An insight into what’s wrong (and right) with your investments

“Oh no! It’s time to go!”
Markets have corrected to a new low.

But when markets touched a new high,
wasn’t it too expensive to buy?

There may be a hundred reasons to not;
But you lose each time you don’t take the shot.

Sadly, for some, there is no reason adequate;
They spend their life, standing at the gate

These days are so surreal.

Streets are abandoned, shops are shut, there’s a lot happening in the world yet not as much as a whisper to be  heard in the alleys but at the same time, we are spending time with family that seemed like a life goal till a couple of days back, many are witnessing nature’s little surprises like peacocks walking free in a housing society, people  are developing new skills, indulging in hobbies & being more considerate towards everyone around and more  importantly, being grateful for the blessings we often took for granted.

It is important and high time we understood –
Quiet does not equal to dull.
Distancing does not mean aloof.
Staying home does not mean idle.
And importantly –
No action does NOT reflect indecision.
Hold on to these thoughts as we attempt to give you a fresh perspective into real investing.

Let’s get to the most important question today – “Markets have tanked; what do I do?”

There is a good chance you opened this email out of sheer excitement to take an action on your investments. But,  here’s why you must take a step back and think!

Action bias, or in other words – the urge to do something when something happens even though it does not necessitate you to do anything, is turning out to be the biggest factor to wealth erosion.

Given that the urge to take action is a typical behaviourdriven situation, I would like to quote a self- explanatory sketch from ‘The Behavior Gap’ by Carl Richards.

While this is a very crude sketch, it is perhaps the most powerful I’ve seen.

There is enough and more data to prove how profitable capital markets are, but the fact of life is that most investors haven’t experienced it first-hand and subsequently tilt towards believing that wealth creation by capital  markets is actually a myth perpetuated by the industry.

But let me assure – YOU (read as: your actions) are more responsible for your investment performance than the markets are. Following are the behavioural fallacies that lead to a not-so-good wealth creation experience.

Gap #1: Nobody can time the market, but many try to do so – albeit unsuccessfully

Back to basics. Price of an equity share is determined by the demand-supply mechanics driven by billions of dollars, billions of investors, millions of algorithms. Also, every optimistic buyer at a price point has a pessimistic seller. And hence, it is difficult for anyone to predict the market accurately since that would require predicting the movement of the expansive range of participants.

Gap #2: You can’t wake a person who is awake!

The number one rule for profitability is “buy low, sell high”. Now, I know this is common sense and you already know this.

But what you may not know is that most investors tend to do the exact opposite by succumbing to their own emotions.

The image alongside, again borrowing from Carl Richards, is how most investors manage their investments:

Gap #3: Time, and not timing, is your friend in the market

Wealth-creation is a long process requiring patience and persistence. It is best to try quick bets in the casino or at the race-tracks. Capital markets, contrary to popular belief, is a more of a wealth-building avenue than a money- minting machine.

Pick any index – perhaps Nifty for this case. In the short term, all you will see is high volatility across a chart reacting to various events. But, in the long term, you will notice an uptrend emerging! It is important to ride the uptrend and ignore the volatility. Be an investor, not a trader.

Volatility is a sign of life. And besides, how would anyone ever make money if there was never a low and never a high let alone having multiple opportunities between multiple lows & highs.

But then, what do we do? How far is the recovery?

Let me keep it simple.

Now is a great time to not touch your eyes, nose, mouth & existing portfolio.

We all know that the markets are battered because of the virus outbreak and by experience we know that every time there’s a pandemic, it causes panic and fairly so.

From this perspective, the market recovery is almost as far as collective health recovery is. In contrast to the 2008 crisis, global central banks are more prepared, proactive and coordinated which is expected to lead to a  relatively quicker recovery as soon as we arrive at a solution to protect mankind from this virus outbreak.

Meanwhile, if you believe in the collective intelligence of mankind and have faith that we will overcome this pandemic and emerge victorious, there’s no reason to not believe that people will continue to engage in commerce, companies will continue to flourish and your investments in Indian equities will more than just compensate you for your endurance during the period.

If your goals are not due till perhaps the next five or more years, try to capitalise on the situation by stepping up your SIPs. Meanwhile, stay healthy & ensure that your actions are in line with staying wealthy.

Tax Amendments w.e.f 1st April 2020 render dividend options less lucrative; investors must opt for SWP

Background

Most investors opt for dividend options as a regular source of income. While this has never been the most optimal way to plan for cash flow requirements, the amendments announced in Budget 2020 eliminates all ambiguity.

Genesis

While most did not understand the real reason to what led to the popularity of dividend plans and simply continued to opt for dividend plans because everyone else was doing it, it all began with a favourable taxation policy.

Very Old Story

Till April’18, there was no Dividend Distribution Tax applicable on equity-oriented mutual funds while it continued to attract capital gains tax. Thus, opting for dividend would ensure that the amount received as dividend was practically equivalent to realising gains to a great extent without paying any tax on it.

Old Story

Come April’18 budget season, a Dividend Distribution Tax of 10% was introduced on equity-oriented mutual funds, payable by mutual funds but tax-free at the hands of investors. Capital gains continued to be the same for Short Term Capital Gains (STCG) at 15%, but there was a new introduction of Long-Term Capital Gains on equity-oriented products at the rate of 10% (on gains exceeding INR 1 Lakh in a financial year).

Now, DDT at 10% was still lower than the 15% tax on STCG. While in the longer term it was still prudent to withdraw instead of take dividend due to a variety of reasons (will get to that in a bit), most short-sighted investors continued to invest in dividend plans. There was some sanity among debt investors as the DDT on debt funds were ~25% and tax on capital gains were per applicable personal tax rate – hence, dividend plans in debt funds were not particularly popular to say the least.

Cut to Today

1 April 2020 onwards, DDT in all forms has been abolished. Dividends will be taxable at the hands of the investor at the applicable personal tax rate. Also, for dividends above INR 5,000, A TDS (Tax Deducted at Source) of 10% has been introduced.

Now, dividends are not lucrative from a taxability standpoint as well.

Now, what’s best for investors seeking periodic income?

Going ahead, a Systematic Withdrawal Plan is expected to be more tax efficient for investors. With dividends being taxed at personal tax rate and capital gains tax being at a lower flat rate, investors stand to benefit by choosing to pay the capital gains tax arising during the Systematic Withdrawal Plan instead of the Dividend Distribution Tax.

Here are a couple of more reasons which make SWP a better choice:

  1. DDT is paid on the whole amount paid out as Dividend; Capital Gains Tax is paid out only on the gains component of the redeemed amount – while this translates to lower tax outflow, it also ensures there no tax if you’ve incurred an overall capital loss in a financial year.
  2. SWPs are more flexible – start, stop, modify as you please. This gives you more control on ensuring your investments continue to be aligned with your goals & personal conditions.
  3. SWPs ensure there’s certainty on the frequency, date and amount of cash flow receivable unlike dividends where it is per AMC discretion.

It is important that investors seek professional assistance on determining the ideal amount he/she should redeem through the Systematic Withdrawal Plan to ensure alignment with overall investment objective.

Should you accept RBI’s gift of deferring loan repayments?

Here’s a little background for the uninitiated.

In its move to bolster liquidity and leave more disposable income in the hands of Indians, RBI announced a loan repayment moratorium wherein it gave banks the right to offer small 7 medium enterprises & individuals the option to defer their monthly instalments by three months – effectively, leaving them with more cash flow for three months.

This is applicable on a wide variety of loans including home loans, personal loans, credit card dues, and similar.

To support lenders & borrowers, RBI assured that this deferment will have no impact on the lender’s asset classification (need not classify as Non-Performing Assets) nor on the borrower’s credit score.

Key points to take note of:

  1. RBI has given lenders the option to offer this facility; lenders are not mandated to facilitate this scheme. Please check with your lender if they are offering you this deferment facility.
  2. This is not an EMI or interest waiver. This is a deferment. You will eventually have to pay up after the three-month period.
  3. Interest continues to be accrued on the outstanding amount. Nothing about this facility equates to “free”, except for some free cash flow for three months.

Now, back to the dilemma – should you avail this facility?

No, if you can afford to NOT accept it. Here’s why.

The deferment facility is to ensure that people & entities with genuine cash-crunch get benefit from some liquidity without being officially classified as a defaulter. The key point here is that interest continues to accrue for the period.

Typically, interest is computed on the outstanding loan amount at the end of every repayment cycle. Hence, as you continue to pay up, the interest component reduces in tandem with the reduced outstanding loan amount.

If you defer payment for three months, the interest continues to accrue on the amount outstanding as of now and simple interest is expected to be computed on the current outstanding till the end of the three-month period. This means that by the end of this moratorium period, you will have to pay more as interest that you could have otherwise saved by repaying.

Here’s a crude illustration on an outstanding loan amount of INR 3,000 & monthly EMI of INR 1,000 – rate of interest considered at 10% p.a. for simplicity.

As can be observed in the above illustration, a deferment translates to higher effective interest payment due at the end of deferment period.

Now, this facility makes sense for those who genuinely need the liquidity & do not mind the interest cost since they can now benefit without worrying about a lower credit score or being classified as a defaulter.

While borrowers in need of liquidity may choose to prioritize certain loan repayments during this period, this decision should primarily revolve around the interest rate structures – for instance, a credit card interest structure could vary in the 40% ranges while home loan structures in the 8% ranges. It always makes sense to pay down debt with a heavier cost structure first.

Invest on or before 31st March 2020 to get 4 indexation benefit#

4 Indexation benefit:

  1. Long term capital gains (holding period of over 3 years) from debt mutual fund schemes are taxed at 20% plus applicable surcharge and cess with the benefit of indexation.
  2. Government notifies Cost Inflation Index (CII) for each financial year taking into consideration the prevailing inflation levels
  3. The cost of purchase for computation for tax is adjusted for inflation using CII, thereby reducing the capital gains from tax perspective.
  4. An investment made in debt mutual fund toward the end of financial year (say, in March 2020) and held it for a little over 3 years (say, in April 2023) would be eligible for application of CII over 5 financial years and resulting in 4 indexation benefit.

(#Investors can avail the 4-indexation benefit, if they invest in the above schemes on or before March 31,2020 and redeem during FY 2023-24)

Illustration demonstrating the benefit of investing in debt mutual fund at the of the year:

Investment at the March end Investments post March
Investment Amount₹ 10,00,000 ₹ 10,00,000
Investment Date30-Mar-1601-Apr-16
Redemption Date01-Apr-1901-Apr-19
Indexation Benefit ApplicableYesYes
Expected Value assuming 7% growth rate₹ 12,25,043₹ 12,25,043
Tax Post indexation₹ 17,449₹ 26,029
Final Value Post Tax and Indexation₹ 12,07,594₹ 11,99,014

Note: The above table is just for illustration purpose only. Investors should be aware that the fiscal rules/tax laws may change and there can be no guarantee the current tax positions may continue indefinitely.

You may consider opting for debt mutual fund schemes at the end of the year.

Happy Investing.

Invest on or before 31st March 2020 to get 4 indexation benefit#

4 Indexation benefit:

  1. Long term capital gains (holding period of over 3 years) from debt mutual fund schemes are taxed at 20% plus applicable surcharge and cess with the benefit of indexation.
  2. Government notifies Cost Inflation Index (CII) for each financial year taking into consideration the prevailing inflation levels
  3. The cost of purchase for computation for tax is adjusted for inflation using CII, thereby reducing the capital gains from tax perspective.
  4. An investment made in debt mutual fund toward the end of financial year (say, in March 2020) and held it for a little over 3 years (say, in April 2023) would be eligible for application of CII over 5 financial years and resulting in 4 indexation benefit.

(#Investors can avail the 4-indexation benefit, if they invest in the above schemes on or before March 31,2020 and redeem during FY 2023-24)

Illustration demonstrating the benefit of investing in debt mutual fund at the of the year:

Investment at the March end Investments post March
Investment Amount₹ 10,00,000 ₹ 10,00,000
Investment Date30-Mar-1601-Apr-16
Redemption Date01-Apr-1901-Apr-19
Indexation Benefit ApplicableYesYes
Expected Value assuming 7% growth rate₹ 12,25,043₹ 12,25,043
Tax Post indexation₹ 17,449₹ 26,029
Final Value Post Tax and Indexation₹ 12,07,594₹ 11,99,014

Note: The above table is just for illustration purpose only. Investors should be aware that the fiscal rules/tax laws may change and there can be no guarantee the current tax positions may continue indefinitely.

You may consider opting for debt mutual fund schemes at the end of the year.

Happy Investing.

Answering your top 5 financial concerns

The current pandemic naturally calls for panic around uncertainty, but as a sliver of hope, you must draw comfort from the fact that India, as a nation & economy, is behaving in a highly proactive manner to ensure that the health & wealth of the nation is secured to the extent possible.

While the Government & Reserve Bank of India is doing their job with maximum efficiency, perhaps it is time you understand the current situation well and take the right financial decisions.

Here are the top five queries investors like you asked us during the week and our responses to it. Hope this helps you as well.

1. Shall we redeem my investments in losses as the markets are volatile?
If your financial goal is at least three years away, there is no point in converting your notional losses into real losses. The best way is to stay put during testing times like now and ride the full recovery.
In fact, if your goals are around 5 years or more away from today, there is merit in investing more during low times like now to benefit from the full-blown recovery that follows every decline.

If you need cash this year or a little into next year, you could perhaps consider switching smaller portions into debt funds like liquid funds over the period.

2. I am a middle-aged investor and investing for my retirement, is there anything else apart from mutual funds that I can diversify into?

Mutual Funds itself are diversified products that let you invest and benefit from appreciation across asset classes like equities, debt, and gold. However, the National Pension System (NPS) is also a similar product, letting you choose allocation towards equities & debt – the bright aspect is that investing into these allows for an additional tax-break of an investment up to INR 50,000 under section 80 CCD. So, NPS should be a good addition to your retirement portfolio, especially from a taxability perspective.

3. I have employer-offered medical insurance. Does that suffice?

Typically, employer-provided health insurances have an average cover. There is merit in checking for the illnesses & ailments covered by the policy along with the sum assured. Also, one must consider the brutal reality that quite often than not there is nothing such as job security and that in any uncertain event which could result in a loss of a job, it could also translate to the cessation of your ongoing policy through the employer – leaving you uninsured.

It is advisable to have personal medical insurance, a family-floater if you have a family. As a rule of thumb, if your income is up to INR 5 lakh annually, your cover should be of at least INR 3 Lakh and if you earn more or have dependents, you must have a cover of at least INR 10 Lakh.

Now, these are indicative, and one must understand that medical expenses could swing anyway. It is advisable to seek the assistance of a financial consultant to help you understand your cover requirement basis for your personal situation.

4. Is it required to have a life cover?

Times like now are a reminder of uncertainties in life. It is important that one has adequate life cover which can substitute his/her income for the next three to five years (depending on the family’s dependency on this income) in case of an unfortunate incident that comes along with the burden of a stopped income stream.

5. I may face problems paying my outstanding loan/credit card dues. What should I do?

RBI has announced a slew of measures to support the health and wealth situation of Indians. One such measure is that the central bank has issued guidelines to all banks and non-banking lenders to allow a 3-month moratorium on a home loan, personal loan, education loan, gold loan, credit card dues, etc. This means, if you are unable to pay your EMIs or credit card dues for three months, it will not impact your credit score.

You can reach out to your banker/lender and seek clarity on it. Please note that the interest on the skipped installment will continue to be accrued and added to the principal amount, which will be payable after three months per current notifications.

Right now, the most important thing Indians must focus on is staying healthy and ensuring that he/she takes the right financial decisions which were being procrastinated till now. The Government of India & Reserve Bank of India are working hard & working well to support India & Indians, it is time you support your health & wealth.

RBI’s first big relief drug

“In spite of the very challenging environment, I remain optimistic. It is worthwhile bearing in mind that the macroeconomic fundamentals of the Indian economy are sound and, in fact, stronger than what they were in the aftermath of the global financial crisis – the fiscal deficit and the current account deficit are now much lower; inflation conditions are relatively benign; and financial volatility measured by change in stock prices from recent peaks and average daily change in the exchange rate of the rupee is distinctly lower. COVID-19 is upon us; but this too shall pass.”

~ Dr. Shaktikanta Das (Governor, Reserve Bank of India)

Key Announcements & Inferences:

1. Repo rate has been cut by 75 bps to 4.4%

Repo rate is the interest rate at which RBI lend money to banks. The reduction in repo rate means that the banks can borrow money from RBI at cheaper cost and will pass the benefit to their customers/borrowers by reducing the interest rate on their loans.

2. CRR rate has been reduced by 100 bps to 3% from 4% earlier

CRR is the percentage of available funds that banks must maintain with RBI as a statutory requirement. Reduction in CRR by 100 bps translates to lesser amount being deposited with the RBI & more cash available to banks. This is expected to improve the on-ground liquidity situation.

3. A three-month moratorium is announced on payment of installments of loans outstanding on March 1, 2020 along with letting lenders allow for a 3-month deferment of interest payable on working capital.

This is perhaps the most-welcomed move by small businesses & middle-class Indians. This deferment of loan & interest repayments offers strong relief and categorises a larger part of income to be utilized as consumable cash flow. Also, lenders are offered the option to recalculate working capital cycles or ease margins to support borrowers. In all these cases, there will be no impact on credit score (individuals) or asset quality (lenders).

4. RBI will conduct auctions of long-term repo operation (LTRO) of three-year tenure up-to Rs1 lakh crore at floating rate linked to policy rate

This initiative is expected to support the liquidity situation in debt markets. The move is expected to mobilise ~INR 3.74 Lakh Crore as additional liquidity. Mutual Funds are the biggest beneficiary of this relief since it lets them address panic redemption requests in a much better fashion.

Key Takeaway for Investors

In sync with Global Central Banks, the RBI is also working proactively towards supporting the economy through a wide array of tools ranging from conventional rate cuts to the much unconventional yet effective Long-Term Repo Operations. The RBI’s actions covering middle-class Indians and small, medium enterprises along with the Finance Ministry’s coordinated effort to support the economically challenged, together reflect India’s strong stance & action on supporting not just the health but also the wealth of India.

We believe this is only the beginning of support & relief measures announced and that Indians should focus on staying healthy while the economics are taken care of by the Reserve Bank of India & Ministry of Finance.

“The RBI will continue to remain vigilant and take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability. As I had stated earlier, all instruments – conventional and unconventional – are on the table.”

~ Shaktikanta Das – MPC Statement 27.03.2020

FM’s Relief Measures: All you need to know

– Citizens under a certain income threshold will be eligible for “Pradhan Mantri Gareeb Kalyan Anaj Yojana”. The people under this scheme will get an additional 5kg of wheat/rice for free, along with this one KG of locally available pulses will be provided over the next 3
months.

More than 80 crore Indians will be benefitted from this scheme.

– Famers will receive INR.6,000 per annum through PM-KISAN scheme with the first installment being paid upfront by the government.

Almost 8.69 crore farmers will get immediate benefit of it.

– Poor senior citizen, widows and divyangs to receive INR.1,000 over the next 3 months.

– Medical insurance cover of INR.50 lakhs per health worker

This will include almost 20 lakh healthcare personnel

8.3 crore families below poverty line will get the free LPG cylinders for three months

– There are 63 lakh self-help groups for women in the country. They get up to INR. 10 lakh
collateral-free loans right now.

 Doubling the amount of collateral-free loans to INR. 20 lakhs

– Women Jan Dhan account holders to get INR. 500 per month for the next three months.
Almost 192 million women’s who are eligible for this scheme will be directly benefitted.

– Organised sector worker (through EPFO): Centre will pay the EPF contribution both, of the employer and of the employee (12% each) for the next three months. This is for all those stablishments that have up to 100 employees and 90% of whom earn under INR. 15,000 per month

– Wage increase under MNREGA will benefit 5 crore families. Wage increase will result in
additional income of INR. 2,000 per worker.

Cash transfer will be through DBT in eight parts: Farmers, MNREGA, widows, poor pensioners, divyang, women under Jan Dhan Yojana, women and households under Ujjwala scheme, self-help groups for women especially under the livelihood mission, organized sector workers under EPFO, construction workers and district mineral funds.

For Construction Sector Workers: The welfare fund currently has 31000 Cr and 3.5 Cr registered workers. GOI to give instructions to State govt to prevent economic disruption by use of these funds
District Mineral Fund_ – To be used by State govt for testing, medication, etc

Key highlight of FM/PM speech

Assuring citizens that a financial relief plan is underway for those effected by coronavirus disruption, the finance ministry has come up with relief around statutory and regulatory compliance as the financial year comes to an end.

Announcement:

No fees on using other banks ATMs and minimum balanced charge for different banks have also been waived:

Impact:

This move has been made keeping in mind the citizens should stay indoors unless it is absolutely necessary.

Bank charges are also being reduced for digital transactions.

Threshold for invoking  insolvency raised to Rs. 1 crore from Rs. 1 lakhs.

Impact:

A major booster for medium and small enterprises, as they are more vulnerable to the ongoing Covid-19 crisis. This move will definitely help SME’s sail through the tough times.

GST returns and Income tax filing returns date extended to June 30th

Impact:

Late fee or penalty will not be charged to companies with a turnover of less than Rs. 5 crore. Those with a turnover of more than Rs. 5 crore, will pay reduced interest rate of 9 percent.

Interest rate on delayed payments of income tax for financial year 2018-19 has been reduced to to 9 percent from 12 percent. This will help reduce the stress on company’s cash flows.

Vivad Se Vishwas scheme has also been extended to June 30th. This scheme aims at dispute resolution in context of pending income tax litigation in order to reduce pending litigations, generate revenue for government and benefit the tax payers.

Custom & Excise: Sabka Vishwas Scheme Date Extended to June 30:

Impact:

During lockdown period customs will do their duty 24*7. Pending payments due date of central and excise duties have been extended to Jun 30th. No late fee or interest will be charged. This is a further boost to encourage exports for domestic companies.

Corporate affairs rules:

As most personnel will be working from home during the lock down period, companies and board that do not hold even one meeting with their independent directors will not be held under violation of rules.

PM Modi Announcement:

Modi announced that government has provided ₹15,000 crore for strengthening medical infrastructure and treatment of coronavirus infected patients.

SEBI steps in: With Great Power Comes Great Responsibilities

In a response to contain panic-driven volatility & short-selling, SEBI has reduced the limit of positions that can be taken in the futures & option markets along with increasing margin requirements and capping derivative exposures and bringing down the market-wide position limit.

Illustration: India Vix (Volatility Indicator Index)

This move by SEBI is expected to help achieve the immediate goal of arresting the free-fall in stock markets till rational senses & sentimental stability prevails.

Glossary:

Short-selling:

This is a strategy used by traders who believe that a stock price will decline. A short sell implies that a trader (implicitly) borrows a certain number of shares of a company (typically from the broker) and sells it at the current price with a hope that he will be able to buy it back later at a lower price point and return the shares to the lender.

Margin:

A trader can put up some of his own money and borrow a larger sum from his broker to execute trades otherwise unaffordable to the trader. The money put up by the trader is called margin. With an increase in margin requirements, traders will have to put in more amount of own capital to execute the same trade.

Open Interest:

Open interest is the number of contracts (future & options; read as derivatives) open on any particular stock. These must be squared off either before or on the monthly expiry date.

Market-wide position limit (MWPL):

MWPL is the maximum number of open positions allowed across all future & option contracts in a particular stock.

Measures & expected impacts (Savvy investors read on beyond the summary for details):

  1. Market-wide position limits to be reduced to 50% from current 95% levels if it breaches prescribed thresholds. The threshold limits will be applicable on fresh positions developing 23rd March’20 onwards. Penalty on increasing positions beyond limit has been increased to 10x of the prevailing minimum and 5x of prevailing maximum amounts. This is expected to play the role of a speed-breaker in cases of a fast-accumulating positions on a particular stock or the index hence not letting it fall off the cliff.
  2. SEBI has prescribed a differential and higher margin requirement for stocks – traded in the futures & options market and the ones not traded in the futures & options market.
    This increased requirement is expected to deter traders from making reckless trades on borrowed capital since they will have to now put up more of their own money into trades.
  3. Foreign investors, members & institutional investors like mutual funds can participate in index derivatives subject to restrictive guidelines.
    This will ensure that bulky institutional capital does not sway the already fragile markets further.
  4. Additional to existing rules, SEBI has introduced flexing of dynamic price bands which can be flexed only after a cooling-off period of 15 minutes from the time of incremental conditions being met.
    This would be helpful in breaking heavy momentum trades and minimising damage.

Takeaways for mutual fund investors

While mutual fund investors only stand to benefit from these initiatives, investors into the arbitrage segment (or categories like dynamic asset allocation which includes arbitrage positions) may see returns temporarily & negligibly deteriorate as an effect of the surprise regulation & increased volatility. This applies majorly to investors who have invested in these segments as recently as within the past one or two weeks. Investors in these segments with a horizon of three to six months are well-placed though.

Details for the savvy & inquisitive:

Market-wide position limits
MWPL will be reduced to 50% from 95% of the defined limit for the ban to kick in if:

  1. Avg daily price high-low variation percentage during the last five sessions is 15% or more (OR)
  2.  Avg MWPL utilisation % during the last 5 trading days is >= 40%

MWPL, expressed in number of shares, is the lower of:

  1. 30x the average no. of shares traded daily in the previous calendar month in the cash segment
  2. 20% of the number of free float shares

Higher margin requirements

  1. Increased margin requirement to 40% in the cash market for F&O stocks with market wide position of 50% staggered as 10% from 23 Mar’20, 26 Mar’20 and 40% from Mar’20.
  2. For non-F&O stocks with a price band of 20% & price variation of >10% for 3 or more days in the last one month, the minimum margin rate will be revised to 30% from 23 Mar’20, and 40% or highest intraday variation (in the past month) whichever is higher from 26th Mar’20.

Ceiling on index derivative exposures

  1. Applicable limits for mutual funds, foreign investors & members for exposure to index derivatives:
  2. Short positions in index derivatives cannot exceed the notional value of stocks held in cash
  3. Long positions in index derivatives shall not exceed the notional value held in cash, government securities, Treasury Bills.
  4. Additional position limits beyond the above mentioned will be INR 500 crore in futures & options contracts each