Skip to main content

Lending Equities

Best SIP Funds to Invest Online 


Lending of equities for additional return is a good product. It is gaining traction with volumes picking up

As a property investor, you have two options—keep the house locked or give it out on rent. The first option fetches you the capital gains as returns, while the second option earns you regular returns in the form of rent and capital gains. For stock investments too, you can either hold on to your shares and wait for them to appreciate in value or lend your securities through the security lending and borrowing (SLB) scheme to earn money in the interim.

Though a very good product, the SLB scheme is yet to attract large scale interest. SLB holds huge potential for interested investors. It is yet to pick up because of lack of awareness. We try to educate our clients about it on a regular basis

The efforts are showing. Volume in the SLB segment has started picking up and in the last five years, transactions have moved from around ₹100 crore to ₹2,000 crore

WHO BORROWS YOUR STOCKS?

Stock borrowing is mostly done by institutions and traders who want to hedge their positions in the futures and options (F&O) segment. At present, more than 90% of the people are borrowing securities to meet their delivery obligation under reverse arbitrage

Reverse arbitrage opportunity arises when prices in the futures market quote at a discount to spot price and arbitragers buy in the futures market and sell in the cash market. Since they need to give delivery in the cash market in a few days, they borrow the same from the SLB segment.

Traders, hedge fund managers, etc can also use stock borrowing to short a stock. There is a reason why they use this segment instead of F&O. They get in here only when the forward premium or the difference between the future price and spot price is higher than the rent charged by lenders on that stock. Traders try to make additional money by borrowing a stock at a cheaper rate and selling the same at a higher rate.

WHAT ARE THE RISKS?

Unlike the high-risk borrowing activity, securities lending is relatively risk-free and hence suitable for long term investors. Regulator Sebi and the bourses have imposed heavy margins on borrowers and the entire process is managed by Indian Clearing Corporation Limited (ICCL).

There are also several other provisions to take care of the interest of investors. Lenders in the SLB segment will continue to benefit from corporate actions. Corporate actions can be in the form of dividends, bonus or rights issue, etc. For one, if a company declares dividend when your share has been lent, the borrower will collect the dividends and pass it on to you.

Stock lending entails transfer of securities from the lender's demat account to the borrower and back. However, this does not complicate tax calculations. That is because the tax authorities have already exempted the SLB transactions from the definition of 'transfer' through a clarification dated February 22, 2008.

HOW SHOULD YOU LEND?

Despite the benefits, lenders should be aware that they cannot expect fixed returns from a product like this (see chart). They also need to moderate return expectations. Normal market yield is in the range of 5-6% per annum. Depending on the stock and market situation, these yields may vary in the range of 2% to 15% per annum. It can even shoot up 30-40% for short periods. Lending fees usually shoot up due to technical reasons. Special situations can arise if a big bear operator is stuck and has to give a large delivery. Then yields can go up to 30-40% levels. However, note that these are annualised figures and the absolute return you get will be less because the lendings happen over short periods of 10-20 days.

Since stock brokers need to take separate membership in the SLB segment, make sure your broker has a membership in the segment before proceeding. If not, you need to shift to another broker. The second step involves informing your broker about the stocks you want to lend and also the quantity. Once you reveal the stock list, the brokers will alert you about lending opportunities.

Every day, we get details of the stocks that are in demand and inform clients when such opportunity exist. Another option is to place an order for lending on a daily basis and the deal happens depending on the market situation

Heavy penalties await lenders if they don't deliver on time. So be ready to do that. We alert clients about lending opportunities and ask them to transfer to our account. This is to avoid the chance of default on lending obligations



SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Impact of Demonetisation

The government's move to demonetise `500 and `1,000 currency notes will immediately impact reserve money and money supply in the system along with the balance sheet of the Reserve Bank of India, the sole authority in the country for accepting currency notes and coins as legal tender. ET explains the interplay of currency, reserve money and money supply. 1. What is currency in circulation? It is the total value of currency (coins and paper currency) that has ever been issued by the central bank minus the amount that has been withdrawn by it. Currency in circulation comprises currency notes and coins with the public and cash in hand with banks. It is a major liability component of a central bank's balance sheet. 2. What is reserve money? It is essentially the central bank's money . It is also called high-powered money , base money and central bank money . As per the definition, reserve money equals currency in circulation plus bankers' deposits

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l
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