YOU ARE ON THE NEW NSE WEBSITE, ACCESS THE OLD WEBSITE ON THE URL www1.nseindia.com OR CLICK HERE
Accessibility
Feedback

Welcome to your Journey of Creating Wealth

The key to achieving your wealth creation goals is to empower yourself with the right knowledge and its use.  Creating wealth for the long-term can be simple when an expert holds your hand through the process.

Given your life stage, your life’s and financial goals may vary. From higher education to a wedding, child’s expenses to retirement, planning investments for each stage is important.

A common question that often arises is Where do I invest money?

NSE is happy to guide in you in the journey of investing safely. We are here to answer queries related to making the most of the financial market. Our aim is to empower you with knowledge so that you too can become a confident investor.

Ideally, a major portion of your income should go towards savings. The money you earn is partly spent and the rest saved for meeting future expenses. But these savings are not idle and can actually make money for you. Nowadays, one has multiple ways of investing in some of the best investment options and plans available in the market. Investment plans are a way to park your savings so that they may give you financial gains in the future.

Why should you invest?

Investing is a sure way to let your money grow and reap returns over time. Apart from this reason, let’s explore various reasons why you should look at more investment avenues:

  1. Your otherwise idle funds can reap returns for you.
  2. You can invest in different products to fulfil a  future life goal.
  3. They are a provision to secure an uncertain future.

Inflation is another important reason to secure your financial future. Inflation causes money to lose value. Inflation is the rate at which cost of living rises making it expensive to buy goods and services to meet your daily needs.  This is because with inflation, a value of 100 rupees today will not buy the same amount of a goods or a service in the future, as it does currently, or as it did in the past.

Imagine the following scenario:

Inflation Rate Per Year

Year

Amount

    6%

2018

Rs 100

    6%

2038 Rs 321*

*FV=PV (1+i)n              

If we consider a 6% inflation rate per year for the next 20 years, what Rs 100 can buy in 2018 will cost Rs 321 in 2038. This is why it is important to consider inflation while planning long-term investment.

Furthermore, an investment’s ‘real’ rate of return, the return after inflation, must be considered. The return on investments should be above the inflation rate to ensure that the investment does not decrease in value. That is why it is important to first explore the best investment options available for you.

Watch our video on Inflation

The three golden rules for all investors are:

  • Invest early.
  • Invest regularly.
  • Invest for the long term.

Creating wealth, and getting returns on investment, takes time and patience. Ideally, start investing as young as possible. But it’s also never late to begin this journey. By investing early, you give your investments a lot of time to bear fruit. The power of compounding works in the favour of long-term funds and grows them. This happens when the principal is accumulated, and interest and/or dividend is earned on it, year after year.

Investing money in the right plans can get tricky. We have defined 12 important factors that you should consider before investing:

  1. Get written documents explaining the investment.
  2. Read and understand the documents.
  3. Verify the legitimacy of the investment.
  4. Find out the costs and benefits associated with it.
  5. Assess its risk-return profile.
  6. Be aware of the liquidity and safety aspects of the investment.
  7. Ascertain if it is appropriate for your specific goals.
  8. Compare its details with other investment opportunities.
  9. Examine if an investment fits your current or future portfolio.
  10. Deal only through an authorised intermediary.
  11. Clarify your doubts with the intermediary and invest only if you are comfortable. Refuse to invest if you are not convinced.

Explore other options should something go wrong. Invest only when you are completely satisfied.

What are the best investment options available to you?

There is some kind of investment plan for everyone. Today, there are various types of investment options that answer the question, “Where should I invest my money?” You may invest in:

  • Physical assets such as real estate, gold or jewellery, commodities, etc.
  • Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance, provident or pension funds, instruments in the securities market such as shares, bonds, debentures, mutual funds, etc.

Investment Options

Short-term Investments

Long-term Investment

  • Savings Bank Account
  • Money Market Funds
  • Bank Fixed Deposits
  • Post Office Savings
  • Public Provident Fund
  • Company Fixed Deposits
  • Bonds and Debentures
  • Mutual Funds
  • Life Insurance Policies
  • Equity Shares

Let’s break down each of the above types of investments and note their pros and cons.

Opportunity

Risk

In India, “buy gold” is often advised when investment options are discussed. Investment in physical gold is the easiest form of parking your savings. Conventional wisdom says that over the long term, gold as an investment does appreciate and give higher returns. Furthermore,  gold can be converted into jewellery for personal use and be easily mortgaged for loans, if the need may arise.

Gold prices depend on macro-economic factors. There is a possibility of encountering less transparency in terms of its quality while buying and selling physical gold. Gold carries high risk of theft; storing and maintaining it may also be expensive. There is no tax advantage on gold investment. Moreover no regular income can be earned with gold.

Opportunity

Risk

As one of the three necessities of life, there is low instability with investment in property. The market price of a property increases gradually making it a steady choice of investment. Its value can be increased through renovation and repairs. Mortgaging property is easy and it can generate regular income through rent.

Income tax benefit <to check >

You may need to invest a large amount of your savings to purchase a property. The transaction cost is high on account of stamp duty and registration charges. The cost of maintaining a property is high. If an emergency were to arise, it may be difficult to sell a property immediately.

Opportunity

Risk

Fixed deposit interest rates are predetermined. Fixed deposits can be locked for specified periods of time to ensure that your money is safeguarded and you gain reasonable returns. They can be easily converted to savings.

While fixed deposits guarantee returns, the amount they yield is usually lower than other short-term investments. You may be charged if you withdraw your fixed deposit before it matures or you may get a lower fixed deposit interest rate on the amount. Fixed deposit interest is taxable.

Opportunity

Risk

Investment in a stock market can yield relatively higher returns; it is also highly liquid. You can begin with as little as Rs 1000. Your money is handled by professional fund managers who are well versed with share market investment avenues. You can enjoy efficient post tax returns on investment. Tax is exempt for long-term capital gains over one year.

Short-term investment in the share market is highly risky as there is a high volatility. It may be difficult to pick the right stocks.

 


A stock market is a public market where a company’s stock is traded among investors who want to buy and sell it. The goal of a share market is to facilitate the exchange of securities between buyers and sellers (at a mutually acceptable price) and reduce the risks of investing.

The stock market, or equity, enables investors to increase their income without the high risk of entering a business that usually comes with high overheads and start-up costs. In a stock market, shares of companies that are publicly owned can be bought and sold on stock exchanges. Most public companies make use of their local stock exchanges as a platform to publicly list their company for capital gains.

Trading in a stock market can be a win-win for companies that want to raise capital and for investors, who want to increase their income without taking resource-intensive risks.

Let’s explore the two types of stock markets that exist in India.

Type of Markets

The primary market is where securities are initially created. This is an open stock market where a company’s shares are offered and sold for the first time. The company issuing the shares directly sells them here. Precedence as a primary listed company lends credibility to a company thus opening doors to investors who may be interested in investing. The primary market is dominated by the large investment institutes such as investment banks, hedge funds, etc.

Selling and buying of shares that are already owned by investors is the typical idea of this market. In the secondary market, investors trade in stocks themselves. Furthermore, the company previously selling the stock is not a direct participant in the transaction. Note that stocks of a company are also sold on the primary market as that is where they are initially issued from.

Shares may be issued by a company to raise money for future projects or if one of its owners has chosen to dilute their stake in the company. These shares are purchased by investors who believe they can reap future profit that the company may make. Profit can be made in the form of dividends or capital gain when the stock price of the share increases and the investor sells.

Let’s use an example to help you understand how shares work.

Ajay is the founder of Ajay Textiles, a garment business in Mumbai, India.

He has established his business and has a steady clientele. But to grow across India, he needs Rs 1 crore of capital.Ajay narrowed down to two options to raise these funds: borrow money from a bank at a high interest rate or raise it from friends and family. He finally goes for the latter option.  He convinces his closest friends, Mahesh, Rahul and Vikas, to invest, after presenting a detailed business plan to them. They find it a great business opportunity and agreed to invest Rs 50 lakhs, Rs 30 lakhs, and Rs 20 lakhs, respectively. However, he didn’t want to cause a strain on his relationships and so, he came up with a plan. He decided that each person would be made partner in the business based on the amount they contributed.

He made them shareholders of his company.

Thus, Ajay raised interest-free capital and his friends got a share of ownership.

A few months later, Mahesh urgently needed his share of the investment back because he has a personal emergency. But because Ajay’s business expansion plans were still in motion, he was not in a position to repay Mahesh. During this period, another friend of Ajay’s, Ramesh, had taken keen interest in his business. He offered to buy out Mahesh’s share for Rs 55 lakh. Mahesh readily agreed to the offer; so the three shareholders in Ajay’s company were Ramesh, Rahul, and Vikas. Ajay expanded his business and shared profits with his shareholders. His plan created a win-win situation for everyone involved. Ajay, the owner of the business, did not need to pay back the money or make interest payments along the way. The other partners eventually had hope to believe that the shares they bought would someday be worth more than what they had paid for them.

The above example relates to how stock markets actually work. But you may wonder that if investments in the stock market are so fruitful, why don’t we all simply invest in stocks?

The truth is that there is no guarantee of returns in the stock market. Some listed companies may declare dividends while others may not. There is no obligation on the part of the company to pay out dividends. You can profit from a stock when the price appreciates, but if the company goes bankrupt, your stock may be worth nothing.

The motto for investing in the stock market remains: the higher the risk, the higher the return on investment.

Step 1:- For becoming a capital market investor

  • The first requirement is a PAN Card. This is mandatory for all investors.
  • The other requirements are a bank account and a demat account. The demat account is normally linked to a bank account in order to facilitate paying in and out of funds and securities.
  • The next step is to select a SEBI Registered broker and fill a KYC form and enter into a broker-client agreement.
  • The broker then allocates a unique client ID, which acts as the identification.
  • You are now ready to buy/sell securities.

 

Step 2:- For purchasing investment products

  • Brokers: Brokers offer several services like purchase/sale of equity, debt and derivative products, mutual fund units, IPOs etc.
  • Banks : Many banks offer facilities for purchase/sale of equity, debt and derivative products, mutual fund units, IPOs etc. physically as well as through their websites
  • Mutual Funds: Almost all Mutual Funds facilitate online and physical buying/selling of mutual funds.
  • Stock Exchanges: Close ended mutual funds are traded on stock exchanges and can be brought through brokers. Open ended mutual funds can also be bought/sold on the stock exchange platform.

Thank you for your interest in investing in India.

India welcomes foreign investment from following classes of investors:

  • Foreign Portfolio Investors (FPIs)
  • Non Resident Indians (NRIs) / Persons of Indian Origin (PIO)

As per SEBI (Foreign Portfolio Investors) Regulations 2014 promulgated and implemented w.e.f. June 1, 2014,

  • The onus of registration has moved from SEBI to Designated Depository Participants (DDP)
  • Access to investment in India is rationalised & harmonised
  • KYC requirements harmonised in line with FPI regulations
  • Registration as FPI available under the following three categories based on the perceived risk
Category I Category II Category III

Govt. and Govt. related foreign investors such as Foreign Central Banks, Governmental Agencies, Sovereign Wealth Funds, International / Multilateral Organizations/ Agencies

  • Appropriately regulated broad based funds such as Mutual Funds, Investment Trusts, Insurance / Reinsurance Companies, Other Broad Based Funds etc .

  • Appropriately regulated entities such as Banks, Asset Mgmt. Cos, Investment Managers/ Advisors, Portfolio Managers etc.

  • Broad based funds whose investment manager is appropriately regulated

  • University Funds and Pension Funds

  • University related Endowments already registered with SEBI as FII/Sub Account

All other Foreign Investors investing in India under PIS route, not eligible under Category I and II such as Endowments, Charitable Societies / Trust, Foundations ,Corporate Bodies, Trusts, Individuals, Family Offices, etc.

 

In the interests of investor convenience, we have invited KPMG to provide an overview of the FPI - Regulatory and Tax regime.

Note: For downloading the document you will be directed to a "Terms of use", which you need to accept, for download to commence.

Download presentation on FPI-Regulatory and Tax Regime (.pdf)

While every effort has been taken to make this overview relevant, we encourage you to take independent legal and tax advice before investing in India. Rules and regulations change, and while it is our intention to keep this overview updated, NSE and KPMG do not warrant the completeness and accuracy of this information.

Other useful links:

FPI Investment

FPIs are allowed to trade in Equities (Capital Market), Equity Derivatives, Government Securities, Debt Instrument and Interest Rate Derivatives on the Exchange platform.

Investment limits for FII/sub-account for various instruments are given below:-

  • The purchase of equity shares of each company by a single FPI or an investor group shall be below 10% of the total issued capital of the company.
  • Aggregated Equity Investment Limit – The individual ceiling of below 10 percent by a single FPI or an investor group is subject to an overall investment ceiling for total FII investment of 24 percent of the total paid-up equity capital of a company (20 percent in the case of public sector banks) The overall ceiling of 24 percent can be raised up to the sectoral limit if the concerned company passes a resolution by its Board of Directors in the General Body Meeting. Exceptions to these limits apply to individual companies and sectors.

IPO

  • FPIs can invest under the quota reserved for QIB (Qualified Institutional Buyers) in the IPOs within the overall limits for foreign investments as defined in the Equities segment
  • Non-Resident Indians required to open bank account (NRE/NRO) with designated Bank and Demat Account with an NBFC to hold shares and execute buy/sell orders

OFS

  • FPIs can bid under the non-retail quota with the overall ceilings as defined under the Equities segment
  • Non-Resident Indians can bid under the Non-Institutional Investors Category; discount applicable to retail investors will not be extended under this category

The FPI position limits for various categories of products and client as per the table below:

Products FPI Category I & II FPI Category III
Index Futures & Options Position Limit is Higher of INR 5 Bn. or 15% of the total Open Interest in the market on an Index for Futures Options separately. 
In addition to the above, FPIs may take exposure in equity index derivatives provided that: 
  • Short positions in index derivatives (short futures, short calls and long puts) shall not exceed (in notional value) the FIIs holding of stocks.
  • Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) the FIIs holding of cash, government securities, T-Bills and similar instruments.
A person or persons acting in concert together own 15% or more of Open Interest on a particular index are required to report to the exchange
Stock F&O (Stocks with MWPL > INR 5 Bn.) Combined F&O Position Limit - 20% of MWPL or INR 3 Bn., whichever is lower and,

Stock Futures Position Limit - 10% of MWPL or INR 1.5 Bn., whichever is lower
The gross open position across all the derivative contracts on a security, should not exceed higher of:

 

  • 1% of free Float market cap, or
  • 5% of Open Interest in all Derivatives
Stock F&O (Stocks with MWPL < INR 5 Bn. ) Combined F&O Position Limit - 20% of MWPL, 

Stock Futures Position Limit - 20% of MWPL or INR 0.5 Bn whichever is lower

In accordance with the revised Medium Term Framework (MTF) for FPI limits in Government securities issued vide RBI Notification RBI/2015-16/198 A.P. (DIR Series) Circular No 19 dated October 6, 2015, the main features are:

  •  

Accordingly, for the current financial year, it has been decided to enhance the limit for investment by FPIs in Government Securities in two tranches from October 12, 2015 and January 1, 2016 respectively as under:

  Rs. Crores
  For all FPIs Additional for 
Long Term FPIs
Total For all FPIs 
(including Long Term FPIs)
Aggregate
Existing Limits 1244 291 1535 Nil 1535
Revised limits with effect from October 12, 2015 1299 366 1665 35 1700
Revised limits with effect from January 1, 2016 1354 441 1795 70 1865

The security-wise limit for FPI investments will be monitored on a day-end basis and those Central Government securities in which aggregate investment by FPIs exceeds the prescribed threshold of 20% will be put in a negative investment list. No fresh investments by FPIs in these securities will be permitted till they are removed from the negative list. There will be no security-wise limit for SDLs for now.

All other existing conditions, including investment of coupons being permitted outside the limits and investments being restricted to securities with a minimum residual maturity of three years, will continue to apply.

  • The limits for FPI investment in debt securities will henceforth be announced/ fixed in Rupee terms.
  • Aggregate FPI investments in any Central Government security would be capped at 20% of the outstanding stock of the security. Investments at existing levels in the securities over this limit may continue but not get replenished through fresh purchases by FPIs till these fall below 20%.
  • The existing requirement of investments being made in G-sec (including SDLs) with a minimum residual maturity of three years will continue to apply to all categories of FPIs.
  • The effective increase in limits for the following two quarters will be announced every half year in March and September.
  • Additionally, there will be a separate limit for investment by all FPIs in the State Development Loans (SDLs), to be increased in phases to reach 2 per cent of the outstanding stock by March 2018. This would amount to an additional limit of about Rs. 500 billion by March 2018.
  • The limits for FPI investment in the Central Government securities will be increased in phases to reach 5 per cent of the outstanding stock by March 2018. In aggregate terms, this is expected to open up room for additional investment of Rs. 1,200 billion in the limit for Central Government securities by March 2018 over and above the existing limit of Rs. 1,535 billion for all Government securities.
  • FPIs may take long as well as short positions up in USDINR pair up to USD 15 Million per exchange without having any underlying exposure.

  • In addition, FPIs have been allowed to take long (bought) as well as short (sold) positions in EURINR, GBPINR and JPYINR pairs, all put together, up to USD 5 million equivalent per exchange without having any underlying exposure.

  • FPIs cannot take short positions beyond the above limits for each currency pair.

  • The FPI can take long positions beyond these limits in each of the currency pairs subject to having underlying exposure. These limits are as follows
    • FPI Category USDINR EURINR GBPINR JPYINR
      Category I&II Higher of 15% of the total open interest or USD 100 million Higher of 15% of the total open interest or EUR 50 million Higher of 15% of the total open interest or GBP 50 million Higher of 15% of the total open interest or JPY 2000 million
      Category III Higher of 6% of total open interest or USD 10 million Higher of 6% of total open interest or EURO 5 million Higher of 6% of total open interest or GBP 5 million Higher of 6% of total open interest or JPY 200 million

In case of Foreign Institutional Investors, registered with Securities and Exchange Board of India, the total gross long (bought) position in cash and Interest Rate Futures markets taken together should not exceed their individual permissible limit for investment in government securities and the total gross short (sold) position, for the purpose of hedging only, should not exceed their long position in the government securities and in Interest Rate Futures, at any point in time.

The total gross long (bought) position in cash and IRF markets taken together for all FPIs shall not exceed the aggregate permissible limit for investment in government securities for FPIs.

Updated on: 13/01/2020 12:00
Quick Links