Direct Equity, Futures and Options
Direct Equity
Direct equity as names suggested one invests directly in the stock market. To do this, he/she will typically need to open a demat and a trading account and invest in the markets through a stock broker. Once that’s done, he/she can buy shares of companies directly from the stock market.
Benefits of Direct Equity
Create Portfolio of Your Choice
When you invest in direct equity, you can create a portfolio of your choice. You can Pick any theme suggested by your Stock Broker based on risk Profile. Even You can manage your risk profile by investing in different sector of your choice . For e.g if you are from banking background you can make better investment in banking sector than most of other People. You only have categories to choose from and cannot personalize when you invest via a mutual fund.
Dividend Income
Most profitable companies give out dividends to their shareholders. Direct equity investment opens an opportunity for investors to earn additional income from their investments through dividend income. You can invest those stocks which gives higher dividend income if you want to stay long in the market and also want regular income.
Buy and sell at any time during trading window
In direct equity, you can buy and sell shares at any time during the trading window at suggested price by broker. However, with mutual funds, you get the NAV value calculated at the end of the trading day. Since market is volatile and stock prices keeps fluctuating you can invest at lower price and if that invested giving you more than average return you can make gains by selling the securities.
Ownership in company
When you invest in direct equity you own a percentage of the company in term of ownership. You being informed regularly through AGM minutes and send all the proceeding the company through digital means. Since you are being updated regularly though profit and loss and balance sheet of the company, you can make your mind to increase or decrease your investment based on overall performance. Direct equity investment gives you the opportunity to make multibagger returns.
Futures and Options
Futures and options are stock derivatives that are traded in the share market and are a type of contract between two parties for trading a stock or index at a specific price or level at a future date. These are hedging tools for investor against future fluctuations in the stock market. For e.g If person has invested in SBI stock he can buy Put option of SBI, if he think that share value might decrease due to upcoming result in order to safeguard his investments. However, the actual futures and options trade is often far more complex and fast-moving. It is always advisable to understand their functioning before you invest in them.
Benefits of Future and Options
Lower Margin Money
To trade in future and option an investor needs to put lesser margin money from 10-15 % based on volatile of the stock and time to expiry. This in turns increase the profit of the investor if trade goes as per their expectations. For e.g If you want to buy 1000 Share of HDFC BANK of Rs.1500 then you need Rs.15,00,000. However you can buy option of that month expiry of 1500 CE in between Rs.25000 to Rs.30000 based on volatility of the share price. Even future can buy with 4 to 5 lac Price. If Price moves to 1600 in next five days you earn ( Share No 1000*Profit Rs.100= Rs.100000) Rs.100000 without investing Rs.15 lac.
Future and Option have Liquidity
Future and options market are highly liquid due to huge numbers traded every day. Due to liquidity their prices do not fluctuate drastically giving opportunities to investors to exits easily with any adverse effect on price.
Lower Cost of Trading
The Trading Cost of Future and Options are very low. Even Some brokers in India giving flat Rs.20 per trade in option trading. Due to lower cost of trading investor invest in Future and Option instead of Direct Equity.
Speculator Heaven
Investor who has good judgment can make quick money because they are trading 10 times higher exposure than normal trading. This is Speculator Heaven that why every trader preferred to invest in future and option even in small quantities. There is another part of coin, just as wins can come quicker; futures also magnify the risk of losing money. Hence investors are advice to put spot loss regularly in order to trade in Future and Options.
Future & Options are great Hedging Tools
Futures and Options are great hedging tools being used by Mutual Funds and Big Investor. For e.g. ABZ MF have invested Rs.1000 Crore in XYC securities and due to market sentiment XYC stock can correct approx. 7-8 % in next 15 days. In order to hedging its position ABZ MF will Create Short Position in XYC Securities rather than selling stock in the market.
Short Selling Is Easier
In order to short sell of any stock you need to borrow share from your broker to sell what you don’t already own. Borrowing is always having some costing which you need to pay. However Short selling in future is very convenient as one can sell future contact of any expiry with only margin money.
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