Skip to main content

New Indices: Mini Contracts

New Indices

The New Year has set in and is bringing with it a lot of new things. Amongst many events in the financial sector - like the Reliance Power IPO and the market crash - 2008 may well see the launch of two new indices. They will not be sector indices like the recent Power Sector index. We are talking of a Volatility Index and the Dharma Index.


Volatility Index

The Volatility Index will be launched by the Bombay and National Stock Exchanges (NSE). The exchanges have been given a green signal by the market regulator, Securities & Exchange Board of India (SEBI), to go ahead and launch the index. At the same time, SEBI has also given the exchanges a free hand to decide whether they want to adopt a global model for this index or develop their own model. The Volatility Index, along with Futures and Options on it, was a recommendation by the SEBI-appointed Derivatives Market Review Committee (DMRC).

The Volatility Index will measure market expectations of near-term volatility conveyed by the prices of stock index options or a basket of options on stocks. Don't worry if you can't figure out what that means. According to a SEBI circular, a detailed methodology of the Volatility Index would be distributed by exchanges for the benefit of investors.


Dharma Index

The other index that may come up this year is the Dharma Index. This one is targeted at Hindu and Buddhist investors. The Dharma Index is being developed by Dow Jones and a private investment company, Dharma Investments (hence the name). The stocks in this index will be screened on the parameters of environment and corporate governance. The environment screens will take into consideration factors like emissions by the company and waste management measures while the corporate governance screens will consider factors like labor relations, industrial disputes, working conditions and wages.

The constituents of this index will be reviewed on a quarterly basis. While it is not clear as to exact date of launch of these indices, one thing is for sure, the indices will give investors something to think about and provide a different angle to investing.


Mini Contracts


The one that has been out of the reach of the small retail investor has been the derivatives segment. This segment has always been a place for the big ticket size investors who look to multiply their wealth by paying just marginally for their purchases. This is an extremely high-risk segment, especially in the futures section where the profits and losses can be limitless. This has been due to the big lot size involved and the high margin money required to be paid up front. And as a result, a majority of the trading done on the bourses everyday is in the derivatives segment, whereas the cash segment gets a minuscule share.


To change this scenario and increase participation of retail investors, the Securities and Exchange Board of India (SEBI) has allowed smaller sized contracts to be introduced. Subsequently, the National Stock Exchange (NSE) launched the mini-Nifty contract and the Bombay Stock Exchange (BSE) launched the 'Chhota Sensex'. As the name suggests, these are small lot size contracts with a lot size of five (Chhota Sensex) and 20 (mini-Nifty).

These new contracts will give the smaller retail participants an option to enter the derivative segment with lesser money. These contracts would involve lower trading costs and lower capital outlay (for margin). Investors would also benefit from better and precise hedging, flexible trading options and more arbitrage opportunities.


The security symbol for the smaller Sensex contracts is MSX and for the mini-Nifty contract is MINIFTY. The contracts would be available for monthly and weekly options just like existing future and option (F&O) contracts. SEBI has allowed trading in these contracts with effect from January 1, 2008. The value of a contract for a Nifty with lot size 50 is around Rs 2.5 Lakh. Hence the margin involved is also high. However, in the mini-Nifty contract, the lot size is 20 and the value of one contract will be around Rs 1.2 lakh. Likewise, the margin for a contract on Sensex was around 45,000 when the lot size is 25. For mini-Sensex the lot size is only 5 and the margin will be around Rs 9,000.

To make this a further attractive trading option, the NSE has even waived the transaction charges on all of its mini-Nifty contracts till March 31, 2008. This move was specifically targeted as the turnover on the smaller Sensex contracts was noticed to be higher than that on mini-Nifty in the initial days. This was surprising as generally the turnover on NSE F&O segment is much more than BSE. But before retail investors take the plunge and start experimenting, they should be aware that the derivatives segment can prove to be extremely risky. Futures and option require proper knowledge, guidance and a high risk appetite.

Popular posts from this blog

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

Mirae Asset Ultra Short Term Bond Fund and Mirae Asset Tax Saver Fund

Mirae Asset Mutual Fund   has renamed   Mirae Asset Ultra Short Term Bond Fund , an open ended debt scheme, to   Mirae Asset Tax Saver Fund   with effect from October 18, 2016. Also, Mr. Sumit Agrawal, the co-fund manager of Mirae Asset India Opportunities Fund (MAIOF) and Mirae Asset Great Consumer Fund (MAGCF) ceases to be the fund manager with effect from October 1, 2016. Consequently, MAIOF shall now be solely managed by Mr . Neelesh Surana while MAGCF shall continue to be co-managed by Mr. Neelesh Surana and Ms. Bharti Sawant. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. ID...

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...

How to manage Volatility in Debt Mutual Funds

Best Debt Funds Online   The debt mutual fund space is creating a lot of confusion among investors, especially the new ones. After a series of cuts in bank deposit rates and small savings, many new investors have started investing in debt mutual fund schemes. However, the complexity of the space is challenging most investors. Top mutual fund managers believe that these investors would fare well if they stick to an asset allocation plan in debt. The best strategy to avoid volatility in the debt space at this point is having an asset allocation Many investors are familiar with the concept of asset allocation. However, most of them do not associate it with debt investments. So, is there a formula? There should be three baskets in which you put your debt investments : short/ultra-short term funds, credit opportunities funds and bond funds . But, at this time, when the interest rates are not headed anywhere, it is good to stay away from long-term bond funds ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now