PIS account for NRI’s – Invest in Direct Equities in India

Are you an NRI who is planning to invest in direct stocks or other equity options? Indian economy is one of the fastest-growing economy and many NRIs and PIOs are planning to invest in Indian equities, but they are not sure, whether they can invest in India or not? And what is the procedure for investment?

As per rules, an NRI can also invest in direct equities, equity mutual funds or future & options (F&O) in India just like a resident but NRI’s have to open a separate account called as PIS account (portfolio investment scheme account) for investing in direct equities and we will look at that today.

PIS Account (Portfolio investment scheme)

PIS or portfolio investment scheme account is an account to be opened by NRI’s if they want to invest in stocks directly. This PIS account allows NRIs to buy and sell shares and convertible debentures of Indian companies on BSE & NSE by routing such transactions through their NRE/NRO bank account.

How to get PIS Account activated?

  • Step 1 – Open an NRE account/NRO account or you may already have it
  • Step 2 – You need to ask your bank for PIS form, fill a form ‘Application for designating bank account for PIS’ and submit it to the bank. Bank will send the form to RBI for approval.
  • Step 3 – Once approved by the RBI, the requested bank account (NRE or NRO) is designated as PIS Account.
  • Step 4 – Your Demat account and the trading account will be linked with the PIS account to enable the buy and sell off stocks at NSE/BSE.

Once your PIS account is linked with a Demat and trading account, you can invest in stocks online.

Non-PIS Account

By default, every NRE/NRO account is a non-PIS account (PIS is not activated). The following are the investments which can happen with the non-PIS account.

  • Mutual Funds and IPOs.
  • Sale of shares acquired through Right Issues/ ESOP
  • Sale of shares received in inheritance
  • Sale of shares received in bonus
  • Sale of shares bought when NRI was resident Indian.

Many banks make it mandatory to open a separate Non-PIS account along with a PIS Account. They offer 4-in-1 Account which includes:

  • NRI Saving Bank Account (Non-PIS)
  • NRI Saving Bank Account (PIS)
  • NRI Demat Account
  • NRI Trading Account

Important points

  • Transactions from a Non-PIS account are not reported to the RBI.
  • The PIS account cannot be a joint account
  • NRIs cannot do intraday trading with the PIS account. NRI’s can’t sell stocks without taking delivery of the shares/convertible debentures purchased.
  • Short selling is not permitted under PIS.
  • One can have only 1 PIS linked account. If you would like to open a PIS account with another bank, you will have to close the existing PIS account first.
  • In the case of POI, the POI card is also required in documentation
  • In case your overseas address is not in English, you need to get it translated by a translator in your city and get their stamp
  • In case you do not want to travel to India just for making investments, you can always give POA (Power of attorney) to someone trusted who can do the process for you.

3 account to be opened along with PIS account

Note that PIS is mainly permission and not an account in itself. If you want to buy and sell stocks in India, you would need NRE/NRO bank account along with the Demat and Trading account. Below are the details for each of those.

NRE/NRO Saving Bank Account

For any type of investment in India by NRI, whether it be mutual funds, commodities, or stocks, IPO having an NRE or NRO account is mandatory.

  • NRE Account – NRE account is a bank account where the money is deposited in Indian as well as foreign currency. You can use the money deposited in it, in the country of your residence or in India. Therefore, it is called as repatriable.
  • NRO Account – NRO bank account is only partially repatriable, means you can use the money only in India. And you can only deposit Indian income in this account. It is used to deposit rent, interest, other source income earned from India.

So depending on your situation and income type, you need to open these accounts. One can have any number of NRE/NRO accounts if required.

Many NRIs are using a saving bank account for transacting in India, which is illegal. So, once you become an NRI, you should convert your savings bank account into NRE/NRO account.

These are just marking on the existing saving bank account. One needs to fill a required form and attach required documents like PAN, Identity proof of country of residence, Passport, etc.

Demat Account

Demat account is to hold securities (shares) in electronic format. Unlike most developed countries where equity holding is kept with the broker, in India, they are kept in a separate account called Demat account. The Demat account is a secured online account.

First time NRI investors need to open a Demat account with a registered broker. Various brokers like Zerodha, ICICI, and Axis, IIFL, etc., are available for NRI investors.

Every broker offers different services and charges different fees and brokerage for the same. It is wise to check every detail of the broker before opening a Demat account. To open an NRI Demat account, the following documents are needed to be submitted-

  • Bank Account Statement/ Passbook Bank proof should indicate NRE/NRO saving a/c bank details
  • Foreign address proof
  • Indian Passport
  • PAN card
  • Photograph of investor
  • Canceled bank account cheque
  • If NRE or NRO is not mentioned (pre-printed) on the cheque, then bank verification letter is required.

All the photocopies of the KYC document should be attested by any of the entities like Notary Public, any Court, magistrate, judge, Local banker, Indian embassy, Consulate General of the country where NRI is residing.

Trading Account

In addition to a Demat account, an NRI also needs an NRI trading account to trade in stock exchanges i.e. to place buy/sell orders. The documents required to open NRI Trading accounts same as NRI Demat account.

Most brokers offer 2-in-1 account services wherein an NRI can open both trading & Demat account at once. Some stockbrokers who are part of a banking group such as ICICI Direct, HDFC Securities and SBI Capital, etc., offer all services like NRE/NRO account, Demat and Trading accounts are opened at once.

Let us know if you have any more queries related to PIS account? We will be happy to answer them in the comments section

His journey from 0 to 1000 crore (What you can learn from Master Equity Investor?)

The article is close to my heart.

In the article, there are no tips and tricks on how to make 1,000 crores overnight. The article is about engaging with some powerful questions and not trying to find an immediate answer to create wealth.

ramdeo agarwal and motilal oswal

The article is not about creating crores, it is about shifting your focus from markets to learning from the master investors- All I want is a shift in your mindset. Markets will continue to rock, your only job is to work on your mindset to create massive wealth.

How Investors should think when markets correct?

Right now a lot of investors, advisors and mutual fund companies are focusing only on the market volatility, Fall in NAV, portfolio return, some think markets are like a bloodbath, some are in the mood of stopping their SIP, some are in the mood of redeeming money, sharp corrections, on the other side mutual fund companies and advisors are asking investors to stay patient with their investments and encouraging them to invest more.

In short, some are positive and some are extremely negative about the situation we are into.


There is very little focus on how master investors think when markets correct. There is very little focus on inspiring the wealth creation journey of master investors. There is very little focus on how successful or master investors behave and act during market turbulence. We all start from zero and it is important to think and observe winning or master investors as we continue to walk on our journey of wealth creation.

Wealth Creation Journey of Mr. Ramdeo Agarwal

In the personal finance world, I have many teachers, there are many master investors from whom I continue to learn and get inspiration from. I am always like Eklavya, who keeps learning from different teachers from a distance and I will always continue to learn and absorb the maximum I can.

Mr. Ramdeo Agarwal is the Co-founder of Motilal Oswal group of companies, his journey of wealth creation transformed after meeting his mentor Warren Buffet. I never miss to read his wealth creation studies and there is not a single YouTube video I have missed in which he has featured.

I got an opportunity to be in the same room with Mr. Ramdeo Agarwal Ji in the US, my friends took a picture with him but I did not. I was having thoughts like, let me first do something amazing in life, let me create immense wealth using equity as a vehicle, let me help others to get wealthy by educating them on equity investments.

I should perform as a student first and earn the privilege of sharing a photo with him.

The POWER Questions I engage with about my teacher ( Mr. Ramdeo Agarwal Ji) are?

  • How does he (Mr. Ramdeo Agarwal) create wealth?
  • How does he maintain his conviction in the equity market?
  • How he stays on the court, no matter where the markets are?
  • How does he build his business empire around equities?
  • How does he stay so consistent with his investments?
  • How does he deal with losses in his portfolio?
  • How does he feel when he makes huge profits?
  • How does he stay committed to the process of wealth creation?
  • How does he practice the power of compounding in his day to day life?

Initially, I was busy to get answers to the above questions but after hearing and reading about Mr. Ramdeo Agarwal and his style of investing I came to know that the real secret is not in getting the answers, the real secret is in staying engaged with the questions, it is about staying engaged with the journey of wealth creation. It is about having your own investment philosophy, it is about allowing the power of compounding to do its work.

It is about finding your own process of wealth creation and keep refining it. It is about doing something over and over and over and over again and if something does not work for you, you make changes in your process and continue to move forward in your journey of wealth creation.

zero to thousand crore journey of Ramdeo Agarawal

Most newbie investors feel and think that master investors have something SPECIAL in them, they do something special to create wealth, they have some special knowledge or special skills. In reality, the only thing special about them is they do not look for ANYTHING special. They master consistency, repetition and stay focused on their path. They won’t allow any kind of outside noise to deviate them from their journey of wealth creation.

I invite you to read the pdf if you have read it before I invite you to read it once again. The PDF is old by now his personal net worth must have crossed a few more thousand crores. While you read to keep the above questions in front of you, do not look for special qualities or some special information from the pdf. From time to time we will continue to share other master investors from whom we can learn and inspire from.

Teacher and His Meditation Student:

Lastly, I want to leave you with a conversation, a student had with his meditation teacher.

A student went to his meditation teacher and said, “My meditation is horrible! I feel so distracted, or my legs ache, or I’m constantly falling asleep. It’s just horrible!”

“It will pass,” the teacher said matter-of-factly.

A week later, the student came back to his teacher. “My meditation is wonderful! I feel so aware, so peaceful, and so alive! It’s just wonderful!’

“It will pass,” the teacher replied matter-of-factly.

The market correction will pass away!

You have the power to create massive wealth

You really have the power to create massive wealth, almost everyone starts from zero or from a scratch and on one fine day they become an inspiration for others. Choose to be an inspiration to others, the article is not about Mr. Ramdeo Agarwal Ji, or how much money he has made.

It is about learning from the master investors and taking your financial journey to the next level. Create your financial journey more meaningful, stick to your mission of wealth creation and if that’s the game you will never bother where the markets are going. You will see every situation as an opportunity to create wealth.

Invitation: Check your Financial Health score?

(Check if you are capable to build Rs.1000 crore net-worth or not?)

Invitation to Check your Financial Health Score: During Diwali everyone gets HIT by the euphoria of shopping and buying new stuff, we invite you to check your financial Health score this Diwali, all you need to do is leave your details in the below link and my team will help you to check your financial Health score out of 100. After checking the score you will gain clarity on areas which are not working and areas which call for your immediate attention.

Investing in Mutual Funds vs Direct Stocks – Which is better option?

Should you invest directly in stocks of companies or rather buy mutual funds? Which option is more “suitable” for you?

A lot of investors feel that they should invest directly in shares, because that’s what mutual fund do at the end of the day, however stock investing is a very different game altogether and the dynamics are very different there. Let’s see them one by one.

which is the best option to invest your hard earned money? Direct stocks or mutual funds?


#1 – Knowledge Required

Most of the people think that investing in stocks is as simple as buying some stocks using hot tips and then waiting for the stock to become multibagger in next few months / years.

Experienced investors know that nothing is far from truth. They know that it requires great amount of knowledge and expertise to study the company’s balance sheets and choose the right stocks for future. There are investors who have spent their life time in studying how to do stock investing and still they make big mistakes.

So coming to the point, stock investing is not a child’s play. It takes years of hard work and a lot of knowledge to pick the correct stocks, where as you do not need much knowledge when it comes to mutual funds investing.

Infact, mutual funds as a product is created for those investors who can’t spend much time themselves to study stock investing. You can just pick a “reasonably good” mutual fund on your own using some basic rules or hire a financial advisor who can do that for you.

#2 – No control on stocks chosen

When you invest in mutual funds, you can not control which stocks go in and go out from time to time. That is the job of the fund manager. You only invest in the mutual fund and give your money to the professional management. So you have ZERO control on the stocks which are chosen by the fund manager.

However when you do direct stock investing, you are the fund manager and you have full control over it. So based on your study, gut feeling, logic, hearsay, hot tips, you can buy and sell the stocks, but that’s not the case with mutual funds.

The person who is taking the decision of buying and selling of stocks is a professional who knows the game.

#3 – Professional Manager

There is a different between a pilot controlling the airplane and the doctor doing the same. There is a great chance that the airplane will crash if it’s handled by a doctor (unless he an additional qualification of flying planes).

The same happens when it comes to equities. A mutual fund is managed by a very high quality and professional fund manager who has years of knowledge of various things like economy, credit cycle, interest rates cycle, economy, fundamental analysis, taxation, businesses and has years of experience of equity markets across various countries. They have completed professional studies related to wealth management.

Structure of Mutual funds


When they manage and take decisions on which stock to buy or sell, they have very deep understanding the sectors and that business. They visit the companies, their factories and meet their top management. They have hidden knowledge sometimes on what is going on within the companies and can predict the future of companies in a better way compared to a normal person.

However, most of the equity investors feel they can successfully invest in direct stocks with great expertise for long term and generate great returns just like a professional manager.

An IT engineer sitting in a cubical at TCS or Infosys can surely buy some stocks based on hot tips, but can’t match the expertise of a professional fund manager who earns crores of salaries in fund houses (and if they can match, it then why not leave your job and shift to Mumbai)

#4 – Volatility & Return

This is very important point, hence read very carefully.

When you buy a mutual fund, you are investing a very large portfolio of different stocks which can range from 30-100 companies.

So your profits and losses are dependent on a large number of stocks, hence the risk is distributed among those stocks and in the same way the returns you get is the average of all. In short there is lower risk and lower return potential compared to a small 4-10 stock portfolio.

When you are a direct stock investor, how many stocks will you buy will decide how volatile is the returns from your portfolio. Most of the direct equity investors bet on very few stocks, they buy 5-10 stocks only (some times only 2-3). So each stock size is quite large in the portfolio and any change (up or down) impacts the overall portfolio return.

Most of the investors are not equipped to handle very high return or very high loss. If there is very huge return, investors sell their stocks and want to lock in the profits and in the same way if there is a steep loss, they want to sell it off and get out of the “risky” game.

In both the cases, investors feel the urge to get out and wait on the sideline, rather than stay in the game – because it’s emotionally very over whelming to handle it.

This is exactly the reason why you will find investors who have a mutual fund for last 10 yrs, but very rarely you will find an investor holding the same stock for 10 yrs.

#5 – Automatic Investments (SIP)

When you invest in mutual funds, there is a standard facility of automatic investing called SIP . This is a great way to automate your investing and create a habit of regular investing. This suits an investor who wants to systematically invest a fixed amount each month on a given date.

However when you buy stocks, you have to manually invest in each stock every month if you want to regularly invest in them. This becomes practically challenging and inefficient because human mind is lazy as per design. No matter how many reminders you set and how “committed” you are, after few months of “success” , it all falls apart for 99% of the investors.

Some portals like HDFC securities have now started the SIP in equities also, so what I am saying does not apply to each and every platform.

#6 – 80C Benefits

Direct stock investing has no 80C tax benefits, however if you invest in ELSS (tax saving mutual funds), you can avail the taxation benefits.

This is one small reason why you can prefer mutual funds over direct stocks

#7 – Active vs. Passive Involvement

Mutual funds are made for those investors who have no knowledge and no time on their side. Once you invest in mutual funds, your involvement is very limited in reviewing the funds over time. The important decisions of which stock to buy, when to buy, how much to buy is taken care by the fund manager and his specialized team of 5-20 research analysts.

How mutual fund works?

However, if you decide to directly invest in shares, all this has to be done by you. Even though it’s not exhausting like day trading, but still you have to study companies, keep a track of what’s happening with each companies in your portfolio, control your emotions (true for mutual funds also) and what not.

In short, you have to be quite active in direct stock investing. It gets tough to focus on stock investing because of so many things in life.

#8 – Fees and Cost

When you buy stocks directly, you only have to incur the demat account charges along with STT and transaction charges if any.

However when you invest in mutual funds, you have to pay something called as Expense Ratio. This is the fees which is charged on daily basis out of the funds, however you never see it yourself and all the NAV’s which are published are post-expense ratio.

These charges are in range of 2-2.5% for equity mutual funds (less charges for debt funds). So this is one point where direct stocks are better than mutual funds, but only if you are able to generate the same returns like mutual funds yourself. There is no harm to pay the fees if the fund manager is able to generate value for you in your wealth creation process.

Investing in stocks directly, just because you will save expense ratio is like not spending money on salt while preparing a dish, because you will save some money. You need to focus on the final taste.

However if you can do successful stock investing on your own, it does not make any sense to invest via mutual funds.

#9 – Emotional Bias

This one is Epic.

Your creation is always special for you and hence when you buy a stock based on whatever research and study you do, it gets very tough later to accept that you were wrong (incase you were) . You will become very biased about your buying decision and will not sell at the right time.

It gets very tough to accept that you were idiot in past for believing in a stock purchase decision and will not sell when the right time comes.

This is exactly why bad equity investors become long term investors. They stay with bad investments for many years and eventually loose. It’s your money and it’s your decision.


However when you invest in mutual funds, all the decisions are taken by a professional who is earning a salary for performance. They take decisions based on logic and keep the emotions out of their system. If their process says “SELL” , they sell it . If it says “BUY” , they buy it ! .


Finally, there are some benefits of going directly with stocks and in the same way with mutual funds. However , direct stock investing is a specialized game to play and it’s not everyone’s cup of tea. For those investors, who want to play little safe with their wealth creation, should choose equity mutual funds rather than trying to burn their fingers in direct equities.

Disclaimer – I would like to disclose that we as a company deal in mutual funds (click here if you want to invest in mutual funds), however we have tried to make sure that we are not biased when we are talking about direct stocks vs mutual funds. In some cases, direct stocks can really outperform mutual funds, but for general masses, mutual funds are better structured products when it comes to long term wealth creation.

7 sites where you can easily learn stock trading without risking your money

Do you want to learn stock trading, but don’t want to lose money in the process? In this article, I’m going to tell you about 7 best virtual trading websites or apps which will help you to learn stock trading without risking your money.

virtual trading

A lot of investors are excited to know about stock markets and how they can make a lot of money. They open a Demat account and start trading based on tips from various third party websites, or using their own judgment. But in the process, they lose a lot of money because of various mistakes.

However now, it’s easy to first practice stock trading. Have you heard about virtual stock practicing apps or websites? Have you ever tried using them?

How Virtual stock trading works?

Let me explain virtual stock in market India for those who are new to this

  1. You open an account on the virtual trading platform or app
  2. Then login to the account and load some virtual money in the account like 1 lacs or 10 lacs to start with
  3. You can then start buying and selling various stocks as you do in real life
  4. Like this, you can make various trades and see your profits and loss over time
  5. Over the next few weeks, you will learn how stock market trading works and you can also see how you have performed
  6. Once you are confident about your abilities, then you can open a real trading account and start stock trading with your real money

Now let’s look at some of the websites which you can use to practice stock trading.

1) Moneybhai

Moneybhai, a virtual stock trading game is a product of money control virtual trading which is popular in India. In this game you will get Rs.1 crore virtual money on your portfolio account and also the limit of Rs.1 crore intraday trading limit, which means that you can only buy and sell worth Rs 1 crore in a day.

You will have the option to invest in stocks, mutual funds, FD, bonds, etc. So here you have lots of options for investing with the imaginary brokerage charge of 0.50% in the virtual trade market. This is a great feature because here you are also paying virtual brokerage charge which you have to pay in real life when you trade with your real money, so that is taken care in this website.

Who should use this one: If you want a lot of options to invest like FD, bonds, mutual funds, stock, etc. then this game is good for you.


You can start trading at any moment once you are logged in. If you feel that you have made any mistake in investing or you went wrong at any point then you can reset your portfolio back to the original corpus of Rs.1 crore and start again. I personally feel that one should not use that option of reset because then you don’t know how you are performing exactly.

2) TrakInvest

TrackInvest as the name suggests itself is an investment guide. It is build up by considering the beginner’s point of view. If you have heard of the stock market but don’t have enough basic knowledge then this website will guide you in your virtual investment.

Who should use this one : If you are an absolute beginner who has no understanding of how the stock market works and you also need tutorials to educate yourself, then you can try this.


The simple interface and helpful content will ease you into the world of trading. It is more easy than it actually looks. It enables learners by giving a better understanding of the market. You can build your portfolio with zero risks and improve your market skills.

It gives the investors access to the real stock market from multiple global exchanges to trade-in. It also builds up your portfolio like an expert and tests your investment strategies and leverage analytics.

3) Dalal street

Dalal street is an investment journal that offers you Rs.1,000,000 as virtual money at the initial stage and provides an experience of real time stock trading with a virtual portfolio.

Who should use this one: One who wants to learn stock trading by using investment journals can get the advantage of this website.

Dalal street

Here you can also discuss your strategies with like-minded participants in a group. This will help you to improve your skills and strategies by other people’s experiences.

4) Wall street survivor

Here you can get the actual experience of stock trading with the virtual money because of the updated data. Wall street survivor doesn’t believe in the concept of teaching through content only. As per their opinion investment is more like fun, challenging and potentially lucrative activity rather than education.

Who should use this one: If you want practical knowledge through tutorials and improve your skills and decision making which will found new strategies then try this site.

Wall street survivor

This website also offers some courses to educate you about stock trading and tests your knowledge about investment and personal finance. They have lots of articles and videos which will keep you engage in various activities by aiming to improve your skills.

5) Investfly

Using investfly is not as hard as making money through your investment. Investfly make it easy for you to make money first virtually and then in the real stock market.

Who should use this one: If you want to trade with advance information and more trading options then you can try this site.


This website provides you a brief summary of how to start investing. This will be of great help for the beginner investor who had never invested in the real stock market. If you are interested in learning about stocks more then this will be a great platform for you.

6) ChartMantra

ChartMantra is a free online virtual stock market trading game cum analytical platform. It is a virtual game for trading. You can learn the basics of the technical analysis in stock trading and apply it to an actual stock exchange to analyze your portfolio.

Who should use this one : This platform is for those who want to learn stock trading and also its analysis.


Here you will get Rs.1 lac virtual money and the objective of this game is to make as much money as you can from it and go the top of the rank. This game will analyze your buying and selling and give you an analysis of it so that you can track your record and apply the analysis on your real trading account.

The trading will cost 0.1% brokerage which will make the trading more realistic.

7) Moneypot

Moneypot is a game of virtual trading in India which provides the platform of virtual stalk trading to students, corporate as well as investors. It aims to connect an online investment community through a social trading platform.

Signing in here just like other virtual trading sites. Once you open the website you can see the sign-up button and play game button. you can click on sign up if you are new to this site and then can play the game.

Who should use this one : This is the best virtual trading site for beginner investors or stock market learners.


Advantages of Virtual trading

The advantages of virtual stock trading are as bellow:

  • For beginners it is good way of practicing because it allows the direct buying and selling the virtual stock.
  • You don’t need to invest real money.
  • As there is no real money you can take higher risk.
  • You get basic understanding and knowledge about the functioning of stock market.
  • You can learn through actual practice rather than only reading.
  • Mistakes don’t cause any loss here.

Disadvantages of Virtual trading

The disadvantages of virtual stock trading are as bellow:

  • As we said you don’t invest actual money, there is a possibility that you may not get emotionally attached with it because you are not losing anything in any case, which does not happen in real life.
  • If you don’t get emotionally attached to it you will get bored after some time and stop playing.
  • Sometime there is a possibility of getting bored because they are not getting any return in actual.
  • If you make profits in virtual trading, people tend to get very over confident about their abilities to make money

Now as you get a lot of options for virtual trade practicing you can start to learn to trade and get the real experience  of stock exchange. Leave your queries in the comment section and let us know your views regarding this article.

Basic Services Demat Account – a no frills account for small investors

Do you hold a Demat account or planning to get one? Then you should know what is a Basic Service Demat Account because it can be helpful for you if you are planning to trade very less and want to save on yearly maintenance charges.

Basic Services Demat account as its name suggests is a basic version of a full-fledged Demat account that provides basic level services. It’s ideal for those whose portfolio size is quite small. We will look at the details in this article. But before that, do you know what is Demat account at the first place?

Features of BSDA Account

What is the Basic Services Demat Account?

Demat or Dematerialized Account means an electronic account that holds various financial securities (especially shares) in an electronic format securely. Demat account is a compulsory account for those who want to buy company stocks from the stock market.

Demat accounts are under the control of SEBI i.e. Security and Exchange Board of India. Now, from 27 August 2012, SEBI has brought a guideline that every Demat provider will have to provide “Basic Demat accounts” available to every beginner in the share market so that it can encourage the people to invest in trading. This will be helpful for achieving wide financial inclusion.

So all those investors, who want to trade less and have a portfolio size of small amounts can open a basic Services Demat Account (BSDA) and save on the annual maintenance charges.

Where to open a Demat account or BSDA account?

You can open your Demat account or BSDA at any bank like SBI, ICICI, HDFC, Kotak Mahindra and many other banks, or with a stock broking companies Angel broking, 5Paisa, Sherkhan, etc. directly. Opening both Demat Account and Basic Service Demat Account is free at both banks and broking companies, but again the AMC varies.

These banks and broking companies provide free services for the first year and from 2nd year onwards they may start to apply charges on the basis of transactions. So before applying for a BSDA or Demat account check for all the details on the website of that particular bank.

How are Basic Services Demat account different?

Basic services Demat Account is a Demat account which can be opened with any Demat Service provider of your choice when your holdings are expected to be below Rs.2,00,000/-.

If we are maintaining holdings of value less then Rs 50,000/- then no annual maintenance will be charged from our account. In case our holdings are between 50,000 to 2,00,000/- then the annual maintenance of Rs. 100 /- will be charged.

In case our holdings exceed 200000/- then our BSDA account will be converted into Regular Demat account. This initiative is to promote retail investment and to promote retail investors to hold securities in Demat form.

Difference between a normal demat account and basic services demat account

How is the value of holding determined?

The DP i.e. Depository Participants will keep calculating the daily closing prices of securities (stocks, mutual fundsetc.) to determine the portfolio size.

This will be calculated after every trading day and then it will be compared with the limits set for your BSDA account. The moment your portfolio value exceeds the limits, you will be charged the fees for the normal Demat account or the slab you fall into on a pro data basis.

Check the video below for more.

Services provided for Basic Service Demat account

Now you must be clear about normal Demat Account and BSDA. Generally, the Basic Service Demat Account provides all the major facilities covered in normal Demat Account. But other that those services, there are few services in BSDA which are a little bit different than normal Demat Account. These services are as given below:

1) Transaction statement:

When your BSDA account is active and balance is maintained then you will get the transaction statement of your account quarterly. But if you don’t have any transactions in a quarter and your no security balance then you will not get the transaction reports or statement.

The statements are available in two forms i.e. electronic and physical document or hard copy. Electronic statements are free of cost; you don’t need to pay any charges for that. But if you want the statement in hard copy then your first two statements will be provided for free of cost and for additional statements you will have to pay the charge which will not exceed Rs.25.

2) Annual holding statement:

One annual holding statement ho holding of the account is sent to the registered address of the account holder. These documents will be sent in physical or electronic form i.e. via e-mail as per the account holder’s choice.

3) SMS Alert:

The account holder should register his mobile number to get the facility of SMS alert. Here you will get SMS for every transaction in your account.

4) Delivery Instruction Slip (DIS):

Two delivery Instruction Slips will be provided to you for free at the time of opening the Basic Services Demat Account.

These are the services which are slightly different in the case of Basic Service Demat Account then normal Demat Account. If you want to read more details about the services and charges of BSDA then you can download the circular by SEBI.

Can I convert my current Demat account into BSDA?

Yes, if you feel you are not making much use of your Demat account or if your portfolio is of less size, you can contact your DP to get your Demat converted to basic services Demat account.

This Basic Services Demat Account is a kind of free account because you don’t need to pay any maintenance charge if your transactions are below Rs.50,000. And Rs.100 only if your transactions are between Rs.50,000 to rs.2,00,000.

I hope you get all the basic details about BSDA. Do let us know if you need more details about the Basic Service Demat Account…..

How I failed into stock trading and 4 amazing things you can learn from my experience

Today you are going to learn some valuable lessons of stock market trading from experiences of a person who traded in stock markets for 1.5 yrs and failed miserably during those 1.5 yrs. This person is no one else, but myself

My mistakes in Stock Market Trading

Let me share my story

Sometime in June 2007, I got recruited in Yahoo from campus placements. I was 23 yrs old, fresh into job and had no idea how my life is going to take shape at that time. Suddenly, I saw a huge inflow of money (salary) in my life and I was not very clear what to do with it.

I had some weird notions about “Getting Rich Quick” back then. I was good with numbers, knew about stock markets basics and considered myself to be “analytical”, so I thought I am smart, very disciplined internally and can “possibly” do better than “average” in stock markets (every one thinks like that only).

So I was ready to enter the world of stock markets.

Now, there was one more guy in our new joiners group who was equally enthusiastic about stock market (that guy is now an IAS officer) and just like a smoker finds another smoker in a big group, we found each other and became buddies.

Over the next few weeks we made various plans on how we will get rich trading in markets. We were already millionaires on an excel sheet and we thought even in worst case scenario, we will do well.

So our next step was to open trading and demat accounts.

When God Sent that guy!

Things were all set, we were about to start the race.. and one day one ICICI Direct guy was in office (targeting new set of employees to open trading accounts) and we thought he was god sent ! . We opened our trading + demat accounts in no time.

The Rs.500 annual charges seemed too small to us compared to what we would be minting in coming months. When he said its “FREE” for the first year, we were like – “We won’t mind even if you charge 10X for that in the first year” .

We got to know about “options”

While we were ready to start our journey in stock markets . We got to know that there is something called Options (derivatives) apart from regular stocks. This was something new for us. We googled and searched about options, and we came to know it’s a high risk/return thing. We didn’t focus too much on “high risk” part , the only thing we could read was “high return” part.

So next moment, 20-30 eBooks got downloaded on our laptops and we decided we will learn about it and make sure we don’t leave any stone unturned for make our “millionaire dream” a truth. It was a bit hard for us to delay our “trading” for few weeks 🙁

Learning about options was FUN

Learning about Options trading opened up to a whole new world for us. We learned that options trading is an amazing leverage tool which was very fascinating. I learned about technical analysis also and used all the office bandwidth to download technical analysis eBooks and videos (at one point of time, I had 1000+ eBooks on stock markets and I didn’t read 998.8 eBooks out of it).

For those who want to learn about options in detail, I would recommend an excellent resource on it from Deepak Shenoy of Capitalmind. He did a webinar on the topic and it was recorded and uploaded on youtube. You can see it below

After getting introduced with Options, our greed went to next level and now we became much more rich on excel sheet. Our profit margin went really high (but we didn’t focus too much on risk factor, infact we were not even clear on where we are entering into and how risky it can turn out to be).

So were all set with high energy, but could not take any action because our trading account was still not active that time and we were waiting for it.

Finally we started Trading

So, one day I got a sms – “Your Trading account XXXXXX9484 is Activated – ICICIDirect” . I logged into my account, transferred 10,000 from my ICICI bank account to ICICIDirect account (they were interlinked already) and there was one stock we were following from long time. We bought an OPTION for that stock , I had to pay approx Rs 6,000.

  • We went for lunch and were back in 3o min
  • I logged in my trading account and saw the current price of the Option trade
  • It was Rs 8,500. I SOLD it

I made Rs 2,500 profit , a 24% profit during LUNCHTIME and now we were planning, if we can I leave our jobs ?

I realized years later that one should never make profits in their first trade in stock markets, it fuels the overconfidence in you like anything and gives you a false sense that you are really some smart guy !

Now the Learning Starts

Till now I was giving you the background of what all happened before we started our options trading journey . For next 1.5 yrs, we were very much involved each day into stock markets, made some money, lost a lot more money, got frustrated, some short-lived happy moments came in too and finally one day I put a big break on my options trading.

I learned a lot of lessons in those 1.5 yrs of my journey in stock markets and realized that I can pass on some learning’s to others who are now trying to enter the markets or are fascinated with the potential stock market trading holds .

I am not saying my learning’s are some hidden secrets which are very new, but I can share what all I learned in my style , I am sure it will help someone who wants to learn from my mistakes.

These few points will help you to not make mistakes I did and help you overcome some myths and notions associated with stock market trading . Just a request – Note that these learning have come from my trading in Options (which is derivatives) and not regular stocks, but that does not change the learnings you are going to read below.

Mistake #1 – I focused too much on Knowledge

When I entered into stock markets, I was of the impression that I need to acquire a lot of knowledge on how things work, how various strategies work ? How technical analysis can help in trading ? I learnt all the technical indicators, back tested them on the past data, wrote lot of programming scripts to test my hypothesis.

I even went on to download lots of videos online and watched it over and over for many months and I realized that my knowledge had gone up significantly. I now understood lots of concepts, strategies, complex terms .

I could see a chart and instantly see lots of hidden patterns and could tell more than a normal person who does not know how to read a chart.

But then, over the months, I realized that “knowledge” is just a secondary element to trade successfully in stock markets. Almost all the good traders around the world agree that “knowledge” does not contribute more than 10-15% in being a successful trader. It’s an important thing , but certainty not the holy grail

I am not saying that one should not focus on “knowledge” part, all I am saying is that it’s not that KEY thing to succeed. Over knowledge will only create problems for you.

One of the famous stock trader Ashwani Gujral says in his book – “How to make money trading derivates” – that as per his experience over many decades, he feels that knowledge of charts etc contributes to just 10% of success for any trader. Here is the chart which explains what he mentioned in the book

elements of successful trading

So, learn things in stock market and then concentrate on the other important elements which you will learn in some time. Dont overthink about knowledge part.

Mistake #2 – I went against the Trend

What I have seen is that all the new traders somewhere want to challenge the markets and want to predict when markets will fall and when it will rise. They want to predict when the trend will reverse. They want to catch that top or bottom.

This is the essence of where most of the failed traders are stuck . If markets are rising , somewhere inside me, I wanted to catch the top and wanted to prove as if I “almost” know that now markets will fall OR if markets were going down.

However in this process, I realized that all the time I was just trying to swim against the trend, If markets were going up, I tried to predict when it will fall and how much and vice versa, and in that process I never stayed with the trend. There was some kind of fun in going against the trend. It was very tough to accept that markets can be simple (not easy)

Below you can see last 1 yr graph of NIFTY Index and see that there has been an uptrend in market and it has risen from 6000 in 2013 to around 8000 now . That’s 33% increase , but imagine someone who didn’t stay with the trend and always tried to predict when will market fall and looked at markets with suspecting manner and never got in the trend itself.

Don’t go against market trend

So just make sure that you never go against the flow in general. If I have to compare this trend following with some adventure sports, then I will compare it with Surfing, where you ride on the flow of the water. The flow of the water itself will take you with it, you just need to stay with it. Imagine what happens if you try to go against the water flow, the chances of you getting crushed is high.

So, try to identify the overall trend (upside , downside) and then make sure whatever is your trading style , be with the flow itself.

There is nothing wrong in having a contrarian view and predict when the markets will turn its direction, but be sure you know how you will take that decision. You can surely take a call against the trend , but make sure you accept that you were wrong in case you fail. Don’t try to prove yourself right if you are wrong, because it’s only going to harm you.

Mistake #3 – I didn’t realize that Money management is supreme

I personally think this is the most important part of being a successful trader . The biggest reason for my failure was that – I was very casual about money management and made the biggest mistakes in this area. Money Management in context of trading is all about managing your overall money and how much part of your overall trading capital you put at risk in each trade.

I will give you an example – Let’s say you have set aside Rs 10 lacs for stock market trading . Now let’s say you make 2 rules

Rule 1 : You will never use more than 20% of your capital in any given trade, no matter how promising it looks to you. Which means out of Rs 10 lacs you have , you will not put more than Rs 2 lacs on any single trade (so even in worst case, you will lose only 20% of your capital)

Rule 2 : The maximum loss you will allow on any give trade is 10% , which means that if you put Rs 2 lacs on a trade, you will not let the loss cross 10% , which is just Rs 20,000

If you see these 2 rules, you can see that the maximum loss in any single trade will not be more than Rs.20,000 which is 2% of your overall capital. So assuming you make 1 trade each month, you have 50 months of quota with you to go wrong fully

No one is so bad that they will make bad decisions every time, you make good and bad both decisions , but important point is that you should survive in markets till that time when you start taking right decisions .. Hence it’s important to be in the game and unless you take money management very seriously , you are bound to get out of the game some or the other day.

This is exactly what happened with me. By the time I started realizing that I am moving from “bad trader” to an “average trader” zone , my capital was over and I was already in loss and I never went back to the game itself.

Why one should use Money management ?

The biggest reason why money management should be used is that it does not expose you heavily to the risk on a broader level, even if there is very high risk on individual trades.

And the next big reason why money management is crucial is that it brings some kind of consistency in your growth overtime.

Below you can see 3 versions of money management, which is BAD , Average and GOOD money management, where the overall risk taken on a single trade is moving from high to low.

I did some simulation on excel where we are measuring how capital will grow over 36 months (assuming 1 trade is done in a month) . I ran 25 tests and plotted them on a graph together. You can see how in case of bad money management the growth of capital is very random, unpredictable and varies from very high (lucky) to very low (unlucky)

But in case of good money management , the growth of capital a trader has moves up over time and with high consistency .

money management system case study

So to sum up , I would say money management system is like having a great stamina . If you are there for longer time in markets, in a way you win the battle to some extent.

Mistake 4# – I thought trading is all about WINNING

Psychology plays a big role in being a good trader. From the childhood we are programmed to WIN and that same mindset takes over rational thinking in stock markets trading too. We want to WIN on all the trades , It’s hard to accept that you were wrong , being wrong means taking a LOSS . LOSS equals FAILURE and we are never taught properly how to take failures. And that’s exactly what happens in trading, novice traders don’t cut their losses fast, they let them grow (ego) and keep hoping that they will WIN

This is what also happened with me. When I bought an option for a stock, every time I wanted to WIN, every time I wanted to make profit on that option. I thought I will become a great trader , if I WON more and more ..

I was so WRONG

Winning MORE times is not same as making MORE money in stock markets trading. I know some of you who are reading this are confused with this statement , but let me explain this important point

So when it comes to stock market trading, you can’t choose how many times you WIN or LOOSE, but can control HOW MUCH you will win or lose !

All you can do is 3 things

1. You can control how fast you can get out of loosing trade (getting out of a bad decision)

2. You can control how long you will stay with a winning trade

3. And You can control when you will take the decision using your knowledge.


Every trade you make in stock market, you should make sure that your profits potential is generally much higher than the risk potential. Here is how it should look like

risk reward of money management system

It’s very much possible that a trader wins 6 out of 10 times and still looses the money and in the same manner, it can happen that a trader wins just 4/10 times and still makes a lot of money.

Let me explain this with an example. Let’s say a person has Rs 10 lacs to start his trading .

A good trader wins just 4 times, but he makes sure that he will make big win and every time he makes a bad decision, he cuts the loss fast.

And in same way, a bad trader might win 6 times , but every time they are in hurry to book their profits (so they earn small every time) and when they are in loss, they do not book their losses fast (no money management rules in place) and hence let their losses grow because they can’t accept they made mistake (Ego) . The chart below will explain you this .

Why Winning in stock markets is not important

This is the only big difference between a good trader and bad trader .


Today I have shared my mistakes I did when I traded OPTIONS and I hope you will learn from my mistakes . But this can just be starting point only, you will only learn when you get on the ground and do the real trading. Till then it’s just a practice no matter what you do.

It’s extremely addictive to trade and if you are like me, you will feel a great thrill trading either stocks, futures or options (or any other instruments) , while I didn’t succeed in trading, I at-least know why I failed, I at least came to know my weakness and now I can improve upon it. I can at least help others to not make the same mistakes I did.

Also in future, if I get into trading again, I am sure I will be 10X better compared to earlier version of mine. I know it will still be very though, but I can try at least and when I stopped my trading, somewhere I felt bad about leaving it. I felt as if I am turning my back and got a feel of leaving the battle ground, but it was a right decision because I could have damaged my own net-worth to a big extent had I not stopped.

I would love to hear what you feel about the points I shared and if you would like to share your own experiences

Worst 5 yr period in Stock markets – Are you happy with your Investments ?

Most of the people are worried about their Mutual funds, ULIPs and direct stocks returns. In the last 5 yrs, Stock Markets have been so bad that literally no mutual fund has given a good return in last 3-5 yrs , except few. I recently saw a reader asking this question

I have been going through SIP returns for last 5 years of some best recommended mutual funds and found that the returns were less than the Bank FD rates or at par… What is the use of investing in risky mutual funds if they cannot deliver returns better than Bank FDs in long run… I suppose they are high risk low return investments… please enlighten..

Your investment return is function of underlying Asset Class

A very simple, but not an easy thing is to digest that it’s not the investment product, which is doing bad, but the underlying asset class. Take the same example of mutual funds, ULIP or Index Funds. Its not the “fund”, but the stocks which they are invested in, that are doing badly. Stock markets in India have seen one of their worst 5 year periods (2007 – 2012). In my book “Jagoinvestor”, there’s one chapter on equity and debt, where I take last 30 yrs of history and show how in the long term, equity has given good returns and as the tenure increases, the returns get stabler and better .

So because stock markets have given bad results in the near term, its natural that the investment product which uses those stocks will also give similarly bad returns. So your fund might have just done its job of picking stocks as per their mandate, but the underlying stocks have done so badly that the mutual funds really can’t do anything here. What really you need to look at, is if the mutual funds have beaten its benchmark or not . If not, that’s when the issue is with the fund.

When did you exactly buy matters?

Yes, the last 5 years returns have been really bad!. No investor would be happy with these returns. However, did you notice that your opinion will be strongly biased, based on the tenure you have been holding the stocks or mutual funds? Some one who had bought near the peak of 2007, will surely say – “Stock market is the worst investments, never believe someone who says they are good.”  A person who had bought stocks in 2002 and had sold in 2007 , would say – “Stock markets are great” and someone who bought in 2002 and is still holding would also say – “Overall they are good. Ups and downs are always there.”

Let me show you some numbers. I took past 10 years of monthly NIFTY data starting from Sept 2002 to Sept 2012. Then I divided it into two halves, so there is  the first 5 years (Sept 2002 – Sept 2007) and the next 5 years (Sept 2007 – Sept 2012) . Here are the results of the returns based on the Index values.

Nifty Returns from 2002 - 2012

First 5 yrs

You will see that the first 5 yrs  were a really golden period, which gave close to 35-40% for lump sum as well as SIP investments. Someone who had been invested in this period would know how amazing the returns were.

Next 5 yrs

If you have been lying in this group, you must be complaining and surely your investments have not done well. You are disappointed and you have lost your wealth. But sadly it’s only because you are in this group.

Total 10 yrs

If you see the returns in this period ,you will see that the lump sum returns are 19% and even SIP return have been around 13% , which is a respectable rate of return. Most of the returns were eaten up due to the last 5 years, but even with those 5 years counted, the returns are good enough. At least better than PPF or FD returns and that too tax free .

Nifty Returns from 2002 - 2012

Stock Markets vs your Investments Return

“Equity gives good returns in long term” is a statement which is nothing but a probability linked statement , It means “most likely, equity will give good returns in long term”  It’s purely a function of time and your consistency in investing. While 5 years can be seen as a long term tenure, there can still be 5 years tenures where the returns are not that good and you might get bad or negative returns. Also note that it’s not your investment product, but the underlying asset is behaving wrong. So rather than complain about the fund, better complain about the stock markets .

What was your biggest take away from this article ?

5 difference between stock & mutual funds Investing

When we say Equity, what comes to your mind – Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes under the category of Equity and they are good option for long-term investment and needs periodic review. There are some differences between stock investing and mutual fund investing that is done by a common man. It’s a good idea to know where they differ and in which situation they differ, so that one can take better investing decisions. Let’s look at the main differences


Stocks and Mutual Funds Difference


When you invest in a single stock or bunch of stocks (3-5 scrips), the change in it’s value is very high. On a given day it can be extremely volatile. It can give you 20% return and sometimes -10% loss also depending on the environment. This can be very exciting and at the same time very disheartening and gives you a feeling that you need to “act fast”. 

Mutual fund on the other hand is not that much volatile by nature, as the diversification is very large and at a time 50-100 stocks are covered. Different kinds of stocks from different sectors and market capitalization are involved in mutual fund and the over all change in value is thus less volatile (other than extreme days).

Return Potential

This is very much in line with the above point but still let’s look at it separately. There are lot of success stories where someone got quick rich by investing in equities directly and it can happen, but those are rare happenings and require lot of work and analysis, patience and belief in what you have picked. If you want superb returns in short time and you believe you can research well, you can go for stock investing directly but then risk is also more.

Mutual funds are known to deliver good returns (not in line with stocks, but still very good). So you can expect handsome returns from mutual funds but not unbelievable like stocks return. This is mainly because the money is diversified across different stocks (read ideas) and chances of all of them becoming a super success in short time is impossible.

Monitoring Required

Stock investing is a personal affair and you are doing it on your own the decision of what to sell and what to buy is on you. Even in case of long-term investing, you might have to keep an eye every quarter or yearly unless you have really spent some good time in picking the good stock. You need to also keep an eye on news and sector specific developments.

Monitoring in mutual funds is relatively low because the job of monitoring is anyways done by the fund manager who is paid SALARY to filter through the fluctuations. He constantly adds and removes the stocks from the portfolio. This can be a positive point, but sometimes it can be a negative point also if there is too much of churning.

SIP Investment

Mutual funds are known for possibility of SIP (monthly investment). SIP in mutual fund works and is recommended as a great way for a salaried person to invest in equity markets for long-term basis without understanding the working of equity markets.

However SIP in stocks do not work. Yes, some companies provide you the facility of SIP in stocks, but it’s a terrible concept. There is no diversification and SIP in a particular stock does not make sense because the risk is with single stock. A stock can be in a bad phase for years and decades, whereas in a mutual fund the bad performing stock is weeded out.

Asset Class Restriction

Stocks investing is restricted to Stocks only. You can choose a large cap stock, mid cap stock or small cap stock, but finally it will be equity asset class. However, mutual funds can invest in mix of asset classes. There are equity funds, debt funds, gold funds, Mix of Equity and debt also. To top up, even balanced funds are there which can adjust the asset allocation on its own, so in a way mutual funds are more superior in terms of features compared to a single or bunch or stocks.


Mutual Funds are actually collection of stocks only but just because it’s a group of stocks the characteristics are not very similar to that of stocks. You should be clear about all the points of difference and only after that you should decide whether to invest in Stocks directly or take the Mutual Fund route.

How stock scams works in India

I will teach you how stock scams work today and for that Let me declare something – “After years of study and hard work, I have come up with a strategy which can predict stock markets movement with almost 100% accuracy. Each month I can tell you which way market will move in next 30 days, it can be UP or DOWN and I can guarantee that. If someone needs to see the performance, I can give a free 6 tips trial.” Now what will be someone’s reaction on hearing this? Most probably, some of you will get excited and interested in getting these free tips, at least to check if I am saying truth or not! . Right now I have a big subscriber base with more than 10,000 people (11.5k to be precise) whom I can reach by email. Let’s see how I can create a stock tip scam –

Stock Scam

Here is how we will build a scenario wherein you are Ajay who is extremely interested in knowing about the tops which are almost 100% accurate. Ajay is bearing some disbelief in his mind, but due to the trust factor in the given tips he thinks ‘Let’s see what tips Manish gives, they are free anyway and by reading his tips I am not losing anything’.

I start sending you exactly one tip each month and it starts this way:

Tip #1 (May) : Markets are headed UP

Reaction  : Markets really went UP in the month of May. Ajay feels good, but still he is confused if its just luck or did It really went up based on my tip . Ajay anyways wanted to just check the tip and how it turns out . He is a bit impressed and he has made up his mind to act upon the tips if 3 consecutive tips work.

Tip #2 (June) : Markets are headed UP

Reaction  : Markets after a bit of volatility finally went up and the tip was a success again! Markets are up by great extent, but Ajay feels like a fool to be so fearful and not act on it. But his confidence has started building up. If the next tip also works, Ajay will invest some money for sure based on the tip!

Tip #3 (July) : Markets are headed DOWN

Reaction : Crash! A huge sell off came in the month of July and the 3rd tip in a row was correct. Ajay starts feeling “Oh my god! Looks like Manish really have come up with something amazing which can predict markets” Ajay makes up his mind to “try” next 3 tips and see how it performs!

Tip #4 (Aug) : Markets are headed UP

Reaction : With all the excitement, Ajay has invested Rs 10,000 in the markets to see if he can make some quick bucks! However, Markets are headed down in the starting of the month and all the TV channels are confirming that next Crash is on the way. Ajay is a bit nervous and secretly praying for the tip to work somehow. He wants market to go UP as per the tip. Everybody around him has already sold off and decided to sell of all the stocks, but you are on the other side. You are praying, literally! And here it comes, markets make a turn up side and it makes one of the sharpest come back in 1 week. Ajay is now in profit and he feels like a winner. Ajay’s confidence in my tips is becoming stronger, but still he is not ready to take BIG risks, he needs to solid confirmation that the tips will fall true no matter what, which is about to come .He will invest 40k in the next tip of mine.

Tip #5 (Sept) : Markets are headed DOWN

Reaction :  Ajay thinks that he should liquidate all the investments in direct stocks and even his mutual funds. His friends do not think alike and suggest him that he should not go with the tip, but Ajay wants to confirm the tips and wants to see the affect on his investments in real time 🙂 Markets move downside and he is now confirmed that there is really some kind of mega-research done by Manish to come up with the tips using his secret-strategy. Ajay can now visualize how he can become a millionaire soon by subscribing to the tips for next 1-2 yrs. He is just can’t wait for the last tip to show its magic!

Tip #6 (Oct) : Markets are headed DOWN

Reaction : Ajay is totally with the tips now and has decided to use this last one to make some quick bucks, he does some short selling and buys some puts options by finding out how to make money in falling markets. With his confidence in the free tips, he does not lose focus and waits for the tips to turn correct. Markets fall as per the tip and due to his decisions, Ajay has made some amazing money this time. He is clear that he wants these tips at any cost now!

Free tips are over now.

Free tips are over now .

Taking money from the targets – How Stock Scams unfold

Tips are over now, Ajay and many others like Ajay has experienced the amazing tips which really worked. They all get a mail after few days from me.

Hi, you might have already got 6 free tips from me each month, we give only one tip each month, but it’s bound to work. It’s based on our strategy which is based on years of research. If you want to continue getting the tips further. It would cost Rs 50,000 for 1 year subscription. You can expect the same accuracy like you saw in last 6 months.

Disclaimer: The tips are highly accurate and we make sure they are accurate, but we can’t promise it and can’t guarantee it legally. Risk is yours

Ajay is so much impressed with my tips performance and so much drowned in greed, that he subscribes to my offer and pays 2 lacs for the secret tips subscription. The tips start coming from next month. But there is some issue this time! . Somehow, not all the tips are working this time. Some tips work, some does not. It’s not at all accurate like it was before. In reality all the tips are just random tips and Ajay is totally frustrated. He has lost a lot of money because he invested big money each time, thinking it would work!

The truth is Ajay fall prey to a stock scam. Now let me share how all this works.

How this scam works

At this moment I have around 10k or more email subscribers and I can send emails to this 10,000 group. I divide this group of 10,000 readers into 2 parts A and B, I send a tip “BUY” to A group and tip “SELL” to B group. One of them will be true for sure. After month is over, I see which tip was correct. If A group was correct, I discard group B and only have people in group A as my final group. This group will be the group which got “correct” tip.

Now I do the same thing again, I divide them in group A and B with 2,500 members each and send “BUY” and “SELL” tip to them. Now again, markets will move UP or DOWN and one of those groups will be right at the end of the month. I again discard the group which got wrong tip. This way I continue doing it for 6 times and at the end I have small group of 156 people who was right all the 6 times and Ajay accidently belonged to his group.

How Tip Scam works

Targets paying for the subscription

Now you can imagine how many people will fall prey to these scams? Even if 20% of the people fall in the trap and are ready to pay Rs 50,00o, it would be Rs 10 lacs in total! Here you can clearly see that out of 10,000 there will always be a group of 156 people who will always get “accurate” tips and the beauty of this strategy is that people who were discarded only get one wrong tip, and after that wrong tip, they don’t get any more tips.

There are many tip providers in real life who claim to give you 90-95% accurate tips with free 1 week trial, If you are getting a lot of right tips, you might be that lucky small group which is their “TARGET” as seen above in the chart. Don’t fall prey to these stock scams. Beware!

Why HUL has become Hindu Unilever Ltd

Do you know of any stock in India which has not moved in last 10 yrs ? Hindustan Unilever is one of them ! . Successful investors like Warren Buffett always advocate the importance of investing in stocks for the long term and not just getting in and out of the stock. But more than investing and holding for a stock for the long term, it is important to zero down on the right stock. Or you might even hold a stock for more than ten years and still make very low returns.

Hindustan unilever

Let us take the example of Hindustan Unilever Ltd (HUL), a company which used to be the largest company as per market capitalization in India, at a certain point of time. But in the last 10 years the price of the HUL stock hasn’t gone anywhere. The stock price touched an all time high of Rs 314.123(adjusted for bonus) on February 25, 2000. This price was never beaten until September 24, 2010, when the stock closed at Rs 314.65. On November 9,2010, the stock closed at an all time high of Rs 318.9. This price was again overtaken in early January (January 5,2011) when the stock closed at an all time high of Rs 325.65. Currently the stock is moving in the range of Rs 300-310.

So the point is that if you were a long term investor in HUL and had invested in the stock in Feb 2000, and held on diligently for 11 odd years, you would still not have made any money on the stock. What HUL tells us is that the buy and hold strategy may not always work.

HUL and the Hindu rate of growth

Raj Krishna, an economist, coined the expression “hindu” rate of growth, to express the slow rate of growth in socialist India, when India used to grow by around 3% every year. Krishna was not a great fan of the socialistic model of development being followed in Nehruvian India. He was a believer in free markets. So looking at this secular trend, year on year, and wanting to take a dig at Nehruvian socialism, which he felt was not working, he came up with an antonym for the word secular (Nehru’s other pet peeve), and so called this growth, the “hindu” rate of growth.

HUL has signified this “hindu-rate” of growth over the last decade. Let us look at some numbers here. The annual sales growth of HUL over the last decade sales have risen at the rate of 6.2% every year to Rs 19,987.1 crore.  Profits have grown even slower at the rate of 5.8% every year to Rs 2306.6 crore.

The does not inspire confidence among investors, given that the rate of inflation during that period was at similar levels. So in real terms there has been very little or even no growth in profits and sales. Hence the stock price has been flat.

The main business is facing tremendous competition

Soaps and detergents has been the main stay of the company over the years, and still contributes nearly 75% of the revenues. The company has very little pricing power in this category, given the increased competition that it has been facing. With a slowdown hitting United States, P&G has become aggressive in India. Media reports suggest that P&G is looking to launch its toothpaste brand Crest in India. That should heat up things for Close Up, HUL’s premier toothpaste brand. The cash rich ITC is gradually building businesses similar to that of HUL.

Over and above that there are newer players like Ghadi detergent and older players like Nirma in the lower segment of the market, which have been giving HUL a huge run for its money. To counter this competition HUL  has had to constantly resort to price cuts to keep the revenues going in this segment. This is likely to continue in the days to come leading to a very limited pricing power in its premier business. At the same time it needs to keep its advertising expenses high in order to generate a high brand awareness of its products and hope of increasing sales.

New Businesses not contributing enough

During its glory days, HUL’s strategy was to constantly jack up margins. The management graduates who run the company probably forgot a basic lesson in economics. When a company makes ‘abnormal profits’, new competitors enter the arena and drive away margins.

The margins also came from deteriorating the quality of their products.  What did not help was the power brand strategy the company decided to follow 10 years back, where in the focus was on 30 odd ‘Power Brands’. The ‘power brand’ strategy prompted HUL to withdraw from a large number of small markets. This has given an opportunity to many small players in the market. Some of these brands like Ghadi detergent are now seriously challenging HUL.

To its credit the company has tried to get into new businesses like selling water filters (Pureit). But these businesses will still take sometime to grow. Also the competition in this market has started to heat up with Tatas announcing their entry with Swach.

What do the analysts say?

HUL recently declared its results for the quarter ending March 31, 2011. While it managed to increase sales by around 14% to Rs 5,022.6 crore. But even with this increase in sales the net profit went down by 2.1% to Rs 569.2 crore.  Analysts covering the company came out with reports saying that the results beat their expectations, which is basically a polite way of saying that results were not as bad as we expected them to be.

Given these reasons, those investors who are still invested in HUL, its time they sold out.  This stocks is an excellent example of what John Maynard Keynes, the famous economist, said a long time back, “in the long run we are all dead”.

This is a guest post by Sujata Chhaper and the author can be reached at [email protected]