Q. What are Derivatives ?
A financial contract/agreement that does not have any independent value of its own, but derives its value from some other asset, index or anything that is quantifiable (called underlying) is known as a derivative. For e.g. Sugar is a derivative and sugarcane is the underlying. Fluctuations in sugarcane prices will influence the price of sugar. Derivatives contracts have the price fixed/agreed upon at the start of the contract and is essentially settled on a future date. The underlying could be anything ranging from Stocks, bonds, commodities & Indices to Interest rates, currencies, Weather & Freights. The derivatives contract prominent in Indian market is Futures and Options.
Q. What is Futures contract ?
It is a contract to buy or sell specified quantity of an underlying asset at a specified future date, at a specified price. These contracts are traded and settled on exchanges. The quantity (Lot size) and the Settlement date (Expiry date) is fixed in advance. In India, futures are cash settled. It is a leverage product as compared to cash market. For example: In cash segment funds required for buying 250 shares of ACC @ Rs. 1500 are Rs. 3,75,000 . If the price increases to Rs. 1600 you make a profit of Rs. 25,000 (250*100) in Cash market.
Whereas in Futures market, you pay a margin to take a futures position. You pay only Rs. 75,000 (assuming 20% margin for 1 lot of ACC = 20%*250*1500) to take a position of Rs. 3,75,000 and if price increases to 1600 you will make a profit of Rs. 25,000
Q. Which Futures contracts are available for trading in Indian market ?
The list of Futures contracts available for trading in Indian market is updated on NSE website (www.nseindia.com).
Q. What is Lot size ?
Unlike Cash market where you can buy or sell a single quantity of scrip, there is a group/basket of stocks which forms the “lot” in the Derivative market. When you trade in Futures market you buy/sell in “lots”.
Eg. if you buy 2 lots of Axis Bank, you are buying 2 baskets of 250 shares each.
Q. What are the different types of settlement obligation if I trade in Futures ?
The settlement obligation which arise in Futures trading are Brokerage which will be debited at the end of the day of the trading day If any position is squared off, profits, if any, will be credited on T+1 day in the linked savings account. In case of loss, the same shall be debited from the account on the same day.
Q. What is the margin requirement for Futures trading ?
For Margin Requirement please refer ‘Know Your Margin’ link at the time of placing an order. The path for Know Your Margin is Trading > Buy/Sell
Q. Is the margin percentage same on all contracts ?
No, the margin percentage may differ based on the liquidity and volatility of different stocks/ contracts. However, Futures contracts within the same underlying will generally have same margin percentage.
The mutual fund itself is a trust registered under the Indian Trust Act, and is initiated by a sponsor. The sponsor then appoints an asset management company (AMC) to manage the investment, marketing, accounting and other functions pertaining to the fund.
Every mutual fund has a fund manager who invests the money collected through subscription from different investors on behalf of the investors by buying / selling stocks, bonds etc. Various funds and schemes with different objectives can be introduced under the umbrella of a single Trust name.