Opinion with regards to new capital protection plan

POSTED BY Rajiv Garg ON April 30, 2013 3:32 pm COMMENTS (15)

15 replies on this article “Opinion with regards to new capital protection plan”

  1. Rajiv Garg says:

    Righty said.

  2. Rajiv Garg says:

    To the best of my understanding basically the plan is to pledge shares to raise margin money for doing trading in derivatives and futures.

    Now I want to know how risky is above approach.

    Is there danger of wiping out of the pledge shares.

    1. Syamantak says:

      Please go through what Ashal already explained.
      I’m just trying to rephrase the same idea in a bit different way. What is margin? In layman’s term, its a loan to buy something. This virtual loan is given to the buyer (in your case your broker) and Exchange works as an intermediary. As in almost every loans, the person whos’ getting the loan needs to keep something as a security. In case if the person fails to pay back the money to the lender, the lender then has full rights to execute his options on the security to get his bad loan cleared. the ‘security’ is something that is pledged here and called as the ‘margin’

      Now lets match this with your case. your broker gets your shares pledged as a margin to raise fund for the transaction (a buy or a short sell). Now assume immediately after the transaction, the value goes opposite to what your broker anticipated; in short the broker loses money. you know what will happen to the pledged shares? They’ll be sold off by the ‘lender’ to settle the transaction. definitely your broker did not ‘sell’ it by itself as per the agreement, but he very well made a situation where you lose your shares. Whom would you blame then?

    2. Ramesh says:

      Margin Money= well explained by Syamantak.

      Trading in derivatives and futures: Its a less-than-zero sum game. So for novices and mildly knowledgeable people, it is a sucker game. You will only Lose Money overall, yes you can have some good day in between.

      Leveraging (by using margin money) just magnifies the losses and gains, and on their own, does not tell if an investment/speculation is good or bad.

      You should be using PMS (no matter which company) if and only if it forms a small part of your overall portfolio (max is 5-10%) = the amount which you are actually ready to lose. The downside is large, while the upside is capped (because of various charges).

      check the forms from their site to see the various kinds of risk. Read about the POA (power of attorney) which you have to give to them.

      And tell me, what are the advantages and disadvantages of this service over MFs.

      My main point is that you should know the pros and cons of the instruments and THEN decide which is better for you.

  3. Rajiv Garg says:

    I am sharing the wordings of the above scheme below:

    https://docs.google.com/file/d/0B72PflkN-T6XYzgtSmFHQkNWeVk/edit?usp=sharing

    https://docs.google.com/file/d/0B72PflkN-T6XUVRCb2pVVEJMVzg/edit?usp=sharing

    Just for the sake of no bad intention to bring the bad name, I am withholding the name of the firm.

    1. Ramesh says:

      These pages are also just the front-end and not the actual details.

      Anything which does not tell you what can go wrong means that you are not being told the entire picture – as simple as that.

      Where is the risk? and who is the ultimate bearer of that risk? I cannot understand that from these 2 images.

      And Bad Intention? Bad name? LOL. They are ready to clean you up from your money, but you as great sage are not able to tell the name. Good luck.

      Again, any complicated plan is just another way to fleece your money. If you cannot make head and tail of any plan in simple words, DO NOT put your money into it. There are NO Capital Preserving Plans anywhere in the world, leave aside India. And New means untested.
      My advise: Stay away from this plan, this company and the person(s) who came to you for showing you the castles.

      1. Rajiv Garg says:

        The front two pages are about the company which is Modex International.

        Name of plan is PPMS. That is personal portfolio managing services.

  4. Rajiv Garg says:

    Thanks to all. I think I will go by the opinion of members of this forum.

  5. Prasanna Kottapalli says:

    If you are a novice and see if your present funds are generating returns donot disturb. Such plans exist and good for ppl who r very aggressive. Your post in this forum on this product makes me feel u r not that aggressive. You may go in for normal debt based capital protection plans.

  6. Dear Rajiv, a very simple question, I’m in your place & you are that broker (just imagine for while). Now I put my shares with you. You raised a margin money against my shares, now after raising money, the market tanks & the margin calls are hit, the financier who gave you (the broker) the margin money ‘ll sell the shares & ‘ll get back his money. If any short fall is there, You w’d have to pay.

    Now do tell, you as broker did not sell my shares but still my shares are sold, Whom should I blame?

    I’m repeating what dear Ramesh is already told. If you do not understand this thing, Stay away.

    Thanks

    Ashal

  7. Rajiv Garg says:

    I do not know why my query is not being seen. However I am posting it again:

    Recently I have been approached by a broker firm (lets call it Firm A) with a Capital Protection Portfolio Plan.

    Under this plan, I have to shift all my equities presently managed by Sharekhan to the new DP account in my name but managed by this broker’s firm (firm A).

    Also I have to give in writing that firm A can raise margin money against my equities from SEBI and use that margin for trading in derivatives and futures. However the firm will not be able to sell any shares of mine.

    All financial charges incurred in above transactions will be borne by the firm and from time to time firm will issue me checks against the profits (up to 15%).

    According to the plan, my capital will be protected with sharing of profits only. Any loss will be firm’s responsibility.

    Esteemed members of this forum, I am a novice in equity market. This plan is sounding too good to be good.

    Are there chances any fraudulent motives of firm A?

    Are there chances of wiping out of my shares?

    Please guide me with your valuable opinion: should I go forward or abandon the plan.

    1. Ramesh says:

      Can we see the plan in actual writing?
      What you have mentioned is what they have told you, and not the actual wordings.

      Get a pdf / scanning of documents / name of the firm to let us see the actual thing.

      Otherwise (in all cases actually), follow the advise: Invest only in things you understand and not in the dream castles woven by the agents. OR Dont buy what is being sold to you, unless you understand it independently.

      1. Rajiv Garg says:

        Hello Ramesh, I have scanned copies of the said plan, but please tell me how to upload them to this site.

        With regard

        1. Ramesh says:

          Use your google account, google drive precisely. Upload them there, and give a link here. You can use a folder and make it public (not editable).

  8. Dear Rajiv, what’s the query?

    Thanks

    Ashal

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