in India have a strong history. Yet, at the face of it, especially when you consider investing in the stock market, it often seems like a maze. But once you start, you will realize that the investment fundamentals are not too complicated.So Let’s Start With Share Market Basics.WHAT IS SHARE MARKET?A share market is where shares are either issued or traded in.A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading of shares.The key factor is the stock exchange – the basic platform that provides the facilities used to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers. India's premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.THERE ARE TWO KINDS OF SHARE MARKETS – PRIMARY AND SECOND MARKETS.Primary Market:This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting listed in a stock exchange.A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called anInitial Public Offering (IPO). The company thus becomes public.Secondary Market:Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to offer a chance for investors to exit an investment and sell the shares. Secondary market transactions are referred to trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two parties agree upon.Normally, investors conduct such transactions using an intermediary such as a broker, who facilitates the process.WHAT ARE THE FINANCIAL INSTRUMENTS TRADED IN A STOCK MARKET?Now that we have understood what a stock market is, let us understand the four key financial instruments that are traded:Bonds:Companies need money to undertake projects. They then pay back using the money earned through the project. One way of raising funds is through bonds. When a company borrows from the bank in exchange for regular interest payments, it is called a loan. Similarly, when a company borrows from multiple investors in exchange for timely payments of interest, it is called a bond.For example, imagine you want to start a project that will start earning money in two years. To undertake the project, you will need an initial amount to get started. So, you acquire the requisite funds from a friend and write down a receipt of this loan saying 'I owe you Rs 1 lakh and will repay you the principal loan amount by five years, and will pay a 5% interest every year until then'. When your friend holds this receipt, it means he has just bought a bond by lending money to your company. You promise to make the 5% interest payment at the end of every year, and pay the principal amount of Rs 1 lakh at the end of the fifth year.Thus, a bond is a means of investing money by lending to others. This is why it is called a debt instrument. When you invest in bonds, it will show the face value – the amount of money being borrowed, the coupon rate or yield – the interest rate that the borrower has to pay, the coupon or interest payments, and the deadline for paying the money back called as the maturity date.Secondary Market:The share market is another place for raising money. In exchange for the money, companies issue shares. Owning a share is akin to holding a portion of the company. These shares are then traded in the share market. Consider the previous example; your project is successful and so, you want to expand it.Now, you sell half of your company to your brother for Rs 50,000. You put this transaction in writing – ‘my new company will issue 100 shares of stock. My brother will buy 50 shares for Rs 50,000.' Thus, your brother has just bought 50% of the shares of stock of your company. He is now a shareholder. Suppose your brother immediately needs Rs 50,000. He can sell the share in the secondary market and get the money. This may be more or less than Rs 50,000. For this reason, it is considered a riskier instrument.Shares are thus, a certificate of ownership of a corporation. Thus, as a stockholder, you share a portion of the profit the company may make as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in value.Mutual Funds:These are investment vehicles that allow you to indirectly invest in stocks or bonds. It pools money from a collection of investors, and then invests that sum in financial instruments. This is handled by a professional fund manager.Every mutual fund scheme issues units, which have a certain value just like a share. When you invest, you thus become a unit-holder. When the instruments that the MF scheme invests in make money, as a unit-holder, you get money.This is either through a rise in the value of the units or through the distribution of dividends – money to all unit-holders.Derivatives:The value of financial instruments like shares keeps fluctuating. So, it is difficult to fix a particular price. Derivatives instruments come handy here.These are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an agreement to either buy or sell a share or other instrument at a certain fixed price.WHAT DOES THE SEBI DO?Stock markets are risky. Hence, they need to be regulated to protect investors. The Security and Exchange Board of India (SEBI) is mandated to oversee the secondary and primary markets in India since 1988 when the Government of India established it as the regulatory body of stock markets. Within a short period of time, SEBI became an autonomous body through the SEBI Act of 1992.SEBI has the responsibility of both development and regulation of the market. It regularly comes out with comprehensive regulatory measures aimed at ensuring that end investors benefit from safe and transparent dealings in securities.Its basic objectives are:Protecting the interests of investors in stocksPromoting the development of the stock marketRegulating the stock marketWHAT ARE DIVIDENDS?As we learned earlier, a share is a portion of the company. When the company makes profits, you often receive a part of it. This is the idea behind dividends. Every year, companies distribute a small amount of profits to investors as dividends. This is the primary source of income for long-term shareholders – those who don’t sell the stock for years together.WHAT IS MARKET CAPITALIZATION?Different companies issue varied amounts of shares when they get listed. The value of one share also differs from that of another company’s stock. Market capitalization smoothens out these differences. It is the market stock price multiplied by the total number of shares held by the public. It, thus, reflects the total market value of a stock taking into consideration both the size and the price of the stock. For example, if a stock is priced at Rs. 50 per share, and there are 1,00,000 shares in the hands of public investors, then its market capitalization stands at Rs. 50,00,000.Market capitalization matters when stacking stocks into different indices. It also decides the weightage of a stock in the index. This means, bigger the company’s market value, the more its price fluctuations affect the value of the index.WHAT ARE ROLLING SETTLEMENTS?Supposing your friend agrees to buy a book for you from a bookshop, you will have to pay him for it eventually. Similarly, after you have bought or sold shares through your broker, the trade has to be settled. Meaning, the buyer has to receive his shares and the seller has to receive his money. Settlement is the process whereby payment is made by the buyers, and shares are delivered by the sellers.A rolling settlement implies that all trades have to be settled by the end of the day. Hence, the entire transaction – where the buyer pays for securities purchased and seller delivers the shares sold – have to be completed in a day.In India, we have adopted the T+2 settlements cycle. This means that a transaction conducted on Day 1 has to be settled on the Day 1 + 2 working days. This is when funds are paid and securities are transferred. Thus, 'T+2' here, refers to Today + 2 working days. Saturdays and Sundays are not considered as working days. So, if you enter into a transaction on Friday, the trade will be settled not on Sunday, but on Tuesday. Even bank and exchange holidays are excluded.WHAT IS SHORT-SELLING?An investor sells short when he anticipates that the price of a stock may fall from the existing price. So, the investor borrows a share and sells it. Once the share price dips, he will buy the same share at a lower price, and return it back, while pocketing a profit in the bargain. Simply put, you first sell at a high and then buy at a low. Short-selling helps traders profit from declining stock and index prices. Since this is usually conducted in anticipation of a stock movement, short-selling is considered a risky proposition.Let us take an example. Suppose you expect shares of Infosys to fall tomorrow for whatever reason, you enter an order to sell shares of Infosys at the current market price. Once the share price falls adequately tomorrow, you buy at the lower rate. The difference in the sale and buying prices is your profit. However, if the share prices increase after you sold at a reduced price, then you end up with a loss.WHAT ARE BULL AND BEAR MARKETS?Markets are often described as ‘bull’ or ‘bear’ markets. These names have been derived from the manner in which the animals attack their opponents. A bull thrusts its horns up into the air, and a bear swipes its paws down. These actions are metaphors for the movement of a market: if stock prices trend upwards, it is considered a bull market; if the trend is downwards, it is considered a bear market.The supply and demand for securities largely determine whether the market is in the bull or bear phase. Forces like investor psychology, government involvement in the economy and changes in economic activity also drive the market up or down. These combine to make investors bid higher or lower prices for stocks.WHAT ARE PRICE-TARGETS AND STOP-LOSS TARGETS?As an investor, to maximize your profits, you need to get your pricing right – both when it comes to buying and selling. However, sometimes, prices fluctuate more than expected. So, it can become a little difficult to gauge whether to trade now or wait a little more. This is where stock recommendations help.Analysts put out price targets and stop-loss measures, which let you know how long you should hold a stock. A price target indicates that the price of share is unlikely to climb above the level. So, once the share price touches the target, you may look to sell it and pocket your profits. A stop loss, meanwhile, acts as a target on the lower end. It lets you know when to sell before the stock falls further and worsens your loss.HOW SHARE MARKET WORKS:In the previous section, you were introduced to the different market participants and other share market basics. Let’s try to stitch these narratives together and understand how the stock market works.A stock exchange in the platform where financial instruments like stocks and derivatives are traded. Market participants have to be registered with the stock exchange and SEBI to conduct trades. This includes companies issuing shares, brokers conducting the trades, as well as traders and investors. All of this is regulated by the Securities and Exchange Board of India (SEBI), which makes the rules of conduct.First, a company gets listed in the primary market through an Initial Public Offering (IPO). In its offer document, it lists details about the company, the stocks being issued, and so on. During the listing, the stocks issued in the primary market are allotted to investors who have bid for the same.Once listed, the stocks issued can be traded by the investors in the secondary market. This is where most of the trading happens. In this market, buyers and sellers gather to conduct transactions to make profits or cut losses.Stock brokers and brokerage firms are entities registered with the stock exchange. They act as an intermediary between you, as an investor, and the stock exchange.Your broker passes on your buy order to the exchange, which searches for a sell order for the same share. Once a seller and a buyer are fixed, a price is agreed finalized, upon which the exchange communicates to your broker that your order has been confirmed.This message is then passed on to you. Even at the broker and exchange levels, there are multiple parties involved in the communication chain like brokerage order department, exchange floor traders, and so on. However, the trading process has become electronic today. This process of matching buyers and sellers is done through computers.As a result, the process can be finished within minutes.HOW YOUR ORDER IS PROCESSEDHowever, there are tens and thousands of investors. It is impossible for all to converge in one location and conduct their trades. This is where stock brokers and brokerage firms play role.Once you place an order to buy a particular share at a said price, it is processed through your broker at the exchange. There are multiple parties involved in the process behind the scenes.Meanwhile, the exchange also confirms the details of the buyers and the sellers to ensure the parties don’t default. It then facilitates the actual transfer of ownership of shares. This process is called settlement. Earlier, it used to take weeks to settle trades.Now, this has been brought down to T+2 days. For example, if you conducted a trade today, you will get your shares deposited in your demat account by the day after tomorrow ( i.e. two working day).The exchange ensures that the trade is honoured during the settlement#. Whether the seller has the required stock to sell or not, the buyer will receive his shares. If a settlement is not upheld, the sanctity of the stock market is lost, because it means trades may not be upheld.As and when trades are conducted, share prices change. This is because prices of shares – like any other goods – are dependent on the perceived value. This is reflected in the rise or fall of demand for the stock. As demand for the stock increases, there are more buy orders. This leads to an increase in the price of the stock. So when you see the price of a stock rise, even if it is marginal, it means that someone or many placed buy order(s) for the stock. Larger the volume of trade, greater the fluctuation in the stock’s price.HOW TO INVEST IN SHARES:Now that you have understood exactly how the stock market works, you may be wondering how to invest in the market.Step 1First, understand your investment requirements and limitations. Your requirements should take into account the present as well as the future.The same applies to your limitations. For example, you just got a job and earn Rs. 20,000 a month. Your limitation could be that you need to set aside at least Rs. 10,000 for instalment payments for your car, and another Rs. 5,000 for your monthly expenses.This leaves aside only Rs. 5,000 for investment purposes. Now, if you are a risk-averse investor, you may prefer to invest a larger portion of this amount in low-risk options like bonds and fixed deposits. This means, you have only a small portion left for stock market investing – Rs. 1,000. Further, take into consideration your tax liabilities.Remember, making profits on short-term buying and selling of shares incurs capital gains tax. This is not applicable if you sell your shares after a year.So, ensure that your cash needs don’t force you to sell your shares on short-term unnecessarily. Better to take a wise well-thought decision, than attract unnecessary costs in the future.Step 2Once you understand your investment profile, analyse the stock market and decide your investment strategy. Find out which stocks suit your profile. If we continue the above example, with a budget of Rs 1,000, you can either choose to buy one large-cap stock or multiple small-cap stocks. If you need an additional source of income, opt for high-dividend stocks.If not, opt for growth stocks which are likely to appreciate the most in the future. Deciding the kind of stocks you wish to collect is part of your investment strategy.Step 3Wait for the right time. Have you ever seen a cheetah or tiger hunt? They lie low for a while waiting for their prey, and then they pounce. Exactly the same way, time is of utmost importance in the stock market. Merely getting the stock right is not enough. Your profits will be maximised only if you buy at the lowest level possible. The same applies if you are selling your shares. This needs time. Do not be impulsive.Step 4Conduct your trade either online or on the phone through your broker. Ensure that your broker confirms the trade and gets all the details right. Recheck the trade confirmation to avoid errors.Step 5Monitor your portfolio regularly. The stock market is dynamic. Companies may seem profitable one moment, and not-so profitable the next due to some unforeseen factor. Ensure you regularly read about the companies you have invested in. In the case of some unfortunate situation, this will help you minimize your losses before it is too late.However, this does not mean you panic every time the stock falls. A stock’s price will fall at some point in time, because there will be some investor in the market with a shorter investment horizon than you. So, he will sell his stock and pocket whatever profits possible in that shorter time. Patience is a key virtue in the markets.