Skip to main content

What Are Futures And Options (F&O) Contracts?

These are derivative instruments traded on the stock exchange. The instrument has no independent value, with the same being 'derived' from the value of the underlying asset. The asset could be securities, commodities or currencies. Its value varies with the value of the underlying asset. The contract or the lot size is fixed. For example, a Nifty futures contract has 50 stocks.

What is a futures contract?

This means you agree to buy or sell the underlying security at a future date. If you buy the contract, you promise to pay the price at a specified time. If you sell it, you must transfer it to the buyer at a specified price in the future.

How can the contract be settled?

The contract will expire on a pre-specified expiry date (for example, it is the last Thursday of the month for equity futures contracts). Upon expiry, the contract must be settled by delivering the underlying asset or cash. You can also roll over the contract to the next month. If you do not wish to hold it till expiry, you can close it mid-way.

What is an options contract?

This gives the buyer the right to buy/sell the underlying asset at a predetermined price, within, or at end of a specified period. He is, however, not obligated to do so. The seller of an option is obligated to settle it when the buyer exercises his right.

What are the types of options?

These are two types of options — call and put. Call is the right but not the obligation to purchase the underlying asset at the specified price by paying a premium. The seller of a call option is obligated to sell the underlying asset at the specified strike price. Put is the right but not the obligation to sell the underlying asset at the specified price by paying a premium. However, the seller is obligated to buy the underlying asset at the specified strike price. Thus, in any options contract, the right to exercise the option is vested with the buyer of the contract. The seller only has the obligation. As the seller bears the obligation, he is paid a price known as the premium.

Should you invest in F&O contracts?

Investing in F&O needs less capital as you are required to pay only a margin money (5-20 per cent of the contract) and take a larger exposure. However, it is meant for high networth individuals.

How are F&O contracts different from each other?

In futures contracts, the buyer and the seller have an unlimited loss or profit potential. The buyer of an option can make unlimited profit and faces limited downside risk. The seller, on the other hand, can make limited profit but faces unlimited downside.

-----------------------------------------------------------------

 

Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

 

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Read more

WEALTH TAX

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 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...
Read more

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...
Read more

How to Pick Top Performing Mutual Fund Schemes

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   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...
Read more

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Read more
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