Babita rautela,6 march 86,4:20p:m,bageshwar Efficient frontier

From Wikipedia, the free encyclopedia Jump to: navigation, search This article is about the financial math concept. For the company, see Efficient Frontier (company).

The efficient frontier is a concept in modern portfolio theory introduced by Harry Markowitz and others. A combination of assets, i.e. a portfolio, is referred to as "efficient" if it has the best possible expected level of return for its level of risk (usually proxied by the standard deviation of the portfolio's return).[1] Here, every possible combination of risky assets, without including any holdings of the risk-free asset, can be plotted in risk-expected return space, and the collection of all such possible portfolios defines a region in this space. The upward-sloped (positively-sloped) part of the left boundary of this region, a hyperbola, is then called the "efficient frontier". The efficient frontier is then the portion of the opportunity set that offers the highest expected return for a given level of risk, and lies at the top of the opportunity set or the feasible set. For further detail see modern portfolio theory.

Definition of 'Efficient Frontier'A set of optimal portfolios that offers the highest
expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal, because they do not provide enough return for the level of risk. Portfolios that cluster to the right of the efficient frontier are also sub-optimal, because they have a higher level of risk for the defined rate of return

Investopedia explains 'Efficient Frontier'

Since the efficient frontier is curved, rather than linear, a key finding of the concept was the benefit of diversification. Optimal portfolios that comprise the efficient frontier tend to have a higher degree of diversification than the sub-optimal ones, which are typically less diversified. The efficient frontier concept was introduced by Harry Markowitz in 1952 and is a cornerstone of modern portfolio theory.

Indifference curve In microeconomic theory, an indifference curve is a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come.[1] The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.[2] There are infinitely many indifference curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map. Definition of 'Indifference Curve' A diagram depicting equal levels of utility (satisfaction) for a consumer faced with various combinations of goods.

Investopedia explains 'Indifference Curve'

As an example, consider the diagram above. This consumer would be most satisfied with any combination of products along curve U3. This consumer would be indifferent between combination Qa1, Qb1, and Qa2, Qb2.

Know Your Investment Objective Now, given what you think your level of risk tolerance is, here are four (4) different investment objectives that you might want to consider: 1. Capital Preservation Retiring people and those in the spending and gifting phases are most interested in preservation of capital. This is the most conservative strategy, and it is intended solely to avoid risk of loss while beating the inflation rate. Less risk, of course, translates to lower return. For this investor, safety of investment is extremely important even to the extent of giving up return. The rationale is that if they lose money through foolish investments that promised high return, they may end up having no money at all. Investors with a capital preservation goal are advised to invest in time deposits, low-yielding bonds and money market funds assets that are relatively low-risk and offer security of capital. 2. Current Income Current income is the strategy of producing income on a regular basis. Many people who pursue a strategy of current income are those who need money for living expenses. They create a regular income stream that provides cash for certain current needs (such as tuition for education, payment for loan amortization, or monthly household budget). In order to achieve this, an investor would need to have a huge amount of money invested in order to provide current income without touching the capital base. High-yielding time deposits, high coupon-paying bonds and high-dividend stocks are mainstays in the portfolio of a current income investor. 3. Capital Appreciation Capital appreciation is the need to grow, rather than simply preserve, capital in the long term. Ideally, the investment should offer a high rate of return that could make the capital grow exponentially over time. Of course, with higher reward comes higher risk, and using this strategy may, at times, produce a loss. This is normal and investors with a capital appreciation objective should understand that they must be invested for the long-term and should not fear the daily market fluctuations. A suggested time horizon for people with this objective is at least 5 to 10 years, which means they should remain invested for that amount of time in order to reach the full potential of their investment. A growth stock generally is a viable choice for investors having this investment objective. It usually does not pay high dividends regularly, but its potential for huge price increases may

be realized after some years. Aside from growth stocks, real estate may also be an investment option for investors with the capital appreciation goal. 4. Total Return Total return combines both capital appreciation (how fast the investment grows) and current income (producing income on a current basis). Total return is sometimes called a growthwith-income objective. Investors with this goal may choose to invest in high dividend-paying stocks and the regular dividends earned may be reinvested in other assets that produce additional income such as time deposits, mutual funds, bonds, unit investment trust funds, or more stocks. In the same way that people do not necessarily fit into convenient investment phases, we tend not to have just one objective. Sometimes we choose to pursue a combination of investment goals. Just make sure to select the appropriate investment options for your own investment objective. It is also important to remember that different investment choices apply to different investment objectives, hence, you must manage your expectations. For example: If you have a capital preservation objective, you cannot expect to double your money in 1 or 2 years time. Similarly, you cannot invest in speculative stocks with the goal of capital appreciation and expect to never incur a loss every time. Your level of risk tolerance and expectation of income should guide your investment objective. Assess your risk profile, determine your income goals and after that, choose your investment objective. Capital preservation Capital preservation means that investors want to minimize their risk of loss, usually in real terms. They seek to maintain the purchasing power of their investment. In other words, the return needs to be not less than the rate of inflation. Generally, this is a strategy for strongly risk-adverse investors or for funds needed in the short-run, such as for next years college payment or a down payment on a house.

Capital Appreciation Capital appreciation is an appropriate objective when the investors want the portfolio to grow in real terms over time to meet some future need. Under this strategy, growth mainly occurs through capital gains. This is an aggressive strategy for investors willing to take on risk to meet their objective. Generally, longer-term investors seeking to build a retirement or children college education fund may have this goal.

Current Income When current income is the return objective, the investors want the portfolio to concentrate on generating income rather than capital gains. This strategy sometimes suits investors who want to supplement their earnings with income generated by their portfolio to meet their living expenses. Retirees may favor this objective for part of their portfolio to help generate spendable funds.

Total Return The objective for the total return strategy is similar to that of capital appreciation; namely, the investors want the portfolio to grow over time to meet a future need. Whereas the capital appreciation strategy seek to do this primarily through capital gains, the total return strategy seeks to increase portfolio value by both capital gains and reinvesting current income. Because the total return strategy has both income and capital gains components , its risk exposures lies between that of the current income and capital appreciation strategies.
Order Types by Category Limit Risk Bracket Market-toLimit Speed of Execution At Auction Discretionary Price Privacy Improvement Auction Block Hidden Time to Market All-or-None Advanced Trading Accumulate/Distribute Basket

Iceberg/ReserveFill-or-Kill VWAP Guaranteed

Market-withMarket Protection Request for Quote Stops Adjustable Stop Market-ifTouched

Box-Top

Good-afterConditional Time/Date Good-tillDate/Time Good-tillCanceled One-Cancels-All

Limit

Market-on-Close Limit-on-Close

Spreads

Market-on-Open Limit-on-Open Limit-ifTouched Passive Relative Pegged-toMidpoint

ImmediateVolatility or-Cancel

Stop - Limit

Midpoint Match

Trailing Limit if Pegged-toTouched Market Trailing Market if Touched Trailing Stop Trailing Stop Limit

Pegged-to-Stock

Relative/Peggedto-Primary Sweep-to-Fill

Limit Risk
Bracket orders are designed to help limit your loss and lock in a profit by "bracketing" an order with two opposite-side orders. A BUY order is bracketed by a high-side sell limit order and a low-side sell stop order. A SELL order is bracketed by a high-side buy stop order and a low side buy limit order.

The order quantity for the high and low side bracket orders matches the original order quantity. By default, the bracket order is offset from the current price by 1.0. This offset amount can be changed on the order line for a specific order, or modified at the default level for an instrument, contract or strategy using the Order Presets feature in Global Configuration. A Market-to-Limit (MTL) order is submitted as a market order to execute at the current best market price. If the order is only partially filled, the remainder of the order is canceled and re-submitted as a limit order with the limit price equal to the price at which the filled portion of the order executed. A Market with Protection order is a market order that will be cancelled and resubmitted as a limit order if the entire order does not immediately execute at the market price. The limit price is set by Globex to be close to the current market price, slightly higher for a sell order and lower for a buy order Use the RFQ (Request for Quote) feature to request data for US Corporate and Municipal bonds, and for non-U.S. options. SEC rules prohibit U.S. resident customers from trading non-U.S. security options. You can attach one-time adjustments to stop, stop limit, trailing stop and trailing stop limit orders. When you attach an adjusted order, you set a trigger price that triggers a modification of the original (or parent) order, instead of triggering order transmission. Note that you can adjust any of the parent stop order types to any other stop order type; for example if you set up a Stop Limit, you can attach the one-time adjustment to change the order to a Trailing Stop, or if you start with a Stop order the adjustment can change it to a Trailing Stop Limit order. A Stop order is an instruction to submit a buy or sell market order if and when the userspecified stop trigger price is attained or penetrated. A Stop order is not guaranteed a specific execution price and may execute significantly away from its stop price. A Sell Stop order is always placed below the current market price and is typically used to limit a loss or protect a profit on a long stock position. A Buy Stop order is always placed above the current market price. It is typically used to limit a loss or help protect a profit on a short sale. Interactive Brokers may simulate certain order types on its books and submit the order to the exchange when it becomes marketable. The IB website contains a page with exchange listings. The linked page for each exchange contains an expandable "Order Types" section, listing the order types submitted using that exchange's native order type and the order types that are simulated by IB for that exchange A Stop Limit order instruct the system to submit a buy or sell limit order when the userspecified stop trigger price is hit. The order has two components: the stop price and the limit price. When a trade has occurred at or through the stop price, the order becomes executable and enters the market as a limit order, which is an order to buy or sell at a specified price or better. A Stop Limit eliminates the price risk associated with a stop order where the execution price cannot be guaranteed, but exposes the investor to the risk that the order may never fill even if the stop price is reached. The investor could "miss the market" altogether. A trailing limit if touched order is entered on the same side of the market as a limit order. This order will initially be set at a price level that is favorable to the current market. As the market moves away from the initial trigger price, the user defined trailing amount and limit

offset amount will adjust the trigger price and the limit price to follow the market. If the initial market movement is in a favorable direction and reaches the initial trigger price, the order will be triggered and submitted as a limit order. If the market moves in an unfavorable direction, the order will trail the market movement and will trigger only if there is retracement by the defined trailing amount (for falling markets, retracement is when the market declines followed by an increase to levels previously traded; for rising markets, retracement is when the market rises followed by a decrease to levels previously traded). Buy Order:A buy trailing limit if touched order moves with the market price, and continually recalculates the trigger price at a fixed amount below the market price, based on the userdefined "trailing" amount. A trailing limit if touched order is similar to a trailing stop limit order, except that the buy order sets the initial stop price at a fixed amount below the market price instead of above. As the market price rises, the trigger price rises by the user-defined trailing amount, but if the price falls, the trigger price remains the same. When the trigger price is touched, a limit order is submitted. Sell Order:A sell trailing limit if touched order moves with the market price, and continually recalculates the trigger price at a fixed amount above the market price, based on the userdefined "trailing" amount. A trailing limit if touched order is similar to a trailing stop limit order, except that the sell order sets the initial stop price at a fixed amount above the market price instead of below. As the market price falls, the trigger price falls by the user-defined trailing amount, but if the price rises, the trigger price remains the same. When the trigger price is touched, a limit order is submitted. A trailing market if touched order is entered on the same side of the market as a limit order. This order will initially be set at a price level that is favorable to the current market. As the market moves away from the initial trigger price, the user defined trailing amount will adjust the trigger price to follow the market. If the initial market movement is in a favorable direction and reaches the initial trigger price, the order will be triggered and submitted as a market order for execution. If the market moves in an unfavorable direction, the order will trail the market movement and will trigger only if there is retracement by the defined trailing amount (for falling markets, retracement is when the market declines followed by an increase to levels previously traded; for rising markets, retracement is when the market rises followed by a decrease to levels previously traded). Buy Order:A buy trailing market if touched order moves with the market price, and continually recalculates the trigger price at a fixed amount below the market price, based on the user-defined "trailing" amount. The limit price is also continually recalculated based on the limit offset. A trailing market if touched order is similar to a trailing stop order, except that the buy order sets the initial stop price at a fixed amount below the market price instead of above. As the market price rises, the trigger price rises by the user-defined trailing amount, but if the price falls, the trigger price remains the same. When the trigger price is touched, a market order is submitted. Sell Order:A sell trailing market if touched order moves with the market price, and continually recalculates the trigger price at a fixed amount above the market price, based on the user-defined "trailing" amount. The limit price is also continually recalculated based on the limit offset. A trailing market if touched order is similar to a trailing stop order, except that the sell order sets the initial stop price at a fixed amount above the market price instead of below. As the market price falls, the trigger price falls by the user-defined trailing amount, but if the price rises, the trigger price remains the same. When the trigger price is touched, a market order is submitted. A sell trailing stop order sets the stop price at a fixed amount below the market price with an attached "trailing" amount. As the market price rises, the stop price rises by the trail amount, but if the stock price falls, the stop loss price doesn't change, and a market order is

submitted when the stop price is hit. This technique is designed to allow an investor to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain. "Buy" trailing stop orders are the mirror image of sell trailing stop orders, and are most appropriate for use in falling markets. A trailing stop limit order is designed to allow an investor to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain. A SELL trailing stop limit moves with the market price, and continually recalculates the stop trigger price at a fixed amount below the market price, based on the user-defined "trailing" amount. The limit order price is also continually recalculated based on the limit offset. As the market price rises, both the stop price and the limit price rise by the trail amount and limit offset respectively, but if the stock price falls, the stop price remains unchanged, and when the stop price is hit a limit order is submitted at the last calculated limit price. A "Buy" trailing stop limit order is the mirror image of a sell trailing stop limit, and is generally used in falling markets.

Speed of Execution
An auction order is entered into the electronic trading system during the pre-market opening period for execution at the Calculated Opening Price (COP). If your order is not filled on the open, the order is re-submitted as a limit order with the limit price set to the COP or the best bid/ask after the market opens. A Discretionary order is a limit order with a defined amount off the limit price (for example $.05) which may be used to increase the price range over which the limit order is eligible to execute A Market order is an order to buy or sell at the market bid or offer price. A market order may increase the likelihood of a fill and the speed of execution, but unlike the Limit order a Market order provides no price protection and may fill at a price far lower/higher than the current displayed bid/ask A Market if Touched (MIT) is an order to buy (or sell) a contract below (or above) the market. This order is held in the system until the trigger price is touched, and is then submitted as a market order. An MIT order is similar to a stop order, except that an MIT sell order is placed above the current market price, and a stop sell order is placed below A Market-on-Close (MOC) order is a market order that is submitted to execute as close to the closing price as possible. Summary of NYSE rules for entering/canceling/modifying market-on-close (MOC)

All MOC orders must be received at NYSE (and at AMEX) by 15:45 ET, unless entered to offset a published imbalance. New York Stock Exchange (NYSE) rules also prohibit the cancellation or reduction in size of any market-on-close (MOC) order after 15:45 ET.

A Market-on-Open (MOO) order is a market order that is automatically submitted at the market's open and fills at the market price. ISE Midpoint Match (MPM) orders always execute at the midpoint of the NBBO. You can submit market and limit orders direct-routed to ISE for MPM execution. Market orders execute at the midpoint whenever an eligible contra-order is available. Limit orders execute only when the midpoint price is better than the limit price. Standard MPM orders are completely anonymous.You can also elect to submit an MPM Solicitation of Interest (SOI)

order, which broadcasts the symbol to other members of the MPM. The SOI is valid for orders with a minimum quantity of 2000, and cannot be cancelled for several seconds while the ISE solicits interest. A pegged-to-market order is designed to maintain a purchase price relative to the national best offer (NBO) or a sale price relative to the national best bid (NBB). Depending on the width of the quote, this order may be passive or aggressive. The trader creates the order by entering a limit price which defines the worst limit price that they are willing to accept. Next, the trader enters an offset amount which computes the active limit price as follows: Sell order price = Bid price + offset amount Buy order price = Ask price - offset amount A Pegged to Stock order continually adjusts the option order price by the product of a signed user-define delta and the change of the option's underlying stock price. The delta is entered as an absolute and assumed to be positive for calls and negative for puts. A buy or sell call order price is determined by adding the delta times a change in an underlying stock price to a specified starting price for the call. To determine the change in price, the stock reference price is subtracted from the current NBBO midpoint. The Stock Reference Price can be defined by the user, or defaults to the NBBO midpoint at the time of the order if no reference price is entered. You may also enter a high/low stock price range which cancels the order when reached. The delta times the change in stock price will be rounded to the nearest penny in favor of the order. Relative (a.k.a. Pegged-to-Primary) orders provide a means for traders to seek a more aggressive price than the National Best Bid and Offer (NBBO). By acting as liquidity providers, and placing more aggressive bids and offers than the current best bids and offers, traders increase their odds of filling their order. Quotes are automatically adjusted as the markets move, to remain aggressive. For a buy order, your bid is pegged to the NBB by a more aggressive offset, and if the NBB moves up, your bid will also move up. If the NBB moves down, there will be no adjustment because your bid will become even more aggressive and execute. For sales, your offer is pegged to the NBO by a more aggressive offset, and if the NBO moves down, your offer will also move down. If the NBO moves up, there will be no adjustment because your offer will become more aggressive and execute. In addition to the offset, you can define an absolute cap, which works like a limit price, and will prevent your order from being executed above or below a specified level.If you submit a relative order with a percentage offset, you are instructing us to calculate an order price that is consistent with the offset, but that also complies with applicable tick increments. Therefore we will calculate the order price rounded to the appropriate tick increment (e.g., pennies for a U.S. stock trading at a price over $1.00). Buy orders will be rounded down to the nearest acceptable tick increment and sell orders will be rounded up. Sweep-to-fill orders are useful when a trader values speed of execution over price. A sweepto-fill order identifies the best price and the exact quantity offered/available at that price, and transmits the corresponding portion of your order for immediate execution. Simultaneously it identifies the next best price and quantity offered/available, and submits the matching quantity of your order for immediate execution.

Price Improvement
For option orders routed to the Boston Options Exchange (BOX) you may elect to participate in the BOX's price improvement auction in pennies. All BOX-directed price improvement orders are immediately sent from Interactive Brokers to the BOX order book, and when the terms allow, IB will evaluate it for inclusion in a price improvement auction based on price

and volume priority. In the auction, your order will have priority over broker-dealer price improvement orders at the same price. Enter your order price in penny increments, and it will be rounded to the nearest listed increment in favor of the order (bids and offers will continue to be listed in increments of $0.05 or $.10) until the start of the auction. Should an auction start, your improvement amount will be the absolute difference of your order price in pennies and your rounded listed price. Interactive Brokers' customers submitting Smart marketable options orders will have their orders routed to BOX when BOX is at the NBBO, and Interactive Brokers has information that there is an NBBO improvement order on the opposite side of the trade, in which case your order will be exposed to a price improvement auction. Order Types Limit: A buy or a sell order at a specified price. Use of a limit order ensures that you will not receive an execution at a price less favorable than the limit price. Enter limit orders in penny increments with your auction improvement amount computed as the difference between your limit order price and the nearest listed increment. Relative: A buy or a sell order that is set at a fixed offset to the current NBBO (National Best Bid Offer). A buy order price is specified at an offset higher than the current NBB (National Best Bid), and a sell order price is specified at an offset lower than the current NBO (National Best Offer). If you do not enter an offset it will be assumed to be zero. Enter offsets in penny increments which will be used as your auction improvement amount. Pegged to Stock: A buy or a sell order that adjusts the order price by the product of a signed delta (which is entered as an absolute and assumed to be positive for calls, negative for puts) and the change of the option's underlying stock price. A buy or sell call order price is determined by adding the delta times a change in an underlying stock price change to a specified starting price for the call. To determine the change in price, a stock reference price (NBBO midpoint at the time of the order is assumed if no reference price is entered) is subtracted from the current NBBO midpoint. A stock range may also be entered that cancels an order when reached. The delta times the change in stock price will be rounded to the nearest penny in favor of the order and will be used as your auction improvement amount. The Block attribute is used for large volume option orders on ISE that consist of at least 50 contracts. To execute large-volume orders over time without moving the market, use the TWS Accumulate/Distribute trading tool. A Box Top order executes as a market order at the current best price. If the order is only partially filled, the remainder is submitted as a limit order with the limit price equal to the price at which the filled portion of the order executed. A Limit order is an order to buy or sell at a specified price or better. The Limit order ensures that if the order fills, it will not fill at a price less favorable than your limit price, but it does not guarantee a fill.

A Limit-on-close (LOC) order will be submitted at the close and will execute if the closing price is at or better than the submitted limit price. LOC orders direct-routed to Island must be received by 15:50.

Summary of NYSE rules for entering/canceling/modifying limit-on-close (LOC) orders.

All LOC orders must be received at NYSE by 15:45 ET. Exception: On expiration days, you cannot enter LOC orders after 15:45 ET to establish or liquidate positions related to a strategy involving derivative instruments, even if these orders would offset a published imbalance.

A Limit-on-Open (LOO) order is a limit order submitted at the market's open. The order must execute at the limit price or better. Orders are filled in accordance with specific exchange rules. A Limit if Touched is an order to buy (or sell) a contract at a specified price or better, below (or above) the market. This order is held in the system until the trigger price is touched. An LIT order is similar to a stop limit order, except that an LIT sell order is placed above the current market price, and a stop limit sell order is placed below.Using a Limit if Touched order helps to ensure that, if the order does execute, the order will not execute at a price less favorable than the limit price. Passive Relative orders provide a means for traders to seek a less aggressive price than the National Best Bid and Offer (NBBO) while keeping the order pegged to the best bid (for a buy) or ask (for a sell). The order price is automatically adjusted as the markets move to keep the order less aggressive. For a buy order, your order price is pegged to the NBB by a less aggressive offset, and if the NBB moves up, your bid will also move up. If the NBB moves down, there will be no adjustment because your bid will become aggressive and execute. For a sell order, your price is pegged to the NBO by a less aggressive offset, and if the NBO moves down, your offer will also move down. If the NBO moves up, there will be no adjustment because your offer will become aggressive and execute. In addition to the offset, you can define an absolute cap, which works like a limit price, and will prevent your order from being executed above or below a specified level. The Passive Relative order is similar to the Relative/Pegged-to-Primary order, except that the Passive relative subtracts the offset from the bid and the Relative adds the offset to the bid. A pegged-to-midpoint order provides a means for traders to seek a price at the midpoint of the National Best Bid and Offer (NBBO), with the ability to make the order less aggressive by using an offset amount. Price automatically adjusts to peg the midpoint as the markets move, to remain aggressive. For a buy order, your bid is pegged to the NBBO midpoint, or set less aggressively by the amount of the offset, if the offset is used. If the midpoint moves up, your bid will also move up. If the midpoint moves down, your bid will also move down. For a sell order, your offer is pegged to the NBBO midpoint, or set less aggressively by the amount of the offset, if the offset is used. If the midpoint moves down, your offer will also move down. If the midpoint moves up, your offer also moves up. You can also define an price cap using the Limit Price field, to prevent your order from being executed above or below a specified price level.

BSE stock classifications SIX HEADERS- A, B, T, S, TS and Z

Hi there , Do you know that he BSE classifies stocks under six headers? The Bombay Stock Exchange classifies stocks under six grades A, B, T, S, TS and Z that scores stocks on the basis of their size, liquidity and exchange compliance and, in some cases, also the speculative interest in them. You can look up any stocks grade in the Stock Reach page in the BSE Web site, under the head Group. Alternately, you can also follow the link below: A GROUP HIGHLY LIQUID

These are the most liquid counters among the whole lot of stocks listed in the BSE. These are companies which are rated excellent in all aspects. Volumes are high and trades are settled under the normal rolling settlement (i.e. to say intraday buy-sell deals are netted out). These are best fit for a novice investors portfolio considering that information about them is extensively available. For instance, all the 30 stocks in Sensex are A grade stocks.

T GROUP TRADE TO TRADE

The stocks that fall under the trade-to-trade settlement system of the exchange come under this category. Each trade here is seen as a separate transaction and theres no netting-out of trades as in the normal rolling system. The trader needs to pay to take delivery for his/her buys and deliver shares for his/her sells, both on the second day following the trade day (T+2). For example, assume you bought 100 shares ofT grade scrip and sold another 100 of it on the same day. Then, for the shares you have bought, you would have to pay the exchange in two days. As for the other bunch that you sold, you should deliver the shares by T+2 days, for the exchange to deliver it to the one who bought it. Failure to produce delivery shares against the sale made would be considered as short sales. The exchange will, in that case, on the T+3rd day, debit an amount that is 20 per cent higher than the scrips closing price that day. This means unless the scrips price falls more than 20 per cent from the price of your sale transaction, you would have to pay a penalty for the short sale so made. Even so, there will be no credit made to you in the case of substantial fall in the share price. The exchange will, instead, credit the gain to its investor fund. Stocks are regularly moved in and out of trade-to-trade settlement depending on the speculative interest that governs them.

S GROUP SMALL AND MEDIUM

These are shares that fall under the BSEs Indonext segment. The BSE Indonext comprises small and medium companies that are listed in the regional stock exchanges (RSE). S grade companies are small and typically ones with turnover of Rs 5 Crore and tangible assets of Rs 3 Crore. Some also have low free-float capital with the promoter holding as high as 75 per cent. Besides their smaller size, the other risk that comes with investing in them is low liquidity. Owing to lower volumes, these stocks may also see frenzied price movements.

TS GROUP A MIX OF T AND S GROUPS

Stocks under this category are but the S grade stocks that are settled on a trade-to-trade basis owing to surveillance requirements. This essentially means that these counters may not come with an easy exit option, as liquidity will be low and intraday netting of buy-sell trades isnt allowed either.

Z GROUP CAUTION

Z grade stocks are companies that have not complied with the exchanges listing requirements or ones that have failed to redress investor complaints. This grade also includes stocks of companies that have dematerialisation arrangement with only one of the two depositories, CDSL and NSDL. These stocks may perhaps be the riskiest in terms of various grades accorded. For one, not much information would be available in the public domain on these companies, making it tough to track them. Second, the low media coverage that keeps them relatively hidden from public scrutiny also makes them more vulnerable to insider trading. Third, these companies already have a poor score in redressing investor complaints.

B GROUP LEFT BEHIND

This category comprises stocks that dont fall in any of the other groups. These counters see normal volumes and are settled under the rolling system. In all respects these stocks resemble their counterparts in A but for their size. Typically, stocks of midand small market capitalisation come under this grade.

SLB GROUP Securities Exchange Board of India, in 2007, has announced the introduction of Securities Lending & Borrowing Scheme (SLBS). Securities Lending & Borrowing provides a platform for borrowing of securities to enable settlement of securities sold short. There are 207 companies in the SLB list. Investors can sell a stock which he/she does not own at the time of trade. All classes of investors, viz., retail and institutional investors, are permitted to short sell. OTHER CLASSIFICATIONS

The F Group represents the Fixed Income Securities. Trading in Government Securities by the retail investors is done under the G group.

Thats about stock classifications in BSE. When you invest, be aware of the category in which the stock falls.

Group A: Shares in this category have a high Liquidity, Market Capitalization and Capital Appreciation. Grop B1 and B2: Similar to A, but with a slightly lower Market Capitalization and Appreciation but good liquidity. There are financially healthy stocks. Group C: It includes the odd lots of Catgories of A, B1 and B2. As u may be aware, Shares/Stocks are sold in Lots, any ODD lot remaining among the A, B1,B2 Groups ,are put under C Category. Group F:It is a Debt Market Segment (Note A. B1.B2 are all only Equities) Group T: Their settlement needs to be done by DELIVERY only.Trading under "T", means , actual delivery of Scrips is warranted. Group Z: Suspended Lots of Shares. They are Suspended due to non-compliance of SEBI Norms.
Group A: Shares in this category have a high Liquidity, Market Capitalization and Capital Appreciation. Grop B1 and B2: Similar to A, but with a slightly lower Market Capitalization and Appreciation but good liquidity. There are financially healthy stocks. Group C: It includes the odd lots of Catgories of A, B1 and B2. As you may be aware, Shares/Stocks are sold in Lots, any ODD lot remaining among the A, B1,B2 Groups ,are put under C Category. Group F:It is a Debt Market Segment (Note A. B1.B2 are all only Equities) Group T: Their settlement needs to be done by DELIVERY only.Trading under "T", means , actual delivery of Scrips is warranted. Group Z: Suspended Lots of Shares. They are Suspended due to non-compliance of SEBI Norms.

What is Group A, B1, B2, S, T, TS, & Z classification of BSE?

with 13 comments
The Bombay Stock Exchange (BSE), Indias leading stock exchange, has classified Equity scripts into categories A, B1, B2, S, T, TS, & Z to provide a guidance to the investors. The classification is on the basis of several factors like market capitalization, trading volumes and numbers, track records, profits, dividends, shareholding patterns, and some qualitative aspects. As on February 2008 following criterion are used for classifying stocks into various categories by the Bombay Stock Exchange (BSE). Group A: It is the most tracked class of scripts consisting of about 200 scripts. Market capitalization is one key factor in deciding which scrip should be classified in Group A. At present there are 216 companies in the A group. Group S: The Exchange has introduced a new segment named BSE Indonext w.e.f. January 7, 2005. The S Group represents scripts forming part of the BSE-Indonext segment. S group consists of scripts from B1 & B2 group on BSE and companies exclusively listed on regional stock exchanges having capital of 3 crores to 30 crores. All trades in this segment are done through BOLT system under S group.

Group Z:
The Z group was introduced by the Exchange in July 1999 and includes the companies which have failed to comply with the listing requirements of the Exchange and/or have failed to resolve investor complaints or have not made the required arrangements with both the Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for dematerialization of their securities. Group B1 & B2: All companies not included in group A, S or Z are clubbed under this category. B1 is ranked higher than B2. B1 and B2 groups will be merged as a single Group B effective from March 2008. Group T: It consists of scripts which are traded on trade to trade basis.

Group TS: The TS Group consists of scripts in the BSE-Indonext segments which are settled on a trade to trade basis as a surveillance measure.

Besides these equity groups there are two other groups i.e. Fixed Income Securities (Group F) and Government Securities (Group G). The Exchange has for the guidance and benefit of the investors have classified the scrips in the Equity Segment into 'A', 'B1', 'B2','T', S', TS' and 'Z' groups on certain qualitative and quantitative parameters which include number of trades, value traded, etc. The F Group represents the Fixed Income Securities. The T Group represents scrips which are settled on a trade to trade basis as a surveillance measure. The S Group represent scrips forming part of the BSE-Indonext segment . The TS Group consist of scrips in the BSE-Indonext segment which are settled on a trade to trade basis as a surveillance measure. Trading in Govt. Securities for retail investors is done under "G" group. The 'Z' group was introduced by the Exchange in July 1999 and includes the companies which have failed to comply with the listing requirements of the Exchange and/or have failed to resolve investor complaints or have not made the required arrangements with both the Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for dematerialization of their securities. These groupings are done primarily on the basis of 1:Compliance with SEBI parameters 2:Trading and settlement cycles Of the lot "A" "B1,B2" "C" "Z" are from the equities and "F" is from debt markt.. 'A' Group is a category where there is a facility for carry forward (Badla)to the next settlement cycle. These are companies with fairly good growth record in terms of dividend and capital appreciation. The scrips in this group are classified on the basis of equity capital, market capitalisation, number of years of listing on the exchange, public share holding, floating stock, trading volume etc. 'B1,B2'Group is a subset of the other listed shares that enjoy higher market capitalisation and liquidity than the rest. 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups 'T'' Also termed as the trade to trade group this category comprises of shares which have to be settled in delivery for all buys and sells and square off of bought and sold positions during the day is not permitted. This is a part of the survelience from the BSE to counter any ackward unwarranted movements in such scrips 'Z' Group category comprises of shares of the companies which does not comply with the rules and regulations of the Stock Exchange and are at times suspended from trading due to the above said reasons

The trading cycle for the above scrips is from monday to friday and starting sat(carry forward for A scrips) the settlement by payment of money and delivery of securities in the following week. 'F' Group represents the debt market segment The trading cycle for scrips under this group starting thursday ending next wednesday and then the settlement by friday.

What exactly is being done when shares are bought and sold?
Most stocks are traded on physical or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange where some trades are placed manually on a trading floor (other trading activity is conducted electronically). NASDAQ, on the other hand, is a fully electronic exchange where all trading activity occurs over an extensive computer network, matching investors from around the world to each other at the blink of an eye. Investors and traders submit orders to buy and sell stock shares, either through a broker or by using an online order entry interface (i.e., a trading platform such as E*Trade). A buyer bids to purchase shares at a specified price (or at the best available price) and a seller asks to sell the stock at a specified price (or at the best available price). When a bid and an ask match, a transaction occurs and both orders will be filled. In a very liquid market, the orders will be filled almost instantaneously. In a thinly traded market, however, the order may not be filled quickly or at all. At a physical exchange, such as the NYSE, orders are sent to a floor broker who, in turn, brings the order to a specialist for that particular stock. The specialist facilitates the trading of a given stock and maintains a fair and orderly market. If necessary, the specialist will use his or her own inventory to meet the demands of the trade orders. On an electronic exchange, such as NASDAQ, buyers and sellers are matched electronically. Market

makers (similar in function to the specialists at the physical exchanges) provide bid and ask prices, facilitate trading in a certain security, match buy and sell orders, and use their own inventory of shares, if necessary.

Buying and selling shares

Shares in ASX-listed companies are traded electronically, and can only be bought and sold through an ASX participant broker. You need to provide certain information to your broker when you direct them to buy or sell shares on your behalf (which is called placing an order).

The trading process

Orders to buy and sell shares are entered into our trading platform by designated operators within broking firms. These buy and sell orders are matched with each other. Orders are generally matched according to price and in the same sequence they were entered into the platform. A trade occurs whenever a buy order is matched with a sell order. Following this, you will receive a confirmation that your trade has occurred. If you have bought shares, you will need to pay for the shares you have purchased within three days of your broker executing your order.

Placing an order
When you place an order to buy or sell shares, you should agree with your broker what price you will accept.

Choosing a broker
Different brokers provide different services and levels of service. Full service brokers offer advice on buying and selling securities, make recommendations, provide research and compile tailored investment plans. They typically charge a higher brokerage fee. Execution only brokers do not offer recommendations or advice, but their brokerage fees tend to be lower. This is an attractive option for investors who are confident in their sharemarket knowledge and trading decisions. They are typically either internet- or telephone-based.

Floats
You can also buy shares from a company itself when shares are offered to the public for the first time through an initial public offer (IPO), or float. These shares can either be purchased directly from the company or via a broker.

Buying, selling and transferring

Our Registrars, Equiniti offer Shareview Dealing, a service which allows you to buy or sell Tesco shares if you are a UK resident. You can deal in your shares on the Internet or by phone. Log on to www.shareview.co.uk/dealing or call them on 08456 037 037 between 8.00am and 4.30pm, Monday to Friday, for more information about this service and for details of their rates. If you wish to sell your shares, you will need your shareholder reference number which you can find on your share certificate.

How do I buy and sell shares?

This is usually done through a stockbroker, bank, building society or "share shop". They all offer a similar service although the commissions they charge will vary. This can be done with Equiniti Limited by phoning 08456 037 037 or via the internet at www.shareview.co.uk/dealing. If you would like a list of stockbrokers, either visit www.moneyextra.com, or write to The Association of Private Client Investment Managers and Stockbrokers (APCIMS), 112 Middlesex Street, London, E1 1HY. For further information on investment and share ownership, including investor updates, contact Proshare (www.ifsproshare.org), which is an independent, non-profit-making organisation which promotes sensible investing. If you have recently sold your shares and receive a dividend which you are not sure you are entitled to, contact the agent who acted for you in the sale. Always keep the contract notes which are sent to you by the agent who buys or sells shares for you. If you sell any of your Tesco shares you may become liable to capital gains tax. Neither Tesco nor the Registrar is able to offer financial advice or to confirm the price at which you bought or sold shares.

How do I transfer shares?

If a buyer and seller of shares both agree, they can transfer shares off market by using a stock transfer form, rather than going to a bank or stockbroker. Equiniti Financial Services Limited can advise you on the procedure and can provide the appropriate forms. Send the completed form and the share certificates to Equiniti Financial Services Limited. This method of transferring shares is commonly used when no stamp duty is payable, for example when shares are gifted to relatives or charities on the distribution of an estate. If stamp duty is payable, send the completed transfer form to an Inland Revenue Stamp Office. The duty must be paid before the form can be forwarded to Equiniti Financial Services Limited to make the transfer. Stamp duty is currently 0.5% of the value of your shareholding, rounded to the nearest 5. If the transfer of your shares is not received by Equiniti Financial Services Limited until after the record date, you will still receive a dividend payment.

How Stocks Are Bought And Sold

Execution of an order is a relatively simple matter. An understanding of the various steps which take place is best found in the following imaginary transaction:

Let's say that a Dr. R. J. Charles of Baltimore has sold his summer place and decides to buy common shares in U. S. Steel Corporation. He asks the member firm's registered representative to find out for him what Steel shares are selling for on the Exchange.Over a wire to his New York office the representative asks for a "quote" on U. S. Steel. A clerk in the firm's New York office dials the quotation department at the Exchange and hears, over an automatic tape announcer, the current quotation on U. S. Steel. Bids and offers are made in multiples of the unit of trading (ordinarily 100 shares) and the highest bid and the lowest offer have precedence. Bids and offers must be called out loud. Transactions are promptly reported over the Stock Exchange's nationwide ticker system. No trades are allowed on the Exchange floor before or after trading hours. Current quotations on all listed securities are received by the quotation department over direct wires from each trading post on the floor. Each stock is assigned a particular location at one of the eighteen posts on the trading floor and all transactions in a stock must take place at its assigned location. The clerk in the New York office immediately relays the information to Baltimore that U. S. Steel common is quoted "65-654." This means that, at the moment, the highest bid to buy Steel common stock is $65 a share and the lowest offer to sell is $65.25 a share. Thus Dr. Charles learns that 100 shares will cost him approximately $6500, plus a broker's commission. He tells the registered representative to go ahead. The latter writes out an order to buy 100 shares of U. S. Steel "at the market" and has it wired to his New York office where it is phoned to his firm's partner on the floor of the Exchange. "At the market" means at the best price possible at that time. The floor partner hurries over to the trading post where U. S. Steel shares are traded.About the same time, a San Francisco hardware man, James Green, decides he'll sell his 100 shares of U. S. Steel to get funds to enlarge his store. He calls his broker, gets a "quote," tells his broker to sell. That order is also relayed to the floor over a direct wire. Green's broker hurries to the Steel post. Just as he enters the Steel "crowd," he hears Charles's broker calling out "How's Steel?" Someone-usually the specialist-answers, "65 to a quarter." Charles's broker could, without further thought, buy the 100 Steel offered at 654, and Green's broker could sell his 100 at 65. In that event, and if their customers had been looking over their shoulders, the customers probably would have said, "Why didn't you try to get a better price for us?" The customers would have been right, for that is what a broker is expected to do. Every broker is charged with the responsibility of getting the best possible price for his customer. He must exercise his experience, knowledge and brokerage skill. He must make split-second decisions.

Buying & Selling shares

Buying and selling shares is an easy process with fast online terminals. There are different types of Buy & sell orders you can place in the market. Although its an easy process, carelessness in executing can result in financial loss. Heres a brief explanation of each type of order and its benefits.

TYPES OF ORDERS LIMIT ORDERS Type of orders where you specify the price while entering the order into the system. You have to select the appropriate option to notify whether you are placing the order at Market or

at Limit. If you select the Limit order option then you have to enter a price that is in multiple of regular tick size (multiples of 0.05). MARKET ORDERS when you place an order without a limit price with an intention to get it executed at the best price obtainable at the time of entering the order, its called a Market order. STOP LOSS ORDERS when you place an order with a trigger price its called a stop loss order.. Till the trigger price specified in the order is reached or surpassed such orders are kept dormant. The intention for placing a Stop Loss order is to restrict the maximum loss in a particular position to a predetermined amount. Stop Loss orders are always placed in pairs. The first order has to be a normal order either limit order or market order. The second order will be a stop loss order that will ensure that maximum loss is restricted. The benefit of stop loss orders: If you place a buy order at Rs100 and do not wish to take a loss of more than Rs2 then you will want to sell at Rs98, when the market starts sliding contrary to your expectations. You can obviously keep a watch on the market and sell when it slides and exit your position at Rs98. But this may not always be possible. By entering a Stop Loss order you achieve the same objective without a need to keep a watch on the market.If you place a sell order when the price is above Rs98, your order will get immediately executed. If you place a stop loss order for Rs98 then this order will remain dormant till market prices breach the trigger price. In the current example you will place a Stop Loss order for Rs98 with a trigger price of Rs98.10. You can also place a Stop loss order at Market with a trigger price of Rs98.10. In this case when stop loss is triggered the shares will be sold at market rate. Most users make a mistake of placing a stop loss order without the original order. Users typically mistake the limit price to be the main order and trigger price to be stop loss order. Thus in the above example many users intending to limit the loss to Rs2 will place only one order at a limit price of Rs100 and a trigger price of Rs98. You should have a clear understanding of how stop loss orders are to be placed before placing such orders. IOC ORDERS Here you place an order with an IOC instruction i.e. with an intention to get it executed immediately, failing which the order is cancelled. It is possible that the order gets partially traded, and in such cases the remaining portion of the order is cancelled immediately. Stop loss orders cannot be placed as IOC orders. You can place a normal order (at limit or market) as an IOC order. Take Note

You must fill the Quantity text box correctly before placing the order. Quantity has to be in multiple of lot size. In cash market most of the shares have a lot size of 1. In Derivatives lot sizes vary from scrip to scrip. In most of the trading platforms, Quantity field cannot be directly entered in the Derivatives OE window. You have to click on the up/down control next to the Quantity text box and the quantity will increment/ decrement by lot size.

Disclosed Quantity

You can leave the Disclosed Quantity (DQ) text box blank. In case you fill it, it has to be at least 10% of the order quantity. An order with a DQ condition allows you to disclose only a part of the order quantity to the market. For example, an order of 1000 with a DQ condition of 200 will mean that 200 is displayed to the market at a time. After this is traded, another 200 is automatically released and so on till the order is executed fully. PLACING ORDERS TO BUY AND SELL Once you are sure you entered all the information correctly (quantity and the type of order) you can click on the Place button. This will create an Order packet and display it to you. You have to confirm that the packet is generated correctly by clicking on the Confirm button. After your confirmation, the order will be sent into the market. Each order packet that is created at your end is uniquely numbered (Local Order ID) and time-stamped before being sent to the broker. As soon as the order is received at the brokers server an acknowledgment is sent back. It is then given a unique Broker Order ID, time-stamped and sent for checking the limits. Once the broker confirms that the order is within your financial limits, it is put in queue for sending to Exchange and you will be notified of the same. When the order is sent to Exchange, another notification will be sent to you. When orders are received by Exchange they are numbered (Exchange Order ID) and timestamped again. Exchange may either accept the order or may reject it due to errors in the order or due to price out of days price range or any other reason. It may also freeze your order and may release the freeze later. Whether the order is accepted, rejected or frozen by the Exchange will be notified to you. MODIFYING A BUY/SELL ORDER You can modify an online order to buy or sell a share once your original order it is accepted by the Exchange. You cannot modify or cancel an order after it has got executed. Obviously the application has in built safeguards and will not allow you to modify or cancel an order unless it can be done. However, there is a gap between the time when you picked an order to be modified/ cancelled and the time when it was received at the Exchange, and it is quite possible that the order changes status during that time. A pending order might get executed during that gap. You may therefore get a message saying Order does not exist. This means that the order that you tried to modify or cancel was not found by the Exchange in its Order Book at that time. CONFIRMATION OF A TRADE Confirmation messages for Order and Trade related actions will be displayed in the Messages Panel instantly. Generally, you will get confirmation messages for

Orders sent to the broker Orders received by the broker Orders accepted or rejected by the broker Orders put in queue to Exchange Orders sent to Exchange Orders accepted, rejected or frozen by the Exchange Trade confirmations sent by the Exchange

All these messages will display the time and associated order IDs Local Order ID, Broker Order ID and Exchange Order ID. Thats about buying and selling shares.

The Basics Of Trading A Stock

With the growing importance of digital technology and the internet, many investors are opting to buy and sell stocks for themselves rather than pay advisors large commissions for research and advice. However, before you can start buying and selling stocks, you must know the different types of orders and when they are appropriate. Market vs. Limit The two basic types of orders that every investor should be aware of are the market order and the limit order.

A market order is an order to buy or sell immediately at the best available price. These orders do not guarantee a price, but they do guarantee the order's immediate execution. Typically, if you are going to buy a stock, then you will pay a price near the posted ask. If you are going to sell a stock, you will receive a price near the posted bid. One important thing to remember is that the last-traded price is not necessarily the price at which the market order will be executed. In fast moving and volatile markets, the price at which you actually execute (or fill) the trade can deviate from the last-traded price. The price will remain the same only when the bid and ask prices are exactly at the last-traded price. Market orders are popular among individual investors who want to buy or sell a stock without delay. Although the investor doesn't know the exact price at which the stock will be bought or sold, market orders on stocks that trade over tens of thousands of shares per day will likely be executed close to the bid and ask prices.

A limit order sets the maximum or minimum price at which you are willing to buy or sell. For example, if you wanted to buy a stock at $10, you could enter a limit order for this amount. This means that you would not pay a penny over $10 for the particular stock. It is still possible, however, that you buy it for less than the $10.

One Caveat (Beware) When deciding between a market or limit order, investors should be aware of the added costs. Typically, the commissions are cheaper for market orders than for limit orders. The difference in commission can be anywhere from a couple dollars to more than $10. For example, a $10 commission on a market order can be boosted up to $15 when you place a limit restriction on it. When you place a limit order, make sure it's worthwhile. Let's say your brokerage charges $10 for a market order and $15 for a limit order. Stock XYZ is presently trading at $50 per share and you want to buy it at $49.90:

By placing a market order to buy 10 shares, you pay $500 (10 shares x $50 per share)+ $10 commission, which is a total of $510. By placing a limit order for 10 shares at $49.90 you pay $499 + $15 commissions, which is a total of $514.

Even though you save a little from buying the stock at a lower price (10 shares x $0.10 = $1), you will lose it in the added costs for the order ($5), a difference of $4. Furthermore, in the case of the limit order, it is possible that the stock doesn't fall to $49.90 or less. Thus, if it continues to rise, you may lose the opportunity to buy.

Other Exotic Orders Now that we've explained the two main orders, here's a list of some added restrictions and special instructions that many different brokerages allow on their orders:

Stop Order Also referred to as a stop loss, stopped market, on-stop buy, or on-stop sell, this is one of the most useful orders. This order is different because - unlike the limit and market orders, which are active as soon as they are entered - this order remains dormant until a certain price is passed, at which time it is activated as a market order. For instance, if a stop-loss sell order were placed on the XYZ shares at $45 per share, the order would be inactive until the price reached or dropped below $45. The order would then be transformed into a market order, and the shares would be sold at the best available price. You should consider using this type of order if you don't have time to watch the market continually but need protection from a large downside move. A good time to use a stop order is before you leave on vacation.

All or None (AON) This type of order is especially important for those who buy penny stocks. An all-or-none order ensures that you get either the entire quantity of stock you requested or none at all. This is typically problematic when a stock is very illiquid or a limit is placed on the order. For example, if you put in an order to buy 2,000 shares of XYZ but only 1,000 are being sold, an all-or-none restriction means your order will not be filled until there are at least 2,000 shares available at your preferred price. If you don't place an all-or-none restriction, your 2,000 share order would be partially filled for 1,000 shares.

Good 'Til Canceled (GTC) This is a time restriction that you can place on different orders. A good-till-canceled order will remain active until you decide to cancel it. Brokerages will typically limit the maximum time you can keep an order open (active) to 90 days maximum. Day If, through the GTC instruction, you don't specify a time frame of expiry, then the order will typically be set as a day order. This means that after the end of the trading day, the order will expire. If it isn't transacted (filled) then you will have to re-enter it the following trading day.

Conclusion Knowing the difference between a limit and a market order is fundamental to individual investing. By knowing what each order does and how each one might affect your trading, you can identify which order suits your investment needs, saves you time, reduces your risk and, most importantly, saves you money.

Order (exchange)
An order in a market such as a stock market, bond market, commodity market, or financial derivative market is an instruction from customers to brokers to buy or sell on the exchange. These instructions can be simple or complicated. There are some standard instructions for such orders.

Contents

1 Market order

2 Limit order 3 Time in force 4 Conditional orders o 4.1 Stop orders o 4.2 Peg orders 4.2.1 Peg best 4.2.2 Mid-price peg o 4.3 Market-if-touched order o 4.4 One cancels other orders o 4.5 Tick-sensitive orders 5 Discretionary order 6 Bracket 7 Quantity and display instructions 8 Electronic markets 9 See also 10 References 11 Further reading

Market order
A market order is a buy or sell order to be executed immediately at current market prices. As long as there are willing sellers and buyers, market orders are filled. Market orders are therefore used when certainty of execution is a priority over price of execution. A market order is the simplest of the order types. This order type does not allow any control over the price received. The order is filled at the best price available at the relevant time. In fast-moving markets, the price paid or received may be quite different from the last price quoted before the order was entered.[1] A market order may be split across multiple participants on the other side of the transaction, resulting in different prices for some of the shares.

Limit order
A limit order is an order to buy a security at no more than a specific price, or to sell a security at no less than a specific price (called "or better" for either direction). This gives the trader (customer) control over the price at which the trade is executed; however, the order may never be executed ("filled").[2] Limit orders are used when the trader wishes to control price rather than certainty of execution. A buy limit order can only be executed at the limit price or lower. For example, if an investor wants to buy a stock, but doesn't want to pay more than $20 for it, the investor can place a limit order to buy the stock at $20. By entering a limit order rather than a market order, the investor will not buy the stock at a higher price, but, may get fewer shares than he wants or not get the stock at all. A sell limit order is analogous; it can only be executed at the limit price or higher. Both buy and sell orders can be additionally constrained. Two of the most common additional constraints are fill or kill (FOK) and all or none (AON). FOK orders are either filled completely on the first attempt or canceled outright, while AON orders stipulate that the order must be filled with the entire number of shares specified, or not filled at all. If it is not filled, it is still held on the order book for later execution.

Time in force
A day order or good for day order (GFD) (the most common) is a market or limit order that is in force from the time the order is submitted to the end of the day's trading session.[3] For stock markets, the closing time is defined by the exchange. For the foreign exchange market, this is until 5 p.m. EST/EDT for all currencies except the New Zealand Dollar. Good-til-cancelled (GTC) orders require a specific cancelling order, which can persist indefinitely (although brokers may set some limits, for example, 90 days). An immediate or cancel (IOC) orders are immediately executed or cancelled by the exchange. Unlike FOK orders, IOC orders allow for partial fills. Fill or kill (FOK) orders are usually limit orders that must be executed or cancelled immediately. Unlike IOC orders, FOK orders require the full quantity to be executed. Most markets have single-price auctions at the beginning ("open") and the end ("close") of regular trading. An order may be specified on the close or on the open, then it is entered in an auction but has no effect otherwise. There is often some deadline, for example, orders must be in 20 minutes before the auction. They are single-price because all orders, if they transact at all, transact at the same price, the open price and the close price respectively. Combined with price instructions, this gives market on close (MOC), market on open (MOO), limit on close (LOC), and limit on open (LOO). For example, a market-on-open order is guaranteed to get the open price, whatever that may be. A buy limit-on-open order is filled if the open price is lower, not filled if the open price is higher, and may or may not be filled if the open price is the same. Regulation NMS (Reg NMS),[4] which applies to U.S. stock exchanges, supports two types of IOC orders, one of which is Reg NMS compliant and will not be routed during an exchange sweep, and one that can be routed to other exchanges.[5][6] Optimal order routing is a difficult problem that cannot be addressed with the usual perfect market paradigm. Liquidity needs to be modeled in a realistic way[7] if we are to understand such issues as optimal order routing and placement.[8]

Conditional orders
A conditional order is any order other than a limit order which is executed only when a specific condition is satisfied.

Stop orders
A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order. A buystop order is entered at a stop price above the current market price. Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they have sold short. A sellstop order is entered at a stop price below the current market price. Investors generally use a sellstop order to limit a loss or to protect a profit on a stock that they own.[9] When the stop price is reached, and the stop order becomes a market order, this means the trade will definitely be executed, but not necessarily at or near the stop price, particularly when the order is placed into a fast-moving market, or if there is insufficient liquidity available relative to the size of the order.

The use of stop orders is much more frequent for stocks and futures that trade on an exchange than those that trade in the over-the-counter (OTC) market.[10] [Broker Dependent] Charles Schwab definition:[11] Stop orders and stop-limit orders are very similar, the primary difference being what happens once the stop price is triggered. A standard sell-stop order is triggered when the bid price is equal to or less than the stop price specified or when an execution occurs at the stop price. [Editorial point] Key point is "bid/ask" which are cues and do not represent the stocks value. The broker above moves the stop order to the market queue based on a BID queue not on a completed transaction. For instance, on a stock XYZ closing at $20 the day before with a stop-loss order at $19 and which trades on low volume, the bid/ask at the open can be skewed in that at the open all the market interest is not represented. The bid queue shows $18.5, the market opens, being the highest bid the broker triggers the stop-loss and moves the order to the market, for which there has not even been a trade, an agreed value. The stock trades for $20.50, never even trading at or below the stop-loss order. A sellstop order is an instruction to sell at the best available price after the price goes below the stop price. A sellstop price is always below the current market price. For example, if an investor holds a stock currently valued at $50 and is worried that the value may drop, he/she can place a sellstop order at $40. If the share price drops to $40, the broker sells the stock at the next available price. This can limit the investor's losses (if the stop price is at or above the purchase price) or lock in some of the investor's profits. A buystop order is typically used to limit a loss (or to protect an existing profit) on a short sale.[12] A buy-stop price is always above the current market price. For example, if an investor sells a stock shorthoping for the stock price to go down so they can return the borrowed shares at a lower price (i.e., covering)the investor may use a buy stop order to protect against losses if the price goes too high. It can also be used to advantage in a declining market when you want to enter a long position close to the bottom after turnaround. A stoplimit order combines the features of a stop order and a limit order. Once the stop price is reached, the stoplimit order becomes a limit order to buy (or to sell) at no more (or less) than another, pre-specified limit price.[13] As with all limit orders, a stoplimit order doesn't get filled if the security's price never reaches the specified limit price. A trailingstop order is entered with a stop parameter that creates a moving or trailing activation price, hence the name. This parameter is entered as a percentage change or actual specific amount of rise (or fall) in the security price. Trailingstop sell orders are used to maximize and protect profit as a stock's price rises and limit losses when its price falls. For example, a trader has bought stock ABC at $10.00 and immediately places a trailing stop sell order to sell ABC with a $1.00 trailing stop. This sets the stop price to $9.00. After placing the order, ABC does not exceed $10.00 and falls to a low of $9.01. The trailing stop order is not executed because ABC has not fallen $1.00 from $10.00. Later, the stock rises to a high of $15.00 which resets the stop price to $14.00. It then falls to $14.00 ($1.00 from its high of $15.00) and the trailing stop sell order is entered as a market order. A trailingstop limit order is similar to a trailingstop order. Instead of selling at market price when triggered, the order becomes a limit order.

Peg orders
To behave like a market maker, it is possible to use the what are called peg orders.

Peg best

Like a real market maker, the stepper:

Uses the other side of the spread Always jumps over the competitors order to be the best one, the first in the line

The conditions are:

Price limitation, no more jumping over, unless the price moves back to its area Step value

Mid-price peg

A mid-price order is an order whose limit price is continually set at the average of the "best bid" and "best offer" prices in the market. The values of the bid and offer prices used in this calculation may be either a local or national best bid and offer. Mid-price peg order types are commonly supported on Alternative Trading Systems and dark pools of liquidity, where they enable market participants to trade whereby each pays half of the bidoffer spread, often without revealing their trading intentions to others beforehand.

Market-if-touched order
Main article: Market If Touched

A buy market-if-touched order is an order to buy at the best available price, if the market price goes down to the "if touched" level. As soon as this trigger price is touched the order becomes a market buy order. A sell market-if-touched order is an order to sell at the best available price, if the market price goes up to the "if touched" level. As soon as this trigger price is touched the order becomes a market sell order.

One cancels other orders

One cancels other (OCO) orders are used when the trader wishes to capitalize on only one of two or more possible trading possibilities. For instance, the trader may wish to trade stock ABC at $10.00 or XYZ at $20.00. In this case, they would execute an OCO order composed of two parts: A limit order for ABC at $10.00, and a limit order for XYZ at $20.00. If ABC reaches $10.00, ABC's limit order would be executed, and the XYZ limit order would be canceled.

Tick-sensitive orders
An uptick is when the last (non-zero) price change is positive, and a downtick is when the last (non-zero) price change is negative. Any tick-sensitive instruction can be entered at the trader's option, for example buy on downtick, although these orders are rare. In markets where short sales may only be executed on an uptick, a shortsell order is inherently ticksensitive.

Discretionary order
A discretionary order is an order that allows the broker to delay the execution at its discretion to try to get a better price; these are sometimes called not-held orders.

Bracket
Puts to the market a pair of two orders: For the same title, for the same direction, i.e., both to sell:

One sell order is to realize the profit The second to lock the loss, not to get even deeper

Quantity and display instructions

A broker may be instructed not to display the order to the market. For example an "All-ornone" buy limit order is an order to buy at the specified price if another trader is offering to sell the full amount of the order, but otherwise not display the order. A so-called "iceberg order" requires the broker to display only a small part of the order, leaving a large undisplayed quantity "below the surface".

Electronic markets
All of the above orders could be entered in an electronic market, but order priority rules encourage simple market and limit orders. Market orders receive highest priority, followed by limit orders. If a limit order has priority, it is the next trade executed at the limit price. Simple limit orders generally get high priority, based on a first-come-first-served rule. Conditional orders generally get priority based on the time the condition is met. Iceberg orders and dark pool orders (which are not displayed) are given lower priority.

Definitions
Day Order An order to buy or sell which, if not executed expires at the end of the day on which it was entered. Market Order An order to buy or sell that is to be executed at the best price obtainable. It is bound by the NBBO. Limit Order An order to buy or sell at a specified price or better. Sweep Limit Order A limit order that shall not lock, cross, or trade through the PBBO without first routing to away markets at their quoted size or larger (if applicable). Inside Limit Order Marketable inside limit orders will be matched within the Book at the best obtainable price or routed to the market participants at the NBBO. Any residual volume will not be routed to the next price level until all quotes at the current best bid or offer are exhausted. Nonmarketable inside limit orders will be posted in the Book at the limit price. Reserve Order A limit order that replenishes the displayed order size as executions are received, up to the total order quantity; away markets are routed at their quoted size or larger (if applicable) when hitting the bid or taking the offer. Reserve orders look only at protected quotes. Post No Preference (PNP Order) A limit order to buy or sell that is to be executed in whole or in part on ArcaEdge. The portion not executed is posted in the Book without routing any portion of the order to another market center. PNP Orders that lock or cross the market will be rejected.

PNP Blind Order The PNP B order is an undisplayed limit order priced at or through the Protected Best Bid and Offer (PBBO), with a tradable price set at the contra side of the PBBO. When the PBBO moves away from the price of the PNP B and the prices continue to overlap, the limit price of the PNP B will remain undisplayed and its tradable price will be adjusted to the contra side of the PBBO. When the PBBO moves away from the price of the PNP B and the prices no longer overlap, the PNP B shall convert to a displayed PNP limit order. Immediate or Cancel (IOC) A limit order that allows the order to sweep the Book without regard to any external quotes, that is to be executed in whole or in part on ArcaEdge as soon as the order is received. Any portion of the order that is not immediately executed will be cancelled. IOC orders do not route to away markets. Applying a time in force of IOC to an order type will override the routing or posting functionality and the order will only be available for execution on the ArcaEdge book. This order type can be used by Subscribers that satisfy their internal Regulation NMS for OTC obligation and want to send an order quickly to execute against available interest on the ArcaEdge book. InsideIOC A market or limit order that is to be executed in whole or in part on ArcaEdge as soon as the order is received. Any portion of the order that is not immediately executed will be cancelled. InsideIOC orders may not trade through protected quotes. Passive Discretionary Limit Order The order is displayed at your specified price (not your discretionary price) and is not eligible to route. When a bid or offer appears in the Book at or within your discretionary price range, it will be executed against the Book as long as it does not trade through a Protected Quote. A discretionary price can be used in combination with a reserve order. Proactive Discretionary Limit Order An order that is displayed at your specified price (not your discretionary price) and is eligible to route outside the Book when a protected bid or offer appears on an away market your order will be routed to protected Quotes within your discretionary limit price. A discretionary price can be used in combination with a reserve order. Proactive if Locked A user specified attribute that allows an order to route to another market center for the away market's displayed size in the instance in which the other market center has locked the orders quotation. NOW Orders An order that is executed in whole or in part that will be routed to one or more NOW recipients (those venues that respond immediately with a fill or a cancel) that are protected quotes for immediate execution if the order cannot be executed on ArcaEdge. Applying a NOW designation to a routable order type will override the routing instructions and the order will function as a NOW order. NOW orders are immediately canceled if not executed at the quoted price or better. Sweep Reserve Order A limit order with a portion of size displayed with a reserve portion of the size that is not displayed that replenishes the displayed order size as executions are received, up to the total order quantity. A reserve order shall not lock, cross, or trade through the PBBO and will be routed to away markets at their quoted size or larger (if applicable) when hitting the bid or taking the offer. Mid Point Cross A Cross Order that is priced at the midpoint of the PBBO. ArcaEdge will reject a Cross Order designated for midpoint pricing when a locked or crossed market of Protected Quotations exists in that security.

PNP Cross A Cross Order that is to be executed in whole or in part on the Corporation and the portion not so executed is to be canceled, without routing any portion of the Cross Order to another market center. When the cross price is equal to or better than the PBBO and is at the BBO, the relevant portion of the PNP Cross Order will be matched first against displayed orders with priority in the ArcaEdge Book, and then the remainder of the PNP Cross Order will be matched. Any unexecuted portion of the PNP Cross will be canceled. Auction Only Order Market Auction Only Order Market A market order that is designated to trade only in the next auction after entry including halt auctions. Any unexecuted portion of the order will be cancelled. Auction Only Order Market Auction Only Order Limit A limit order that is designated to trade only in the next auction after entry including halt auctions. Any unexecuted portion of the order will be cancelled. Market on Open (MOO) A market order that is to be executed only during the opening auction. Limit on Open Order (LOO) A limit order that is to be executed only during the opening auction. Market on Close (MOC) A market order that is to be executed only during the closing auction. Limit on Close Order (LOC) A limit order that is to be executed only during the closing auction. Quote Provider Q Orders An attributed quote with no price or size that will not be eligible for execution Fill or Kill Order (FOK) A limit order that is to be executed in full as soon as the order is received. If execution is not possible, the entire order will be immediately cancelled. FOK orders will not route away from ArcaEdge to other market centers. Attributed Quote a quote that does not provide anonymity but rather displays the MPID of the entering firm. Passive Liquidity Order An undisplayed limit order that resides in the ArcaEdge limit order book. All displayed orders at the same price as a PL order will have priority over a PL order unless the PL order is priced more aggressively. The PL order will not trade through a protected quote. MidPoint Passive Liquidity (MPL) Order The MPL order is an undisplayed limit order that is priced at the midpoint of the Protected Best Bid and Offer (PBBO). MPL orders will generally interact with all order types including contra MPLs excluding: cross orders. MPL orders will be entered as a limit order but are executable only at the midpoint of the PBBO. MPLs will not execute if the market is locked/crossed. MidPoint Passive Liquidity ALO Order The MPLALO order is an undisplayed limit order that is priced at the midpoint of the Protected Best Bid and Offer (PBBO) with the intention of only executing if it is adding liquidity. MPLALO orders will be added to the book even though it would lock a hidden order that was previously entered. Market Peg Order An order with a price that will track the national best bid or offer. Where an order to buy is pegged to the offer and an order to sell is pegged to the bid. The

price of the order must be pegged to an offset from the bid or the offer. The order is displayed in the ArcaEdge Book. Primary Peg Order An order with a price that will track the national best bid or offer. Where an order to buy is pegged to the bid and an order to sell is pegged to the offer. An offset price is optional on a primary peg. The order is displayed in the ArcaEdge Book. Proactive if Locked Reserve A limit order that replenishes the displayed order size as executions are received, up to the total order quantity; away markets are routed at their quoted size or larger (if applicable) when hitting the bid or taking the offer. Reserve orders look only at protected quotes. The order will route to another market center for the away market's displayed size in the instance in which the other market center has locked the orders quotation. Tracking Limit Order A tracking limit order is an undisplayed, priced round lot that is eligible for execution in the tracking order process against orders equal to or less than the aggregate size of the order if interest is available at that price. Orders may be entered at any price. Orders will only execute at the NBBO. Adding Liquidity Only (ALO) Order The ALO order is a limit order that is posted to the ArcaEdge book in order to add liquidity. The Order assists Users in controlling their costs. Once accepted and placed in the ArcaEdge book, ALO orders will not route to away market centers. ALO orders will be rejected when interacting with Passive Liquidity (PL) Orders. Aggressively priced ALO PNP Blind orders, that are moving (or changing price) due to an NBBO update, may result in receiving liquidity removing. Self Trade Prevention Order (STP) SelfTrade Prevention modifiers prevent ArcaEdge firms from trading with themselves. The STP modifiers allow firms to prevent two orders with the same MPID from executing against each other. The modifiers include: STP Cancel Newest, STP Cancel Oldest, STP Decrement and Cancel, and STP Cancel Both.

Order Types
Whether buying or selling a stock, good investing requires knowing:

when to place your order the risks associated with the order what you want your order to achieve the price at which you want to buy or sell the shares

There are several order types available to stock investors, including market orders, limit orders and stop-loss orders.

Market orders
A market order is the simplest and most common type of order. A market order tells your broker to buy or sell a stock for you immediately at the best price. Since you do not specify a price, this type of order will almost always be filled, but it may not necessarily correspond to the current market price because the price may have moved by the time the broker executes the order, unless you have received a firm quote from a market maker. Remember, with small companies or companies with limited free float (available shares), the actual price you pay for a stock may be considerably different to the indicated bid/offer price,

unless you have received a firm quote from a market maker. For example, while a market maker might quote a broker a price for 2,000 shares, the client may want to deal only in 10,000 shares, which could affect the price materially.

Risks of market orders

Market orders can be risky for the novice investor if there is no firm quote because the market price of a stock may move up or down between the time you ask the broker to place the order and the time the order is finally transacted. This can result in unanticipated gains or losses.

Limit orders
You place a limit order in order to buy or sell a stock at a price you specify (the limit) or better. A limit order to buy would be executed at the limit or lower, while a limit order to sell would be executed at the limit or higher. You always place a buy limit order below the current stock price, and a sell limit order above the current stock price.

Example of Limit orders

Suppose you wish to buy 500 shares of stock at GBP 30 or better. You place an order with your broker to "buy limit at GBP 30." If a seller who wishes to trade at GBP 29.80 is found, your order is executed, since this betters the limit of GBP 30. If a seller had been found at GBP 30 then your order would have been executed at the limit price of GBP 30. No execution will take place above this, however.

Fill or Kill limit orders

You place a Fill or Kill limit order when you wish to execute your entire order immediately at a specified price or better. If this order cannot be dealt in the market your order will be cancelled. This order type will avoid partial executions. Two executions completed on two separate days may incur two commission charges. Fill or Kill orders will ensure that if the entire order can not be executed immediately at the price you have specified, the order will be cancelled.

Example of Fill or Kill limit orders

Suppose you wish to buy 250 shares of stock at GBP 10. You place an order with your broker to "buy fill or kill at GBP 10." If a seller who wishes to trade at GBP 10 is found, your order is executed. If a seller had been found below at GBP 9, then your order would have been executed, as this is better than the limit price. If this order could not be filled immediately, it would be cancelled.

Risks of limit orders

Limit orders are useful when you have decided on the price at which you are willing to trade. They guarantee that you will not buy a stock for more than the limit price or sell at less than the limit price, provided that your order is executed. You may, of course, never buy or sell; but if you do, you are guaranteed the limit price or better. So because limit orders are predictable, their risk level is lower.

One word of caution: limit orders do not guarantee execution. If the stock price does not move to the limit level, your order will not be executed.

Stop-loss orders
A sell-stop order, also known as a stop-loss order, is designed to stop a loss. If you hold a stock that is declining in price, you might place an order to sell the stock if it hits a certain price. Therefore, a sell-stop is placed at a price below the current price trading in the market.

Example of Stop-loss orders

If the stock is trading at GBP 50, you might place a sell-stop order at GBP 46.50. This order will not be executed until the stock trades at GBP 46.50 or lower. Again, as soon as this happens, your broker will execute the order for you at the current market price.

Risks of stop-loss orders

The greatest risk associated with this type of order is that the order may be executed on one of the small price reversals that occur in the normal price movement of a stock. The stock may trade down slightly, thus activating the order at the sell price and liquidating your position. The stock may subsequently rise significantly, thus costing you profits. Another risk is that the order may be executed at a much lower level than the stop price if the market is falling rapidly. Stop-loss orders allow you to limit your loss. If the price of a stock is falling and you do not expect it to make a dramatic recovery, then you might want to decide on a price at which you want to get out. The stop-loss order allows you to do this. The contents of this tutorial are of a general nature. They are provided without liability and do not represent investment advice of any kind.

Life insurance (or commonly life assurance, especially in the Commonwealth) is

a contract between an insured (insurance policy holder) and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits.

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion. Life-based contracts tend to fall into two major categories:

Protection policies designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. Investment policies where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life and variable life policies.

Parties to contract

Chart of a life insurance

There is a difference between the insured and the policy owner, although the owner and the insured are often the same person. For example, if Joe buys a policy on his own life, he is both the owner and the insured. But if Jane, his wife, buys a policy on Joe's life, she is the owner and he is the insured. The policy owner is the guarantor and he will be the person to pay for the policy. The insured is a participant in the contract, but not necessarily a party to it. Also, most companies allow the payer and owner to be different, e. g. a grandparent paying premiums for a policy on a child, owned by a grandchild. The beneficiary receives policy proceeds upon the insured person's death. The owner designates the beneficiary, but the beneficiary is not a party to the policy. The owner can change the beneficiary unless the policy has an irrevocable beneficiary designation. If a policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or cash value borrowing would require the agreement of the original beneficiary. In cases where the policy owner is not the insured (also referred to as the celui qui vit or CQV), insurance companies have sought to limit policy purchases to those with an insurable

interest in the CQV. For life insurance policies, close family members and business partners will usually be found to have an insurable interest. The insurable interest requirement usually demonstrates that the purchaser will actually suffer some kind of loss if the CQV dies. Such a requirement prevents people from benefiting from the purchase of purely speculative policies on people they expect to die. With no insurable interest requirement, the risk that a purchaser would murder the CQV for insurance proceeds would be great. In at least one case, an insurance company which sold a policy to a purchaser with no insurable interest (who later murdered the CQV for the proceeds), was found liable in court for contributing to the wrongful death of the victim (Liberty National Life v. Weldon, 267 Ala.171 (1957)).

Contract terms
Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and void if the insured commits suicide within a specified time (usually two years after the purchase date; some states provide a statutory one-year suicide clause). Any misrepresentations by the insured on the application may also be grounds for nullification. Most US states specify a maximum contestability period, often no more than two years. Only if the insured dies within this period will the insurer have a legal right to contest the claim on the basis of misrepresentation and request additional information before deciding whether to pay or deny the claim. The face amount of the policy is the initial amount that the policy will pay at the death of the insured or when the policy matures, although the actual death benefit can provide for greater or lesser than the face amount. The policy matures when the insured dies or reaches a specified age (such as 100 years old).

Costs, insurability and underwriting

The insurer (the life insurance company) calculates the policy prices with intent to fund claims to be paid and administrative costs, and to make a profit. The cost of insurance is determined using mortality tables calculated by actuaries. Actuaries are professionals who employ actuarial science, which is based on mathematics (primarily probability and statistics). Mortality tables are statistically based tables showing expected annual mortality rates. It is possible to derive life expectancy estimates from these mortality assumptions. Such estimates can be important in taxation regulation.[2][3] The three main variables in a mortality table are commonly age, gender, and use of tobacco, but more recently in the US, preferred class-specific tables have been introduced. The mortality tables provide a baseline for the cost of insurance, but in practice these mortality tables are used in conjunction with the health and family history of the individual applying for a policy to determine premiums and insurability. Mortality tables currently in use by life insurance companies in the United States are individually modified by each company using pooled industry experience studies as a starting point. In the 1980s and 1990s, the SOA 197580 Basic Select & Ultimate tables were the typical reference points, while the 2001 VBT and 2001 CSO tables were published more recently. The newer tables include separate mortality tables for smokers and non-smokers, and the CSO tables include separate tables for preferred classes.[4] Recent US mortality tables predict that roughly 0.35 in 1,000 non-smoking males aged 25 will die during the first year of coverage after underwriting.[5] Mortality approximately doubles for every extra ten years of age, so the mortality rate in the first year for underwritten non-smoking men is about 2.5 in 1,000 people at age 65.[6] Compare this with the US population male mortality rates of 1.3 per 1,000 at age 25 and 19.3 at age 65 (without regard to health or smoking status).[7]

The mortality of underwritten persons rises much more quickly than the general population. At the end of 10 years the mortality of that 25 year-old, non-smoking male is 0.66/1000/year. Consequently, in a group of one thousand 25-year-old males with a $100,000 policy, all of average health, a life insurance company would have to collect approximately $50 a year from each participant to cover the relatively few expected claims. (0.35 to 0.66 expected deaths in each year x $100,000 payout per death = $35 per policy). Other costs, such as administrative and sales expenses, also need to be considered when setting the premiums. A 10 year policy for a 25-year-old non-smoking male with preferred medical history may get offers as low as $90 per year for a $100,000 policy in the competitive US life insurance market. Most of the revenue received by insurance companies consists of premiums paid by policy holders, with some additional money being made through the investment of some of the cash raised from premiums. Rates charged for life insurance increase with the insurer's age because, statistically, people are more likely to die as they get older. The insurance company will investigate the health of an applicant for a policy to assess the likelihood of incurring a claim, in the same way that a bank would investigate an applicant for a loan to assess the likelihood of a default. Group Insurance policies are an exception to this. This investigation and resulting evaluation of the risk is termed underwriting. Health and lifestyle questions are asked, with certain responses or revelations possibly meriting further investigation. Life insurance companies in the United States support the Medical Information Bureau (MIB),[8] which is a clearing house of information on persons who have applied for life insurance with participating companies in the last seven years. As part of the application, the insurer often requires the applicant's permission to obtain information from their physicians.[9] Underwriters will determine the purpose of insurance; the most common being to protect the owner's family or financial interests in the event of the insured's death. Other purposes include estate planning or, in the case of cash-value contracts, investment for retirement planning. Bank loans or buy-sell provisions of business agreements are another acceptable purpose. Life insurance companies are never legally required to underwrite or to provide coverage to anyone, with the exception of Civil Rights Act compliance requirements. Insurance companies alone determine insurability, and some people, for their own health or lifestyle reasons, are deemed uninsurable. The policy can be declined or rated (increasing the premium amount to compensate for a greater probability of a claim).[citation needed] Many companies separate applicants into four general categories. These categories are preferred best, preferred, standard, and tobacco.[citation needed] Preferred best is reserved only for the healthiest individuals in the general population. This may mean, that the proposed insured has no adverse medical history, is not under medication for any condition, and his family (immediate and extended) have no history of early-onset cancer, diabetes, or other conditions.[10] Preferred means that the proposed insured is currently under medication for a medical condition and has a family history of particular illnesses.[citation needed] Most people are in the standard category.[citation needed] Profession, travel history, and lifestyle factor into whether the proposed insured will be granted a policy, and which category the insured falls. For example, a person who would otherwise be classified as preferred best may be denied a policy if he or she travels to a high risk country.[citation needed] Underwriting practices can vary from insurer to insurer, encouraging competition.

Death proceeds
Upon the insured's death, the insurer requires acceptable proof of death before it pays the claim. The normal minimum proof required is a death certificate, and the insurer's claim form completed, signed (and typically notarized).[citation needed] If the insured's death is suspicious

and the policy amount is large, the insurer may investigate the circumstances surrounding the death before deciding whether it has an obligation to pay the claim. Payment from the policy may be as a lump sum or as an annuity, which is paid in regular installments for either a specified period or for the beneficiary's lifetime.[citation needed]

Insurance vs assurance
The specific uses of the terms "insurance" and "assurance" are sometimes confused. In general, in jurisdictions where both terms are used, "insurance" refers to providing coverage for an event that might happen (fire, theft, flood, etc.), while "assurance" is the provision of coverage for an event that is certain to happen. In the United States both forms of coverage are called "insurance" for reasons of simplicity in companies selling both products.[citation needed] By some definitions, "insurance" is any coverage that determines benefits based on actual losses whereas "assurance" is coverage with predetermined benefits irrespective of the losses incurred.

Types
Life insurance may be divided into two basic classes: temporary and permanent; or the following subclasses: term, universal, whole life and endowment life insurance.

Term insurance
Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else. There are three key factors to be considered in term insurance:
1. Face amount (protection or death benefit), 2. Premium to be paid (cost to the insured), and 3. Length of coverage (term).

Annual renewable term is a one-year policy, but the insurance company guarantees it will issue a policy of an equal or lesser amount regardless of the insurability of the applicant, and with a premium set for the applicant's age at that time. Another common type of term insurance is mortgage life insurance, which usually involves a level-premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner's property, such that any outstanding amount on the applicant's mortgage will be paid should the applicant die.

Permanent life insurance

Permanent life insurance is life insurance that remains active until the policy matures, unless the owner fails to pay the premium when due. The policy cannot be cancelled by the insurer for any reason except fraudulent application, and any such cancellation must occur within a period of time (usually two years) defined by law. A permanent insurance policy accumulates a cash value, reducing the risk to which the insurance company is exposed, and thus the insurance expense over time. This means that a policy with a million dollar face value can be relatively expensive to a 70-year-old. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.

The four basic types of permanent insurance are whole life, universal life, limited pay and endowment.
Whole life coverage

Whole life insurance provides lifetime death benefit coverage for a level premium in most cases. Premiums are much higher than term insurance at younger ages, but as term insurance premiums rise with age at each renewal, the cumulative value of all premiums paid across a lifetime are roughly equal if policies are maintained until average life expectancy. Part of the insurance contract stipulates that the policyholder is entitled to a cash value reserve, which is part of the policy and guaranteed by the company. This cash value can be accessed at any time through policy loans and are received income tax free. Policy loans are available until the insured's death. If there are any unpaid loans upon death, the insurer subtracts the loan amount from the death benefit and pays the remainder to the beneficiary named in the policy. While the marketing divisions of some life insurance companies often explain whole life as a "death benefit with a savings component", this distinction is artificial according to life insurance actuaries Albert E. Easton and Timothy F. Harris. The net amount at risk is the amount the insurer must pay to the beneficiary should the insured die before the policy has accumulated an amount equal to the death benefit. It is the difference between the current cash value amount and the total death benefit amount. Because of this relationship between the cash value and death benefit, it may be more accurate to describe the policy as a single, indivisible product, as no actual separation of the cash value and death benefit is possible. The advantages of whole life insurance are guaranteed death benefits, guaranteed cash values, fixed, predictable annual premiums and mortality and expense charges that will not reduce the cash value of the policy. The disadvantages of whole life are inflexibility of premiums and the fact that the internal rate of return in the policy may not be competitive with other savings alternatives. The death benefit can also be increased through the use of policy dividends, though these dividends cannot be guaranteed and may be higher or lower than historical rates over time. According to internal documents from some life insurance companies, like Massachusetts Mutual, the internal rate of return and dividend payment realized by the policyholder is often a function of when the policyholder buys the policy and how long that policy remains in force. Dividends paid on a whole life policy can be utilized in many ways. The life insurance manual defines policy dividends as a refund of overpayment of premiums. It is NOT the same as stock dividends.
Universal life coverage

Universal life insurance (UL) is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payment, along with the potential for greater growth of cash values. There are several types of universal life insurance policies which include interest sensitive (also known as "traditional fixed universal life insurance"), variable universal life (VUL), guaranteed death benefit, and equity indexed universal life insurance. A universal life insurance policy includes a cash value. Premiums increase the cash values, but the cost of insurance (along with any other charges assessed by the insurance company) reduces cash values. Universal life insurance addresses the perceived disadvantages of whole life namely that premiums and death benefit are fixed. With universal life, both the premiums and death

benefit are flexible. Except with regards to guaranteed death benefit universal life, this flexibility comes with the disadvantage of reduced guarantees. Flexible death benefit means the policy owner can choose to decrease the death benefit. The death benefit could also be increased by the policy owner, but that would typically require the insured to go through a new underwriting. Another feature of flexible death benefit is the ability to choose from option A or option B death benefits, and to change those options during the life of the insured. Option A is often referred to as a level death benefit. Generally speaking, the death benefit will remain level for the life of the insured and premiums are expected to be lower than policies with an Option B death benefit. Option B pays the face amount plus the cash value. If cash values grow over time, so would the death benefit which is payable to the insured's beneficiaries. If cash values decline, the death benefit would also decline. Presumably, option B death benefit policies would require higher premiums than option A policies.
Limited-pay

Another type of permanent insurance is Limited-pay life insurance, in which all the premiums are paid over a specified period after which no additional premiums are due to the policy in force. Common limited pay periods include 10-year, 20-year, and are paid out at the age of 65.
Endowments Main article: Endowment policy

Endowments are policies in which the cumulative cash value of the policy equals the death benefit at a certain age. The age at which this condition is reached is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier. In the United States, the Technical Corrections Act of 1988 tightened the rules on tax shelters (creating modified endowments). These follow tax rules in the same manner as annuities and IRAs. Endowment insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15 years) or a specific age (e.g. 65).
Accidental death

Accidental death is a limited life insurance designed to cover the insured should they die due to an accident. Accidents include anything from an injury and upwards, but do not typically cover deaths resulting from health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurance policies. It is also very commonly offered as accidental death and dismemberment insurance (AD&D) policy. In an AD&D policy, benefits are available not only for accidental death, but also for the loss of limbs or bodily functions, such as sight and hearing. Accidental death and AD&D policies very rarely pay a benefit, either because the cause of death is not covered by the policy, or the coverage is not maintained after the accident until death occurs. To be aware of what coverage they have, an insured should always review their policy for what it covers and what it excludes. Often, it does not cover an insured who puts themselves at risk in activities such as parachuting, flying, professional sports or involvement in a war (military or not).

Accidental death benefits can also be added to a standard life insurance policy as a rider. If this rider is purchased, the policy will generally pay double the face amount if the insured dies due to an accident. This used to be commonly referred to as a double indemnity policy. In some cases, insurers may even offer triple indemnity cover.

Related products
Riders are modifications to the insurance policy added at the same time the policy is issued. These riders change the basic policy to provide some feature desired by the policy owner. A common rider is accidental death (see above). Another common rider is a premium waiver, which waives future premiums if the insured becomes disabled. Joint life insurance is either a term or permanent policy insuring two or more persons with the proceeds payable on either the first or second death. Survivorship life is a whole life policy insuring two lives with the proceeds payable on the second (later) death. Single premium whole life is a policy with only one premium which is payable at the time the policy matures. Modified whole life is a whole life policy featuring smaller premiums for a specified period of time, after which the premiums increase for the remainder of the policy.

Group life insurance

Group life insurance (also known as wholesale life insurance or institutional life insurance) is term insurance covering a group of people, usually employees of a company, members of a union or association, or members of a pension or superannuation fund. Individual proof of insurability is not normally a consideration in the underwriting. Rather, the underwriter considers the size, turnover and financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often includes a provision for a member exiting the group to buy individual coverage.

Senior and preneed products

Insurance companies have in recent years developed products to offer to niche markets, most notably targeting the senior market to address needs of an aging population. Many companies offer policies tailored to the needs of senior applicants. These are often low to moderate face value whole life insurance policies, to allow a senior citizen purchasing insurance at an older issue age an opportunity to buy affordable insurance. This may also be marketed as final expense insurance, and an agent or company may suggest that the policy proceeds could be used for end-of-life expenses. Preneed life insurance policies are limited premium payment whole life policies that, although available at almost any age, are usually purchased by older applicants. This type of insurance is designed to cover specific funeral expenses when the insured person dies, which the applicant has designated in a preneed funeral goods & services contract with a funeral home. The policy's death benefit is initially based on the total funeral cost at the time of prearrangement, and it then typically grows as interest is credited. In exchange for the policy owner's designation of the funeral home as the primary beneficiary, the funeral home will typically guarantee that the death benefit proceeds will cover the future cost of the selected goods & services no matter when death occurs. Excess proceeds may go to either the insured's estate, a designated beneficiary, or to the funeral home, as set forth in the prearrangement funeral contract. Purchasers of these policies usually make a single premium

payment equal to the funeral amount at the time of prearrangement, but companies offering these products also allow premiums to be paid over as much as ten years.

Investment policies
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Unit Linked Insurance Plans

These are unique insurance plans which are basically a mutual fund and term insurance plan rolled into one. The investor doesn't participate in the profits of the plan per se, but gets returns based on the returns on the funds he or she had chosen. The premium paid by the customer is deducted by initial charges by the insurance companies (basically the distribution and initial costs) and the remaining amount is invested in a fund (much like a mutual fund) by converting the amount into units based upon the NAV of the fund on that date. Mortality charges, fund management charges and a few other charges are deducted in regular intervals by way of cancellation of units from the invested funds. A Unit Linked Insurance Plan (ULIP) offers high flexibility to the customer in form of higher liquidity and lower term. The customer has the choice of choosing the funds of his choice from whatever his/her insurance provider has to offer. He can switch between the funds without the necessity to opt out of the insurance plan. ULIPs got extremely popular in the heyday of the equity bull run in India, as the returns generated in equity linked funds were beating any kind of debt or fixed return instrument. However, with stagnation of the economy and the equity market this product category slowed down.

With-profits policies
Some policies afford the policyholder a share of the profits of the insurance company these are termed with-profits policies. Other policies provide no rights to a share of the profits of the company these are non-profit policies. With-profits policies are used as a form of collective investment scheme to achieve capital growth. Other policies offer a guaranteed return not dependent on the company's underlying investment performance; these are often referred to as without-profit policies, which may be construed as a misnomer.

Investment bonds
Main article: Insurance bond

Pensions
Pensions are a form of life assurance. However, whilst basic life assurance, permanent health insurance and non-pensions annuity business all include an amount of mortality or morbidity risk for the insurer, pensions pose a longevity risk.

A pension fund will be built up throughout a person's working life. When the person retires, the pension will become in payment, and at some stage the pensioner will buy an annuity contract, which will guarantee a certain pay-out each month until death.

Annuities
Main article: Life annuity

An annuity is a contract with an insurance company whereby the insured pays an initial premium or premiums into a tax-deferred account, which pays out a sum at pre-determined intervals. There are two periods: the accumulation (when payments are paid into the account) and the annuitization (when the insurance company pays out). IRS rules restrict how money can be withdrawn from an annuity. Distributions may be taxable and/or penalized.

Taxation

India
Premiums paid by the policy owner are deductible from the taxable income of the policy owner under section 80 (C) up to a maximum limit of Rs.1,00,000. Any proceeds from an Insurance Plan in form of maturity proceeds, claims, partial withdrawal is exempt from taxation under section 10 (10) D of Income Tax law of India.

Types of Life Insurance What is a life insurance policy?

A life insurance policy provides financial protection to your family in the unfortunate event of your death. At a basic level, it involves paying small sums each month (called premiums) to cover the risk of your untimely demise during the tenure of the policy. In such an event, your family (or the beneficiaries you have named in the policy) will receive a lump sum amount. In case you live till the maturity of the policy, depending on the type of life insurance policy you have opted for, you will receive returns the policy may have earned over the years. Today, there are many variations to this basic theme, and insurance policies cater to a wide variety of needs. What are the various types of life insurance policies? Given below are the basic types of life insurance policies. All other life insurance policies are built around these basic insurance policies by combination of various other features. Term Insurance Policy A term insurance policy is a pure risk cover policy that protects the person insured for a specific period of time. In such type of a life insurance policy, a fixed sum of money called the sum assured is paid to the beneficiaries (family) if the policyholder expires within the policy term. For instance, if a person buys a Rs 2 lakh policy for 15 years, his family is entitled to the sum of Rs 2 lakh if he dies within that 15-year period.

If the policy holder survives the 15-year period, the premiums paid are not returned back. The advantage, apart from the financial security for an individuals family is that the premiums paid are exempt from tax. These insurance policies are designed to provide 100 per cent risk cover and hence they do not have any additional charges other than the basic ones. This makes premiums paid under such life insurance policies the lowest in the life insurance category. Whole Life Policy

A whole life policy covers a policyholder against death, throughout his life term. The advantage that an individual gets when he / she opts for a whole life policy is that the validity of this life insurance policy is not defined and hence the individual enjoys the life cover throughout his or her life. Under this life insurance policy, the policyholder pays regular premiums until his death, upon which the corpus is paid to the family. The policy does not expire till the time any unfortunate event occurs with the individual. Increasingly, whole life policies are being combined with other insurance products to address a variety of needs such as retirement planning, etc. Premiums paid under the whole life policies are tax exempt.

Endowment Policy

Combining risk cover with financial savings, endowment policies are among the popular life insurance policies. Policy holders benefit in two ways from a pure endowment insurance policy. In case of death during the tenure, the beneficiary gets the sum assured. If the individual survives the policy tenure, he gets back the premiums paid with other investment returns and benefits like bonuses. In addition to the basic policy, insurers offer various benefits such as double endowment and marriage/ education endowment plans. The concept of providing the customers with better returns has been gaining importance in recent times. Hence, insurance companies have been coming out with new and better ULIP versions of endowment policies. Under such life insurance policies the customers are also provided with an option of investing their premiums into the markets, depending on their risk appetite, using various fund options provided by the insurer, these life insurance policies help the customer profit from rising markets. The premiums paid and the returns accumulated through pure endowment policies and their ULIP variants are tax exempt.

Money Back Policy

This life insurance policy is favoured by many people because it gives periodic payments during the term of policy. In other words, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured. In case of death during the policy term, the beneficiary gets the full sum assured. New ULIP versions of money back policies are also being offered by various life insurers. The premiums paid and the returns accumulated though a money back policy or its ULIP variants are tax exempt.

ULIPs

ULIPs are market-linked life insurance products that provide a combination of life cover and wealth creation options. A part of the amount that people invest in a ULIP goes toward providing life cover, while the rest is invested in the equity and debt instruments for maximising returns. . ULIPs provide the flexibility of choosing from a variety of fund options depending on the customers risk appetite. One can opt from aggressive funds (invested largely in the equity market with the objective of high capital appreciation) to conservative funds (invested in debt markets, cash, bank deposits and other instruments, with the aim of preserving capital while providing steady returns). ULIPs can be useful for achieving various long-term financial goals such as planning for retirement, childs education, marriage etc.

Annuities and Pension In these types of life insurance policies, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against financial risks as well as provide money in the form of pension at regular intervals.

Types of Life Insurance in India

Life insurance products come in a variety of offerings catering to the investment needs and objectives of different kinds of investors. Following is the list of broad categories of life insurance products:

Term Insurance Policies

The basic premise of a term insurance policy is to secure the immediate needs of nominees or beneficiaries in the event of sudden or unfortunate demise of the policy holder. The policy holder does not get any monetary benefit at the end of the policy term except for the tax benefits he or she can choose to avail of throughout the tenure of the policy. In the event of death of the policy holder, the sum assured is paid to his or her beneficiaries. Term insurance policies are also relatively cheap to acquire compared to other insurance products.

Money-back Policies
Money back policies are basically an extension of endowment plans wherein the policy holder receives a fixed amount at specific intervals throughout the duration of the policy. In the event of the unfortunate death of the policy holder, the full sum assured is paid to the beneficiaries. The terms again might slightly vary from one insurance company to another.

Unit-linked Insurance Policies (ULIP)

Main article: Unit-linked insurance plan

Unit linked insurance policies again belong to the insurance-cum-investment category where one gets to enjoy the benefits of both insurance and investment. While a part of the monthly premium pay-out goes towards the insurance cover, the remaining money is invested in various types of funds that invest in debt and equity instruments. ULIP plans are more or less similar in comparison to mutual funds except for the difference that ULIPs offer the additional benefit of insurance.

Pension Policies

Pension policies let individuals determine a fixed stream of income post retirement. This basically is a retirement planning investment scheme where the sum assured or the monthly pay-out after retirement entirely depends on the capital invested, the investment timeframe, and the age at which one wishes to retire. There are again several types of pension plans that cater to different investment needs. Now it is recognized as insurance product and being regulated by IRDA.

Types of Insurance
There are four types of insurance: Life, Fire, Marine and Miscellaneous Insurance. Life insurance is treated separately, while Fire, Marine and Miscellaneous insurance all fall within the General Insurance umbrella. What is Life Insurance? Life insurance is a policy that may be bought from a life insurance company, which helps beneficiaries financially after the owner of the policy dies. It is a contract between the policy owner (you) and the insurer (the life insurance company), which assures the paying out of a sum of money in the event of the policy holder's death, or terminal or critical illness. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide, fraud, and war. The cost or premium on your life insurance decides the type and kind of coverage you get under a life insurance plan. Life Insurance can also be a form of savings in the long run, which we will discuss shortly, or it can be tied in with a pension plan. Life insurance can provide security, protect home mortgages, and facilitate other retirement savings. Life Insurance in India The Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999, have made life insurance in India a federal matter. Therefore, all life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA), irrespective of whether they are state-owned (Life Insurance Corporation of India) or private (ICICI Prudential Life Insurance, Bajaj Allianz Life Insurance Company). Types of Life Insurance Taking out a life insurance policy covers the risk of dying early, by providing for your family in the event of your death. It also manages the risk of retirement providing an income for you in non-earning years. Choosing the right policy type with the coverage that is right for you therefore becomes critical. There are a variety of policies available in the market, ranging from Term Endowment and Whole Life Insurance, to Money Back Policies, ULIPs, and Pension plans. Let's see what each of these is about, so that you can consider the one that best suits you. Term Insurance Term Insurance, as the name implies, is for a specific period, and has the lowest possible premium among all insurance plans. You can select the length of the term for which you would like coverage, up to 35 years.

Payments are fixed and do not increase during your term period. In case of an untimely death, your dependents will receive the benefit amount specified in the term life insurance agreement. You can customise Term life insurance with the addition of riders, such as Child, Waiver of Premium, or Accidental Death. Endowment Insurance Endowment Insurance is ideal if you have a short career path, and hope to enjoy the benefits of the plan (the original sum and the accumulated bonus) in your life time. Endowment plans are especially useful when you retire; by buying an annuity policy with the sum received, it generates a monthly pension for the rest of your life. Whole Life Insurance Whole Life Policies have no fixed end date for the policy; only the death benefit exists and is paid to the named beneficiary. The policy holder is not entitled to any money during his or her own lifetime, i.e., there is no survival benefit. This plan is ideal in the case of leaving behind an estate. Primary advantages of Whole Life Insurance are guaranteed death benefits, guaranteed cash values, and fixed and known annual premiums. Money-Back Plan In a Money-Back plan, you regularly receive a percentage of the sum assured during the lifetime of the policy. Money-Back plans are ideal for those who are looking for a product that provides both - insurance cover and savings. It creates a long-term savings opportunity with a reasonable rate of return, especially since the payout is considered exempt from tax except under specified situations. ULIP Unit-linked Insurance Plans (ULIPs), introduced by the private players, are hugely popular, because they combine the benefits of life insurance policies with mutual funds. A certain part of the premium is invested in listed equities/debt funds/bonds, and the balance is used to provide for life insurance and fund management expenses. Pension Plan Insurance companies offer two kinds of pension plans - endowment and unit linked. Endowment plans invest in fixed income products, so the rates of return are very low. Unit-linked plans are more flexible. You can stop contributing after 10 years and the fund will keep compounding your corpus till the vesting date. You can opt for higher exposure in the stock market for your plan if your risk appetite allows it. Lower risk options like balanced funds are also offered. Riders: Comprehensive coverage

In addition to the insurance plan of your choice, you might want to consider additional risk covers, in which case you can you can opt for riders: additional benefits that can be purchased with an insurance policy. Examples of riders include the Term rider, the Accidental Death Benefit rider, and the Critical Illness rider. Choosing the right set of riders ensures a comprehensive insurance cover. When considering a life insurance policy with riders, make sure to understand the exclusions in the policy. For example, under Term Insurance, if the insured person commits suicide, whether sane or insane, within one year from the date of commencement of a term policy, the cover will become void, i.e. the nominee cannot claim the sum assured. Only the premiums paid up to the date of death will be refunded; after deducting the expenses incurred by the insurer for issuing the cover. As important as it is to buy Life Insurance, it is even more important to pay your premiums on time. A life insurance company provides the insured with a grace period of 30 days, i.e. a period of 30 days after the start date of the policy. The insured can pay premium on any day during this grace period. In case the insured dies during the grace period, the insurer is liable to pay the death benefit to the nominee less any amount outstanding (including the unpaid premium). This provision helps the insurer to minimise the risk of policy lapse unintentionally. In these uncertain times, you're better off planning ahead, and securing the future for yourself, and your family. Arm yourself with the facts for an assurance of a lifetime of security.

The various life insurance policies he could choose from are listed below:
Term Insurance
This type of life insurance policy is a contract between the insured and the life insurance company to pay the persons/s he has given entitlement to receive the money, in the case of his/her death, after a certain period of time. These policies can be taken for 5, 10, 15, 20 or 30 years.

Endowment Policy
In an endowment policy, periodic premiums are received by the insured person and a lump sum is received either on the death of the insured or once the policy period expires.

Money Back Life Insurance Policy

This policy offers the payment of partial survival benefits (money back), as is determined in the insurance contract, while the insured is still alive. In case the insured dies during the period of the policy, the beneficiary gets the full sum insured without the deduction of the money back amount given so far.

Group Life Insurance

This is when a group of people have been named under a single life insurance policy. It is popular for an employer or a company to add employees under the same policy. Each member of the group has a certificate as legal evidence of insurance.

Unit Linked Insurance Plan

ULIPs (Unit Linked Insurance Plan) offer the insured the double benefit of protection from risk and investment opportunities. ULIPs are linked to the market where the insureds money is invested to help earn additional monetary benefits.

Wealth Tax Like the income tax, the wealth tax is levied on a yearly basis. This direct tax is imposed on individuals that come within its jurisdiction there are no special wealth tax benefits for pensioners, senior citizens, or retired professionals.

Wealth Tax Rates in India

Wealth tax is normally levied on the basis of the net wealth of the assessee, which could be an individual, a company or a Hindu Undivided Family. At present the rate is 1 percent of the amount that is in excess of INR 15 lakhs. The calculation is done on the basis of a valuation date, which is normally March 31 of the immediately previous assessment year.

Wealth Tax Definition

As per the Income Tax Act the term assessment year signifies the 12 month period that starts from the first day of April in a fiscal. The term net wealth implies the wealth that can be subjected to taxation. It is basically the difference between the total worth of the taxable assets and the aggregate debts that have been incurred on those assets. This calculation does not take into account the exempted assets and is always done on the basis of a valuation date.

Wealth Tax Incidence

The levy of wealth tax is done on the basis of the nationality and residential status of an individual. The residential status of the tax payers is determined according to the provisions mentioned in

Chapter I Supra of the Income Tax Act. If the taxpayer is both a citizen and resident of India, a resident HUF or a company that is based in the country, then the following factors will be taken into consideration while computing the tax:

All property held in India and outside the country All debt in India and outside India will be calculated while deciding on net wealth

The following factors will come into play if the taxpayer is (a) an Indian citizen but either a non resident or non regular resident, (b) a non regular resident or non resident HUF, and (c) a non resident Indian company:

All property in India with the exception of loan and debt interest that has been exempted from income tax as per Section 10 of the Income Tax Act All debts and assets that are outside the country and beyond the Wealth Tax Acts scope All debt incurred within India

The above mentioned factors will also be applicable in case of taxpayers who are not Indian citizens but can be classified as any one of the following:

Resident Not ordinarily resident Non resident

The credit balance of non resident or external accounts is exempted from wealth taxes if the depositors are found residing outside the country, as stated in Foreign Exchange Regulation Act, 1973.

Wealth Tax Assets

The following are regarded as assets that can be subjected to wealth taxes as per Section 2(ea) of Wealth Tax Act:

Commercial buildings and the nearby land Jewelry, furniture, bullion, utensils, and other articles that are either totally or partly made of gold, platinum, silver or any other metal or an alloy of these metals. Ones owned as stock-in-trade will be exempted from this tax Residential buildings and the nearby land Yachts, aircraft, and boat Guest houses and the nearby land Urban land (a) an area that is located within a local authoritys jurisdiction and has at least 10,000 people as per the last census completed before the valuation date. (b) an area within 8 kms of a local authority like the Central Government A farm house located within 25 kms of the local limits of a Cantonment Board and municipality Cash in hand assets - (a) For individuals and HUFs any amount over INR 50 thousand, and (b) for others any cash amount that has not been recorded in accounts Motor cars cars operated on hire or on a stock-in-trade basis will be exempted from taxes

The following are not regarded as assets while computing the wealth tax:

A residential real estate property that has been allocated to a full time employee by either the company or the director or an officer with a gross yearly salary lesser than 5 lakh rupees

A commercial or residential real estate property that is part of a stock-in-trade process Commercial real estate property being used for official or business purposes A residential property that has been put on hire for a minimum of 300 days in the immediately earlier year A commercial complex or establishment A land where construction is illegal A land where the building has been set up with approval from proper authorities An unused land owned for industrial purposes. However, the land should remain unused for 2 years after acquisition A land that has been owned by an assessee for 5 years as a stock-in-trade

According to the section 4(l)(a) of the Wealth Tax Act, 1957 following are regarded as deemed assets:

Assets transferred between spouses Assets transferred as per revocable transfer Assets owned by minors. If a specially-abled child owns any asset it will not be grouped with his or her parents net income and will be assessed separately Assets provided to sons wife or to another person or group of individuals for the benefit of sons wife. Asset that has been transferred to an individual or a group of people. This transfer must benefit the providers or their spouses in either short or long term

The Section 5 of Wealth Tax states the following as being exempted from taxation:

Religious or charitable property owned by a trust or another legal entity Jewelry owned by erstwhile rulers Coparcenary interest in property owned by HUFs Residential property owned by former rulers

Wealth Tax Asset Valuation and Return Filing

For valuation of non cash assets the procedures mentioned in Section 7(2) and Schedule III to the Wealth Tax Act are followed. All liable tax payers need to file net wealth returns in Form A. The dates for filing these returns are normally similar to ones applicable for the income tax returns. If the tax is based on returns, the assessee should pay the taxes prior to filing the same. These returns normally come with proofs of payment.

Wealth Tax: a tax on money, property or investments owned by a person A wealth tax is generally conceived of as a levy based on the aggregate value of all household assets, including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts.[1] A wealth tax is a tax on the accumulated stock of purchasing power, in contrast to income tax, which is a tax on the flow of assets (a change in stock).

Wealth tax is a direct tax, which is charged on the net wealth of the assessee. It is a tax on the benefits derived from ownership of property. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income. Wealth tax, in India, is levied under Wealth-tax Act, 1957. The Income tax department under the Department of Revenue in the Ministry of Finance administers the Wealth Tax Act, 1957 as well as the Wealth Tax Rules framed there under. Under the Act, the tax is charged in respect of the wealth held during the assessment year by the following persons :Individual Hindu Undivided Family(HUF) Company Chargeability to tax also depends upon the residential status of the assessee same as the residential status for the purpose of the Income Tax Act. Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI, mutual funds, etc are exempt from it. The assets chargeable to wealth tax are :Guest house, residential house, commercial building Motor car Jewellery, bullion, utensils of gold, silver etc Yachts, boats and aircrafts Urban land Cash in hand(in excess of 50,000), only for Individual & HUF The following will not be included in Assets :Any of the above if held as Stock in trade. A house held for business or profession. Any property in nature of commercial complex. A house let out for more than 300 days in a year. Gold deposit bond. A residential house allotted by a Company to an employee, or an Officer, or a Whole Time Director ( Gross salary i.e. excluding perquisites and before Standard Deduction of such Employee, Officer, Director should be less than Rs. 5,00,000). The Assets exempt from Wealth tax are :Property held under a trust. Interest of the assessee in the coparcenary property of a HUF of which he is a member.

Residential building of a former ruler. Assets belonging to Indian repatriates. One house or a part of house or a plot of land not exceeding 500sq.mts,for individual & HUF assessee. Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date.(Net wealth means all assets less loans taken to acquire those assets. Valuation date means 31st March of immediately preceding the assessment year). In other words, the value of the taxable assets on the valuation date is clubbed together and is reduced by the amount of debt owed by the assessee. The net wealth so arrived at is charged to tax at the specified rates. Wealth tax is charged @ 1% of the amount by which the net wealth exceeds Rs. 15 Lakhs.

There will be tax incidence on a number of things such as cars, jewellery and paintings. Though most of us tend to focus on income-tax, there is another direct tax all of us are subject to -- the wealth tax. In fact, prior to 1998, another direct tax, the gift tax was also applicable, but it was discontinued. Then, the Finance Act, 2004, brought in what was effectively a gift tax through the back door, by way of income tax. The only difference was that the original gift tax was payable by the donor and the new income tax on gifts is payable by the recipient. This gift-based tax shall be discussed in detail in a later article. This time, we shall examine the largely ignored wealth tax. Essentially, wealth tax is levied on the benefits derived from asset ownership. The tax is to be paid on the market value of the same assets year after year, whether or not these yield any income. Every individual and Hindu Undivided Family whose net wealth (assets less liabilities incurred to acquire the assets) as on March 31 exceeds Rs 30 lakh is required to pay wealth tax at one per cent of the amount that exceeds Rs 30 lakh.

TAXING TIMES
How * If there is a second house which is not being used for business, is stock-in-trade or rented for 300 days a year * If the price of the car/s exceeds Rs 30 lakh for one individual * If one owns ornaments of gold, silver and other precious metals, even if the sown into clothes or used as setting in furniture * Cash balance in excess of Rs 50,000 Solutions * Renting out the second property, if necessary, for a small rental * If there are two cars, buy the second one in wifes name

Note again that wealth tax is payable on the net wealth held as on March 31 of each year. This means it will be applicable on the asset even this was purchased only towards the end of

the year. Conversely, those assets sold during the year and, consequently, not held as on March 31, will escape the levy of wealth tax. The good news is that wealth tax is payable only on what are termed 'unproductive assets'. Consequently assets such as shares, securities, mutual funds and fixed deposits, the 'productive assets', are exempted. Though there is a long list of items such as yachts, boats, aircraft, etc, that are subject to wealth tax, for our purposes we shall only consider assets that are commonly owned such as real estate, jewellery and cars. House property Just like in income tax law, one house is exempt from wealth tax. In other words, ownership of more than one house will attract wealth tax liability on the second house onwards. There are three exceptions. If a property is used for conduct of business or a profession or if it forms a part of stock-in-trade or has been rented out for at least 300 days in the year, wealth tax is not applicable on such property. A friend of mine has two houses, one in Mumbai and the other at his native place in Chennai. His parents live in the Chennai property, which is valued at over Rs 50 lakh. By way of tax planning, he has asked his parents to pay him a token rent of Rs 4,500 per month, thereby escaping the wealth tax liability. The rental income will be taxable in his hands but is lesser than the wealth tax liability that would otherwise be payable. Of course, the rent paid by his parents is returned back to them at the end of the year by way of a gift, as gifts between relatives is tax-free. If this arrangement isn't possible, the house with the higher valuation can be claimed as exempt, leaving the one with the lower valuation subject to wealth tax. Also note that wealth tax is applicable on net wealth, after deducting any liabilities or debt owed to acquire the assets. Therefore, if any house subject to wealth tax has been purchased using housing finance, the value of the loan due is deductible while arriving at the figure of net wealth. Cars The tax in this case would be applicable at the market price of the car. Exceptions are those used in a car-hire business. So, if you already own a car and intend to purchase another, such that the total value of your cars would go beyond Rs 30 lakh, buy in the name of your spouse or any other family member, such that wealth is spread and the optimum benefit of the basic exemption of Rs 30 lakh can be claimed. Jewellery In this case, these include ornaments made of gold, silver, platinum or any other precious metal and/or precious or semi-precious stones. Such items, even if sown into clothes or set into furniture, have to be considered for wealth tax purposes. Incidentally, cash in hand in excess of Rs 50,000 is also subject to wealth tax. Finally If you find yourself liable for wealth tax, merely transferring the asset to your spouse will not help. Clubbing provisions similar to those applicable in income tax law are also applicable in the case of wealth tax. Therefore, any assets gifted to spouse, minor child or son's wife will be, notwithstanding the gift, deemed to belong to the taxpayer.
Income Tax: Annual charge levied on both earned income (wages, salaries, commission) and unearned income (dividends, interest, rents). In addition to financing a government's operations, progressive income

taxation is designed to distribute wealth more evenly in a population, and to serve as automatic fiscal stabilizer to cushion the effects of economic cycles. Its two basic types are (1) Personal income tax, levied on incomes of individuals, households, partnerships, and sole-proprietorships; and (2) Corporation income tax, levied on profits (net earnings) of incorporated firms. However, presence of tax loopholes (whose number increases in direct proportion to the complexity of tax code) may allow some wealthy persons to escape higher taxes without violating the letter of the tax laws.

Types of share capital

Authorised share capital is also referred to, at times, as registered capital. It is the total of the share capital which a limited company is allowed (authorised) to issue. It presents the upper boundary for the actually issued share capital. o Shares authorised = Shares issued + Shares unissued Issued share capital is the total of the share capital issued (allocated) to shareholders. This may be less or equal to the authorised capital. o Shares outstanding are those issued shares which are not treasury shares. These are all the shares held by the investors in the company.[2] o Treasury shares are those issued shares which are held by the issuing company itself, the usual result of a buyback. o Shares issued = Shares outstanding + Treasury shares

Issued capital can be subdivided in another way, examining whether it has been paid for by investors:

Subscribed capital is the portion of the issued capital, which has been subscribed by all the investors including the public. This may be less than the issued share capital as there may be capital for which no applications have been received yet ("unsubscribed capital"). Called up share capital is the total amount of issued capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by instalments. Paid up share capital is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in instalments ("calls-in-arrears") .

The different types of Factoring are as follows: For International Trade 1. Full Factoring 2. Recourse Factoring 3. Maturity Factoring 4. Advance Factoring 5. Undisclosed Factoring 6. Invoice Discounting 7. Bulk Factoring 8. Agency Factoring A. Domestic Factoring Factoring can be both domestic and for exports. In domestic Factoring, the client sells goods and services to the customer and delivers the invoices, order, etc., to the Factor and informs the customer of the same. In return, the Factor makes a cash advance and forwards a statement to the client. The Factor then sends a copy of all the statements of accounts, remittances, receipts, etc., to the customer. On receiving them the customer sends the payment to the Factor. Different types of Domestic Factoring are as follows: 1. Full Factoring

This is also known as "Without Recourse Factoring ". It is the most comprehensive type of facility offering all types of services namely finance sales ledger administration, collection, debt protection and customer information. 2. Recourse Factoring The Factoring provides all types of facilities except debt protection. This type of service is offered in India. As discussed earlier, under Recourse Factoring, the client's liability to Factor is not discharged until the customer pays in full. 3. Maturity Factoring It is also known as "Collection Factoring ". Under this arrangement, except providing finance, all other basic characteristics of Factoring are present. The payment is effected to the client at the end of collection period or the day of collecting accounts whichever is earlier. 4. Advance Factoring This could be with or without recourse. Under this arrangement, the Factor provides advance at an agreed rate of interest to the client on uncollected and non-due receivables. This is only a pre-payment and not an advance. Under this method, the customer is not notified about the arrangement between the client and the Factor. Hence the buyer is unaware of factoring arrangement. Debt collection is organized by the client who makes payment of each invoice to the Factor, if advance payment had been received earlier. 6. Invoice Discounting In this arrangement, the only facility provided by the Factor is finance. In this method the client is a reputed company who would like to deal with its customers directly, including collection, and keep this Factoring arrangement confidential. The client collects payments from customer and hands it over to Factor. The risk involved in invoice discounting is much higher than in any other methods. The Factor has liberty to convert the facility by notifying all the clients to protect his interest. This service is becoming quite popular in Europe and nearly one third of Factoring business comprises this facility. 7. Bulk Factoring It is a modified version of Involve discounting wherein notification of assignment of debts is given to the customers. However, the client is subject to full recourse and he carries out his own administration and collection. 8. Agency Factoring Under this arrangement, the facilities of finance and protection against bad debts are provided by the Factor whereas the sales ledger administration and collection of debts are carried out by the client. B. International Factoring

Traditionally international trade is based on Letters of Credit. When the exporter knows the importer well with repetitive transactions, he may be willing to export on ' Open Account ' basis. On open account the exporter ships the goods without letter of credit or advance payment. Hence, it is credit risky for exporter. If credit is extended (say 90 days since), the exporter will be quite reluctant as he encounters a credit risk and hence invariably insists on L/C. In advanced countries bankers do not make much of a distinction between fund-based and non-fund based facilities and hence if they have to open L/C's it may be at the cost of a reduced overdraft or bills limit for the importer. The system of L/C's operates on the "Doctrine of Strict Compliance " which means the Letter of Credit opening bank will pay money to the exporter only when all the conditions listed in the Letter of Credit document are satisfied by the exporter/shipper of goods. In many cases, the documents fail to pass the grade which means the exporter has simply lost the security available to him under the L/C. Further, now-a-days, goods move very fast and hence if documents are held up in banks for processing, it causes delay and inconvenience to the importer. In the light of the above, international trade has slowly started moving from cash to credit, and from L/C's to open account sales. International Factoring is a service which helps the exporter and importer to trade on open account terms. Types of International Factoring The following are the important types of International Factoring. The client can choose any type of international factoring depending upon exporter - client needs and his price bearing capacity. Two Factor Systems This is the most common system of international factoring and involves four parties i.e., Exporter, Importer, Export Factor in exporter's country and Import Factor in Importer's country. The functions of the export Factor are: i. Assessment of the financial strength of the exporter ii. Prepayment to the exporter iii. Follow-up with the Import Factor iv. Sharing of commission with the import Factor The functions of the Import Factor are: i. Maintaining the books of the exporter in respect of sales to the debtors in his country ii. Collection of debts from the importer and remitting the proceeds to the exporter's Factor iii. Providing credit protection in case of financial inability on the part of any of the debtors

1. Single / Direct Factoring System In this system, a special agreement is signed between two Factoring companies for single Factoring. Whereas in Two Factor System, credit is provided by import Factor and prepayment, book keeping and collection responsibilities remain with export Factor. For this system to be effective there should be strong co-ordination and co-operation between two Factoring companies. Pricing is lower when compared to Two Factor System. 2. Direct Export Factoring Here only one Factoring company is involved, i.e., export Factor, which provides all services including finance to the exporter. 3. Direct Import Factoring Under this system, the seller chooses to work directly with Factor of the importing country. The Factoring agreement is executed between the exporter and the import Factor. The import Factor is responsible for sales ledger administration, collection of debts and providing bad debt protection up to the agreed level of risk cover. 4. Back to Back Factoring It is a very specialized form of International Factoring, used when suppliers are selling large volumes to a few debtors for which it is difficult to cover the credit risk in International Factoring. In this case, International Factor can sign a domestic Factoring agreement with the debtor whereby it will be getting the receivables as security for the credit risk taken in favour of Export Factor.

Types of factoring
Direct Purchase of Receivables by the Bank Under an individually structured forfaiting model, BayernLB may purchase both short-term and long-term accounts receivable. The volume of receivables should not be less than EURO 10 million. Purchase of Receivables by a Factoring Company BayernLB can connect you with a suitable company that offers the following, standardised types of factoring: Full-Service Factoring (standard factoring) Classic factoring includes all the functions of factoring. That means that it covers financing, assumption of the default risk and takeover of your receivables management responsibilities. Bulk Factoring and/or In-House Factoring The factoring customer makes use of the financing and the receivables risk mitigation, but foregoes any further services. Security or Maturity Factoring Along with risk mitigation, this variation also includes the takeover of receivables management. Here, the prefinancing of receivables that are not yet due is dropped.

True vs. Quasi Factoring In contrast to quasi factoring, in true factoring, the factor assumes the default risk (nonrecourse purchase of receivables). Only true factoring leads to off-balance-sheet financing. In Germany, true factoring is practiced almost exclusively. Direct-Notification Factoring vs. Non-Notification Factoring Under the direct-notification method of factoring, the debtor is informed that the receivables have been sold. At the same time, upon maturity, he must pay the amount due to the factor. Under non-notification factoring, on the contrary, there is no disclosure. This form is very rare in Germany. Export Factoring vs. Import Factoring Factoring can be applied to both domestic and international trade in goods and services. Export factoring comes into play when a domestic company (the exporter) uses factoring services. If foreign companies use factoring services in Germany for import transactions, this would be referred to as import factoring.

factoring
Short-term, non-bank financing of accounts-receivable. It is of four main types: (1) In maturity factoring (also called service factoring), the factor maintains the seller's sales ledger, controls credit, follows up on the payments, and pays the amount (after deducting a commission) of each invoice as it falls due, whether or not the payment was collected. (2) In finance factoring, the factor (called the financing factor) advances funds to a producer or a manufacturing firm, on the security of produce or goods that will be produced or manufactured utilizing those funds. (3) In discount factoring (also called service plus finance factoring) the factor advances a percentage (usually between 70 to 85 percent of the value of accounts receivable) to the seller on a non-recourse basis and assumes the full responsibility of collecting the debts. (4) In undisclosed factoring, a factor buys the goods from a primary party (producer, manufacturer, or seller) and then appoints the same party as its agent to resell those goods and to collect the payments. This arrangement prevents the disclosure that goods are being sold under a factoring agreement. The undisclosed factor, as in all other types of factoring, remains liable for uncollectible payments. Factoring is a type of 'off balance sheet financing.' See also discounting of accounts receivable and forfaiting.

In share market, when someone takes a position, one may be hopeful that price of a share will go up or go down. One may want to take delivery of shares for longer time even though one may not have the money now. Similarly, someone may want to sell shares now anticipating fall of share prices in future even though that person does own those shares. These are the situations where Badla was at rescue for Indian Stock Exchange. Badla has two variants Vyaj Badla and Undha Badla.

1. Vyaj Badla
Suppose person A bought 1 share of company C for Rs 1000 in a weekday. He had time until Friday to make final payment and take the delivery or square off his position. However, the person does not have Rs 1000 and he anticipates that price of this share will go higher. If by

Friday, price of the share reaches Rs 1100 and the person does not want to square off his position then he may request broker to arrange for badla. On Saturday, special trading session was organized called Badla Session in which all the trades that were not squared off the day before were presented. Last price of Friday would become Hawala Price (the price at which one could take delivery). Financers would quote for the premium they will charge for financing the price of shares of company C. Suppose financers quoted Rs 3.80 premium for next trading cycle. Person A will be given difference between the price he purchased the share of company C and hawala price. If the difference comes out to be negative then person A will need to pay the balance to financer. The shares will be retained by exchange. Person A can make the payment of Hawala price + Badla premium to take delivery of share in next trading session.
Illustration of when price of share escalates

Price of share on the day of purchase of share = Rs 1000 Hawala Price (the closing price on last settlement day Friday) = Rs 1100 Badla Price (premium, say 18% per annum for 1 week on Hawala Price) = Rs 3.80 Money given to buyer in Badla session = Hawala price price of share on day of purchase = Rs 1100 1000 = Rs 100 Price at which buyer can get delivery = Hawala Price + Badla Price = Rs 1100 + Rs 3.80 = Rs 1103.80 Suppose price of share next week reaches to Rs 1300 then buyer will be at benefit because he would bought the shares at Rs 1003.80. He will make a profit of Rs 296.20 (1300-1003.80).
Illustration of when price of share falls

Price of share on the day of purchase of share = Rs 1000 Hawala Price (the closing price on last settlement day Friday) = Rs 900 Badla Price (premium, say 18% per annum for 1 week on Hawala Price) = Rs 3.11 Money given by buyer in Badla session = Price of share on day of purchase Hawala price = Rs 1000 900 = Rs 100 Price at which buyer can get delivery = Hawala Price + Badla Price = Rs 900 + Rs 3.11 = Rs 903.11 Suppose price of share next week reaches to Rs 1300 then buyer will be at benefit because he would have bought the shares at Rs 1003.11 (903.11+100). He will make a profit of Rs 296.89 (1300-1003.11).

2. Undha Badla
Suppose person A anticipates that price of share of company C trading for Rs 1000 will fall further and he does not want to deliver his shares or does not have the shares of company C then he may go for Undha Badla. He will sell shares of company C on any weekday say at

price Rs 1000 and he has time until end of week to deliver the shares to buyer. On Badla session on Friday, his broker will call for any broker whose client (say person B) would be willing to given loan of shares of company C to person A. The person who will give that loan of shares will ask for Badla premium and lend the shares to person A. Suppose price of share has already fallen to Rs 900 on Friday (Hawala Price) then person A will get difference between the price of selling of shares of company C and hawala price. If the price of share has risen to Rs 1100 then he will need to give away the difference to the person who lent him the shares. The money earned by delivery of shares (Hawala Money) will be kept with exchange. At the time of settlement person A will deliver the shares of company C and the exchange will pay person A the hawala price badla premium.
Illustration of when price of share escalates

Price of share on the day of selling of share = Rs 1000 Hawala Price (the closing price on last settlement day Friday) = Rs 1100 Badla Price (premium, say 18% per annum for 1 week on Hawala Price) = Rs 3.80 Money given by seller A in Badla session = Hawala Price Price of share on day of selling = Rs 1100 1000 = Rs 100 Hawala money retained with exchange = Rs 1100 Suppose price of share falls next week to Rs 700 then person A may buy the shares at Rs 700 and return the shares to exchange and get Rs 1000 badla price making a profit of Rs 296.20 (Rs 1000-700-3.80).
Illustration of when price of share falls

Price of share on the day of selling of share = Rs 1000 Hawala Price (the closing price on last settlement day Friday) = Rs 900 Badla Price (premium, say 18% per annum for 1 week on Hawala Price) = Rs 3.11 Money given to seller in Badla session = Price of share on day of purchase Hawala price = Rs 1100 1000 = Rs 100 Hawala money retained with exchange = Rs 900 Suppose price of share falls next week to Rs 700 then person A may buy the shares at Rs 700 and return the shares to exchange and get Rs 1000 badla price making a profit of Rs 296.89 (1000-700-3.11).

Does it still work?

No, Badla has been banned in India permanently (it was banned twice before it was finally banned forever). The reasons cited for banning of badla are as follows:

1. Deciding badla price was out of control of regulator (SEBI). The deal was covertly done by financers, speculators and brokers. 2. Badla is the indigenous Indian technique and world over markets used derivates and futures. Badla had to be abolished to make room for standard techniques. 3. After some big scams such as bull run caused by Harshad Mehta and Ketan Parekh, Badla was thought to be a cause in those scams. It is believed that SEBI wanted to look decisive in front of JPC constituted to investigate the cause of scams. 4. According to one opinion, this system instituted the worst of both the spot (cash) and future market.

The concept of Badla: Badla, in common parlance, is the Carry-Forward system which means getting something in return. The badla system of transactions has been in practice for several decades in the Stock Exchange, Mumbai. The badla system serves an important need of the stock market. If an investor feels that the price of a particular share is expected to go up or down, without giving or taking the delivery he can participate in the possible fluctuation of the share. Financing in Badla, in effect, has two aspects to it, namely 1. Seedha badla or Vyaj badla- Here the financiers participate 2. Undha badla - Here the stock lenders participate. What is Badla? In the badla system, a position is carried forward, be it a short sale or a long purchase. In the event of a long purchase, the market player may want to carry forward the transaction to the next settlement cycle and for doing this he has to compensate the other party in the contract .The 'seedha badla' financier enters into the system to lend money to the market player for a return. This is measured as interest on the funds made available for one settlement cycle, i.e. one week or a longer period in case of book closure badla system. Similarly 'undha badla' or contango charges are returns paid by the stock borrower to the stock lender. In a short sale, when the market player wants to carry forward the transaction to the next settlement cycle, he has to borrow the stocks to compensate the other party in the contract. The charge paid on the borrowed stock is called contango charges. How is Baadla done ? On every Saturday in the Stock Exchange, Mumbai, a badla session is held. The scrip in which there are outstanding positions is listed along with the quantities outstanding. Depending on the demand and supply of money, the carry forward rates are determined. If the market is over bought, the demand for funds is more and the badla rates tend to be high. However, when the market is oversold , the badla rates are low or even reverse i.e. there is a demand for stocks and the person who is ready to lend stocks gets a return for the same. This is known as the undha badla. We can use an example to illustrate the concept of badla trading. You have purchased 100 shares of INFOSYS for Rs 7000, which is trading at Rs 7180 in the market at the end of the trading session which runs from Monday to Friday in BSE. You feel that the stock price will rise further. Therefore you wish to carry the contract forward to the next trading session by paying what are called badla charges. In any badla transaction there are two key elements, the hawala rate and the badla charge for the scrip. The badla charge is the interest payable by the investor for carrying forward the position. The badla charge, as explained earlier, is market determined and primarily dependent on the supply of funds for financing a share. It is fixed individually for each scrip by the exchange every Saturday and it is calculated on what is called the hawala rate.The hawala rate is the price at which a share is squared up in the current settlement and carried forward into the next settlement in the next

trading session. The existing position you have is squared up against the hawala rate fixed and carried forward after factoring in the badla rate. The difference is paid to your broker or received from him. You have purchased 100 shares of INFOSYS at Rs.7000 in the current settlement and you wish to carry it forward to the next settlement. You have indicated to your broker that you wish to carry forward the transaction. The hawala rate is fixed at Rs.7180 and the badla rate say is fixed at Rs.24.23 for the settlement usually a week. The badla charge works out to an annualised rate of 18%, but badla is usually denoted in actual cash terms. In this case, the badla charges accrues to the investor. If the hawala rate is lower than the initial rate, the difference has to be paid to the broker. In actual practice, your broker will request you to maintain a margin for arranging the badla finance. There can be other charges too and it can vary from broker to broker. All the charges apart from the badla charges depend on your relationship with your broker. The amount of leverage you get, effectively, depends on the margin insisted upon by your broker. If your broker insists on a 25% margin, you get 400% leverage or four times the amount you are ready to deposit as margin. At the end of each settlement, you carry forward your position at the hawala rate. This position will also be adjusted for badla. You can carry forward the transactions for settlements. CONCLUSION : More than anything, it is important to note that, the mechanism of badla financing can be a bit complicated when bonus, rights, dividends are declared or when books are closed. Therefore it is always advisable to understand the process fully before venturing into this area. It is meant for active investors with a leaning towards speculation. This automatically implies a certain capacity to bear losses. One should look more closely and carefully, consider his/her actions and obtain a judicious mix of experience, expert opinion and knowledge before venturing into badla.

Badla versus futures

B. Venkatesh SEBI has banned badla trading and proposes to introduce futures in its place. What is badla trading and how does it compare with futures? Suppose you buy 1,000 shares of Infosys at Rs 3,500, your cash outflow is Rs 35 lakh. Instead of paying cash, you can ask your broker to find a borrower to finance your trade. This process of buying stocks with borrowed money is badla trading. The stock exchange acts as an intermediary between you and the actual lender. You will be charged an interest rate for borrowing, which will be determined by the demand for that stock under badla trading. Thus, higher the demand for Infosys under badla trading higher will be the interest rate. You can keep your borrowing unpaid for a maximum of 70 days, after which you will have to repay the badla financier through the exchange. Those familiar with futures will immediately recognise its similarity with badla trading. Suppose SEBI introduces single-stock futures, you can buy, say, 10 Infosys futures that will at maturity give you 1,000 Infosys shares on payment of money. You will initially pay a margin and buy 10 futures contract. This is similar to the broker placing a margin on badla trades. The futures contract will be marked-to-market on a daily basis. This means that if you buy Infosys futures today at Rs 3,750 and the price in the futures market goes up to Rs 3,800 the next day, you will have to deposit with your broker Rs 50 (3,800-3,750) times 10 (the number of futures contract).

You will likewise receive money if the futures price goes below Rs 3,750. Of course, in badla trading, it is the broker who has to maintain a marked-to-market margin and not the buyer/seller as in the case of futures. In essence, however, both futures and badla system allow investors to buy stocks without huge cash outflow. In other words, both help in leveraged trades. It is, perhaps, due to this similarity that SEBI has decided to ban badla and introduce futures in line with the trends in developed countries.

Badla was an indigenous carry-forward system invented on the Bombay Stock Exchange as a solution to the perpetual lack of liquidity in the secondary market. Badla were banned by the Securities and Exchange Board of India or SEBI in 1993 (effective March 1994), amid complaints from foreign investors, with the expectation that it would be replaced by a futures-and-options exchange.[1] Such an exchange was not established and badla were legalized again in 1996 (with a carry-forward limit of Rs 20 crore per broker) and banned again on July 2, 2001, following the introduction of futures contracts in 2000.[2][3] Badla trading involved buying stocks with borrowed money with the stock exchange acting as an intermediary at an interest rate determined by the demand for the underlying stock and a maturity not greater than 70 days. Like a traditional futures contract, badla is a form of leverage; unlike futures, the brokernot the buyer or selleris responsible for the maintenance of the marked-to-market margin.[4] The mechanism of badla finance can be explained as follows: Suppose A has to buy 100 shares of a company at Rs 50 each. But he doesn't have enough money now. But the value of shares is very less now, so in order to buy the shares at current prices, A can do a badla transaction. Now there is a badla financier B who has enough money to purchase the shares, so on A's request, B purchases the shares and gives the money to his broker. The broker gives the money to exchange and the shares are transferred to B. But the exchange keeps the shares with itself on behalf of B. Now, say one month later, when A has enough money, he gives this money to B and takes the shares. The money that A gives to B is slightly higher than the total value of the shares. This difference between the two values is the interest as badla finance is treated as a loan from B to A. The rate of interest is decided by the exchange and it changes from time to time.

Cooperative form of organisation offers the following advantages: 1. Ease of formation: It is quite easy to form a cooperative society. Any ten adults can join together and form themselves into a cooperative. Very little time and money are required to get a cooperative registered. The legal formalities are very few and simple. 2. Open membership: Any person having a common interest can become members of a cooperative society and can leave the society at his own pleasure. No discrimination is made on the basis of caste, creed, religion or political affiliation. The cost of a share is low and even poor persons can buy it. 3. Limited liability: The liability of every member is limited to the extent of his share in the society's capital. Therefore, the risk faced by every member is limited and known.

4. Continuity and stability: After registration, a cooperative society becomes a separate legal entity. The death, lunacy, or insolvency of a member does not affect its existence. Therefore, it enjoys continuity of operations. 5. Democratic management: Management of a cooperative society is fully democratic. Every member has an equal vote or voice irrespective of his capital contribution. The principle of 'one man one vote' is followed. A small group of members cannot dominate the control of the society. 6. Internal financing: A large part of the profit of a cooperative society is transferred to general reserve every year. Dividend on capital cannot exceed ten per cent. Therefore, plouging back of profits facilitates the expansion and growth of the society. 7. Low operating costs: The office bearers of a cooperative society offer honorary service. Therefore, cost of management is low. Cash trading avoids bad debts and there is no need to maintain huge stocks. As customers are primarily the members themselves there is saving in advertising and selling expenses. Elimination of middlemen also adds to economy of operations. 8. Cheaper and better supplies: Cooperative societies supply better quality goods at cheaper rates. Due to service motive, the focus is on the welfare of members. Surplus is also shared by the members on equitable basis. 9. State patronage: The Government provides several concessions to cooperative societies in the matter of taxes, finance, etc. A cooperative society enjoys special privileges and exemptions. 10. Social utility: Cooperatives are non-competitive organisations. They promote personal liberty, social justice and mutual cooperation. They help to prevent concentration of economic power in a few hands. Cooperative undertakings also serve as a training ground for self-government. They foster fellow feeling, self help, thrift and moral values among the members. What is a co-operative bank ? According to the International Co-operative Alliance Statement of co-operative identity, a co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Co-operatives are based on the values of self-help, selfresponsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility

and caring for others. The 7 co-operative principles are : 1. 2. 3. 4. 5. 6. 7. Voluntary and open membership Democratic member control Member economic participation Autonomy and independence Education, training and information Co-operation among Co-operatives Concern for Community

A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts...). Co-operative banks differ from stockholder banks by their organization, their goals, their values and their governance. In most countries, they are supervised and controlled by banking authorities and have to respect prudential banking regulations, which put them at a level playing field with stockholder banks. Depending on countries, this control and supervision can be implemented directly by state entities or delegated to a co-operative federation or central body. Even if their organizational rules can vary according to their respective national legislations, co-operative banks share common features :

Customer's owned entities : in a co-operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. As a consequence, the first aim of a co-operative bank is not to maximise profit but to provide the best possible products and services to its members. Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services. Democratic member control : co-operative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the co-operative principle of "one person, one vote". Profil allocation : in a co-operative bank, a significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the co-operative members, with legal or statutory limitations in most cases. Profit is usually allocated to members either through a patronage dividend, which is related to the use of the co-operative's products and services by each member, or through an interest or a dividend, which is related to the number of shares subscribed by each member.

Co-operative banks are deeply rooted inside local areas and communities. They are involved in local development and contribute to the sustainable development of their communities, as their members and management board usually belong to the communities in which they exercise their activities. By increasing banking access in areas or markets where other banks are less present - SMEs, farmers in rural areas, middle or low income households in urban areas - co-operative banks reduce banking exclusion and foster the economic ability of millions of people. They play an influential role on the economic growth in the countries in which they work in and increase the efficiency of the international financial system. Their specific form of enterprise, relying on the above-mentioned principles of organization, has proven successful both in developed and developing countries.

In the organised sector of the Indian money market, co-operative banks and commercial banks are parallel financial institutions. Both render almost identical banking functions of deposit mobilisation, provision of remittance facilities, and advancing of loans. Nevertheless, both institutions are distinct in nature, scope and operations. We may distinguish between co-operative banks and commercial banks on the following counts: 1. Commercial banks are joint-stock banks. Co-operatives banks, on the other hand, are cooperative organisations. 2. Commercial banks are governed by the Banking Regulation Act. Co-operative banks are governed by the Co-operative Societies Act of 1904. 3. Commercial banks are subject to the control of the Reserve Bank of India directly. Cooperative banks are subject to the rules laid down by the Registrar of Co-operative Societies. 4. Co-operative banks have lesser scope in offering a variety of banking services than commercial banks. 5. Commercial banks in India are on a larger scale. They have adopted the system of branch banking, so they have countrywide operations. Co-operative banks are relatively on a much smaller scale. Many co-operative banks follow only unit-bank system, though there are cooperative banks with a number of branches but their coverage is not countrywide. 6. Commercial banks in India are of two types: (i) public sector banks and (ii) private sector banks. Co-operative banks are private sector banks. 7. Commercial banks mostly provide short-term finance to industry, trade and commerce, including priority sectors like exports, etc. Co-operative banks usually cater to the credit needs of agriculturists. 8. Co-operative banks offer a slightly higher rate of interest to their depositors than commercial banks. 9. In co-operative banks, borrowers are member shareholders, so they have some influence on the lending policy of the banks, on account of their voting power. Borrowers of commercial banks are only account- holders and have no voting power as such, so they cannot have any influence on the lending policy of these banks. 10. Co-operative banks have not much scope of flexibility on account of the rigidities of the bye-laws of the Co-operative Societies. Commercial banks, on the other hand, are free from such rigidities.