Over the past few years, many global technologies and fund houses have started giving you an option to invest in them. One such asset company is Mirae Asset, which is all set to open an NFO among the people of India.

Mirae Asset Investment Managers India announced the launch of two NFO (New Fund Offer) - Mirae Asset NYSE FAANG + ETF and NYSE; an open-ended fund of fund scheme mainly investing in Mirae Asset NYSE FANG + ETF. According to the news, the NFO is open for subscription between 19 April to 3 May 2021.

The house is offering you a fund of funds (FOF) route to invest directly in ETF schemes.

What is an ETF?

Exchange-Traded Funds or ETF’s are one of the types of investment funds that are traded on the stock exchange.

ETF’s are quite similar to mutual funds except one that ETF’s can be bought and sold throughout the day on the stock exchanges just like stocks while mutual funds are bought and sold based on their price at the end of the day.

What is FOF?

A FOF or funds of the fund is nothing but a mutual fund scheme that allows investors to invest in the units of other funds. For instance, the Mirae Asset NYSE FAANG + ETF is a fund of funds that will invest in the units of Mirae Asset NYSE FAANG + ETF.

What’s an OFFER?

Here the NYSE FANG Plus Index (NFPI) will come into play. This is because NFPI will provide exposure to today’s highly traded top 10 tech giants in the world which are listed overseas. These tech companies include Facebook, Apple, Amazon, Netflix, Google, Tesla, Twitter, Alibaba, Baidu and NVIDIA.

You might have heard the popular acronym FAANG which stands for Facebook, Apple, Amazon, Netflix and Google (Alphabet Inc). Now, the FAANG word has spread as the five other stocks have been added to it.

Needless to say, these tech giants are extremely popular all over the world as they offer bountiful services that are used by millions of people across the world.

Therefore, if these businesses are put together in one portfolio, they offer a large number of profits as they have the ability to grow in the different geographies of the world.

If we talk about the past data, we get a detailed insight into NFPI as the index has managed to deliver 33.41% annualized returns between September 2014 and March 2021. The percentage amount is quite large if we compare it to NASDAQ - 100 which has given a 20.77% return between the same years, and 13.23% for the S&P 500 said by the reports of ICE Data Indices.

Advantages

The fund offers exposures to the top industry leaders in their respective segments, which is a plus point for every individual. This is because investing your money in these companies can minimize the chance of risks associated with the business. These businesses hold minimum risks as most of the businesses present in this index are known for their innovations.

Since these companies are not listed in Indian stock exchanges, a FOF can act as a good way to invest in these established technology sector leaders. Also, including these stocks may create a beautiful diversification to your portfolio.

Disadvantages

The addition of the top 10 tech companies into the index makes it highly concentrated. This means investors who saw a dream to invest in this index may be exposed to concentration risk. Stock market is full of volatility and hence it would be beneficial for you to be aware of the downward volatility.

Secondly, these businesses face numerous regulatory changes in many countries which may affect the stock’s price. Also, these companies often face several acquisitions by the policymakers of different countries which could lead to huge risks and downward volatility.

Key Details of the Fund:

The subscription date for both funds starts on April 19, 2021, while the closing dates are different. The closing date of FAANg +ETF is on April 30, 2021, whereas the closing date of FAANG +ETF fund of funds is on May 3, 2021.

The Mirae Asset FAANG+ETF will be handled by Mr Siddharth Srivastava while the Mirae Asset FAANG+ETF FOF will be handled by Ms Ekta Gala.

The minimum investment amount required by both the schemes will be Rs 5000 and multiples of Re 1.

The Mirae Asset FAANG+ETF FOF will offer investors multiple options such as regular plan and direct plan.

Each stock’s weightage in NYSE FAANG+ Index is equally weighted that consists of highly traded growth stocks.

The NYSE FAANG+Index will allow Indian stock trading investors to invest in these potential stocks like Facebook, Apple, Amazon, Google, Tesla, Twitter, Netflix etc.

It may be noted that 7 out of 10 companies in the NYSE FAANG+ Index have made it a list of top 50 innovative companies with exceptionally well innovative ideas.

The Number of Funds managed by Ms Ekta Gala is mentioned below:

Mirae Asset NIFTY 50 ETF

Mirae Asset NIFTY Next 50 ETF

Mirae Asset ECG Sector Leader ETF

Mirae Asset ECG Sector Leader FOF

Mr Siddharth Srivastava, fund manager of Mirae Asset NYSE FANG+ETF said: this index gives Indian investors a new way to put their money in these highly brilliant, growth innovative companies. Through these investments, Indian investors now can invest a small part of their money into these shares and participate in the growth stories of these companies.

Takeaway

It has been seen that many FIIs and global investors have put their eyes on Indian stock market and investors. Many top market gainers have been constantly researching on Indian stock exchange and analyzing the pattern of the stock market.

By doing this, most of them have started to invest in the Indian stock market. Also, they want many retail investors to contribute to the top-notch stocks.

Therefore, they came with the idea of ETFs and added FAANG stocks with ETFs so that many Indian investors can benefit from these stocks.

The primary objective of these companies behind the diversification of these stocks among different geographical areas is the expansion of shares among different retailers and investors so that they can evenly contribute towards the growth of these top giants.

As far as the doubling of money is concerned, penny stocks come second to none. This is because such stocks present a wide range of opportunities for new investors as well as experienced both.

And when it comes to investing in money, investors often seek mid-cap and large-cap stocks, however, the majority of them neglect penny stocks.

What are Penny Stocks?

Penny stocks are small stocks and come under the small-cap category. If you are a regular trader or investor, you must have heard the term penny stocks. Well, these are small-cap stocks that attract minimal pricing. According to the Indian stock market trading scenario, stocks whose market capitalization is less than Rs 10, comes under penny stocks.

Due to low market capitalization, these stocks seem alluring to many investors as these shares are available at low price and investors would purchase more shares with low investment amounts.

Another important reason behind the strong hype of penny stocks is, they have a low frequency of trading, their prices are subjected to sudden and high levels of volatility.

Let’s understand penny stocks with a suitable example:

A company XYZ Limited has a share price of Rs 500 and a penny stock to be Rs 5. If an investor has a capital of Rs 10,000, they would be able to buy only 20 shares of the established company. With the same capital amount, they can purchase the penny stocks of 2000 shares.

Things You Should Know About Penny Stocks

Penny Stocks are Apt for Newbies

If you are new to the stock market, then penny stocks can act as a good choice for you. This is because penny stocks enable you to learn the ins and outs of trading first hand, i.e stock market learning. Since the price of penny stocks are low, investors purchase a high volume of penny stocks with a limited capital amount. This also helps investors to minimize their losses.

Penny Stocks Possess Low Liquidity

Penny stocks are not traded in the share market frequently. Due to a low volume of trades, investors may find it difficult to find both buyers and sellers. However, they can overcome this limitation to a certain extent by holding the shares of penny stocks for the long term.

Penny Stocks Do not Have an Entry Barrier

Penny stocks are easy to trade and therefore many investors especially newbies find it easy to trade in the stock market. Price movement of penny stocks are speculative and require very less methodical technical analysis. This makes investors the perfect choice for you if you are just making an entry into the world of the stock market.

Penny Stocks Can Generate High Returns

There are multiple companies with good financials and growth potential that are being traded for pennies. By identifying these companies, investors can generate good returns and watch their investments grow.

Why Should You Invest in Penny Stocks?

Penny stocks can be considered as a miss or hit opportunity. Companies issuing them might grow into large organizations and give a higher yield than average returns.

Multibagger Stocks

Some of these stocks can turn out to be multi-bagger stocks. This means some penny stocks can generate returns of more than 100 per cent against their investment amount. And, if some penny stocks give a return ten times its investment value then it is considered a ten-bagger.

Hence, if investors could include these stocks in their portfolio, these stocks could exponentially increase their returns and have a large chance to outperform mid-cap and large-cap funds.

To find out the best penny stocks which have the potential to be multi-baggers, investors need to go through thorough stock market research.

Let’s understand it with an example:

Suppose Mr X invested Rs 10,000 in penny stocks of ABC Pvt company. Each unit cost is Rs 10. The company did well in the market as its performance rose by a huge margin and its stock value reached up to Rs 100. If Mr.X sold its 1000 shares at Rs 1,00,000. I.e (10,000/10=1000, Rs 1000*100=Rs 1,00,000) hence this stock gains ten times a return. Such stocks are considered as a ten-bagger stock.

Inexpensive Stocks

As we said above, these stocks are cheaper than other stocks and hence you can easily do share trading and invest in them without taking any risk of losing huge amounts of your investment finances.

Therefore, if they fill a small portion of penny stocks into their portfolio, chances are investors creating room for better investment options while minimizing the risk associated with it.

What are the risks associated with penny stocks?

As these stocks heavily depend on the market condition for the growth in their stock’s intrinsic value, they are associated with high risk.

Apart from the fundamental risks linked with the stock market, these stocks also come with other types of risks which can’t be neglected.

Limited Information

The companies that mostly issue penny stocks are startups. These companies freshly come into the stock market for fundraising and needless to say, there are a lot of insecurities associated with these stocks such as lack of information on the past performance, financial soundness, growth prospects of such stocks.

Therefore, it is suggested to do complete research before investing in penny stocks. Also, there are several stock market courses available on the internet. You can take a wide range of knowledge from there.

Scams

If you look at the financial history, you might have heard that penny stock scams are very common in the international stock market. One such popular method is pump and dump. Under the pump and dump method, investors with an intention of scamming, purchase a huge amount of penny stocks. Such hype attracts new investors to purchase these stocks.

Once the company realizes that they have enough buyers who have invested in their stocks, the speculator immediately reduces the value of these stocks resulting in the losses of new investors.

What are alternative options to Penny Stocks in India?

Apart from investing in penny stocks, investors nowadays seek out new investment options that are suited to their portfolio and risk appetite both.

Mutual funds are one of the best investment options investors are gaining interest in. Mutual funds are a professionally managed investment scheme that pools money from numerous investors and invests this money in securities such as stocks, bonds, and debts.

The Bottom Line

While penny stocks seem an attractive investment option for many investors because of their low pricing, they do carry risks like other equity shares. The price movement of such stocks heavily depends on the market condition which makes penny stocks highly risky. However, these risks can be mitigated if you do complete research about these stocks before investing.

Well, if you need the right investment advice regarding any stocks and mutual funds, you may consider Swastika as the best stock trading platform for beginners and experienced both. The stock broking company comes with user-friendly online trading platforms at affordable brokerage rates.

Recently, fantasy sports has become the talk in the world of virtual gaming. This is because playing fantasy games is one of the most popular hobbies of sports fans around the world. There are people who love to play virtual gaming while there are other people who have no clue about it.

It is currentlyIn recent years, fantasy sports have gained massive popularity, with millions of people participating globally. The excitement of creating virtual teams and earning rewards based on real-life performances of athletes makes it appealing to sports enthusiasts. Given its growth, you might think that investing in the fantasy sports business is a great idea. However, despite its rapid expansion, investing in fantasy sports comes with significant risks that make it a less-than-ideal option.

In this blog, we will explore why fantasy sports businesses might not be the best choice for investment, focusing on market uncertainties, regulatory challenges, financial risks, and ethical concerns.

1. Regulatory Uncertainty

One of the biggest challenges the fantasy sports industry faces is regulatory uncertainty. Fantasy sports often operate in a grey area of the law, particularly when it comes to gambling regulations. In many countries, fantasy sports are still under scrutiny, with debates about whether they should be classified as a game of skill or a form of gambling.

This legal ambiguity can lead to sudden changes in regulations, making it difficult for companies to operate smoothly. Governments can impose restrictions or even ban fantasy sports platforms, which can cause significant financial losses for investors. For example, countries like India have state-specific laws that either allow or restrict fantasy sports, adding to the complexity for businesses and investors alike.

2. High Competition

The fantasy sports market has become highly competitive. Several major platforms dominate the industry, making it difficult for new or smaller businesses to gain a foothold. These established companies have massive marketing budgets and user bases, creating significant barriers to entry for new businesses.

For investors, this means that entering the market is risky because the chances of competing successfully with these big players are slim. With established platforms like DraftKings and Dream11 already capturing a large share of the market, new entrants face an uphill battle for visibility and user acquisition.

3. User Acquisition Costs

Attracting and retaining users in the fantasy sports market can be very expensive. Companies often spend large sums on marketing, advertising, and promotions to build their user base. The cost of acquiring a single customer can be high, and many users tend to participate in fantasy sports only for a short period.

This high user acquisition cost means that businesses need a large volume of users to stay profitable. However, given the intense competition and the short lifespan of customer engagement, maintaining profitability can be difficult. For investors, this presents a significant financial risk, as it requires a continuous flow of capital to sustain growth.

4. Uncertain Revenue Model

Fantasy sports businesses typically rely on user participation fees or advertising for revenue. However, the revenue model is not always consistent, as it depends heavily on user engagement and the overall interest in sports. For example, if a popular sports league experiences a decline in viewership or faces disruptions (like during the COVID-19 pandemic), fantasy sports platforms could see a significant drop in participation.

Moreover, many users are not willing to pay large sums to participate in fantasy sports. This makes it challenging for platforms to generate consistent revenue without offering substantial prizes or incentives, which can further reduce profitability.

5. Addiction and Ethical Concerns

Fantasy sports, especially those that involve betting or monetary rewards, can lead to addictive behavior. Many users get hooked on the thrill of winning and end up spending more money than they can afford. This can lead to financial problems for users and raise ethical concerns for businesses that profit from this behavior.

From an investor’s perspective, supporting a business model that may contribute to addictive behavior and financial hardship for users can be ethically problematic. Negative publicity around addiction and financial irresponsibility can harm the brand’s reputation and reduce the platform’s long-term success.

6. Technological Risks

Fantasy sports platforms are heavily dependent on technology, including mobile apps, data feeds, and online payment systems. Any disruption in these technologies can negatively impact the user experience and lead to financial losses. For example, if a platform’s data feed (which provides real-time sports data) malfunctions or experiences delays, it could cause frustration for users and damage the platform’s credibility.

Additionally, cybersecurity threats are a real concern in the digital space. If a platform is hacked or experiences data breaches, it could result in legal liabilities, loss of user trust, and financial losses for the business and its investors.

7. Seasonal Dependency

Fantasy sports participation often depends on the schedules of major sports leagues. This makes the business highly seasonal. For example, fantasy football platforms see a spike in activity during the football season but may experience a significant decline in user engagement during the offseason.

This seasonality means that businesses and investors cannot rely on steady year-round revenue, which makes it harder to maintain consistent cash flow. The fluctuating nature of user engagement adds to the risk for investors, as businesses may struggle to stay afloat during off-peak periods.

8. Legal Risks Related to Gambling

Although many fantasy sports companies argue that their games are based on skill, the lines between fantasy sports and gambling are often blurred. Some countries and states view fantasy sports as a form of gambling, subjecting these platforms to stringent regulations or outright bans.

Investors in these businesses face potential legal risks if the fantasy sports industry is reclassified as gambling in their region. Legal battles and compliance costs can significantly impact the business’s profitability and reputation, further increasing the risks involved in investing in this space.

Conclusion

While the fantasy sports industry may seem like a lucrative opportunity given its rapid growth, it comes with a host of risks that make it less than ideal for investors. Regulatory uncertainty, high competition, costly user acquisition, and ethical concerns are just a few of the challenges that can make this industry a risky bet.

For investors, it’s crucial to carefully consider these risks and explore alternative sectors with more stable revenue models and fewer legal and ethical complications. If you’re looking for safer, more predictable investment opportunities, the fantasy sports business might not be the right choice for your portfolio.

estimated that more than 75 million people will participate in fantasy sports this year, and that number is only going to continue to grow in the future. While fantasy sports or virtual gaming is a great way to spend your free time, there are also some issues with this popular activity.

Well, today, we are going to remove all your doubts about fantasy cricket and we will also try to provide a brief of the risks associated with it.

Fantasy Business is a New Way of Betting or Gambling

People nowadays show a great interest in fantasy sports as they find it a great way to stay close with their friends. Also, they find it a great chance of winning money without putting in any effort.

Well, the bitter truth is that these gaming sports are not reliable. Fantasy sports is a part of gambling that can become very addictive if you are not careful. Using your sports knowledge to win money is a huge rush which makes people get addicted to it.

If someone, even if he has adequate knowledge about a sport let's say cricket, there are huge chances that he/she may lose money.

Now, many sports-loving persons find it hard to digest the fact that fantasy sport is gambling. They consider these sports as a game of skills not a game of chance. However, this is not so true. Firstly, try to understand the terms investment and gambling.

Investing Vs Gambling

We heard many people saying they don’t put their money in share or mutual funds as they don’t like to gamble. However, investing and gambling are two different things.

Gamblers are those who do anything for the winning amount; they are not afraid of taking risks and eventually lose all the money and go empty-handed. Investors, on the other hand, is a well-researched process.

Here are the fundamental difference between investing and gambling:

Investment is based on research while gambling depends on luck

Gambling is an uncertain event. Investing is an activity that requires much knowledge, research and skills. Gambling on the other hand is an uncertain event that solely depends on emotions.

If someone wants to invest in the right asset, he first needs to do enough research, understands their goals, and financial information. Gambling doesn't require any such information. In the case of fantasy sport, if your money goes, there is no other way to buy it back.

In gambling, the result is dependent on the outcome of throwing a dice i.e. only one participant will win.

While in the stock market, if ten investors hold the shares of the same company and if the price goes up, all of them will make a profit.

Investing in the Long term while Gambling is Short term

Investing is done for the long term. Let’s say for 5 years or it could be extended for 10 years or more. Gambling is done for a shorter period such as for hours, or sometimes it can be stretched to a couple of weeks or months but not for a year.

Investing provides ownership of an asset, Gambling doesn't

Investing in share trading, mutual funds or any other assets gives investors ownership of the asset. In gambling, if you put money into it, either you will get more money or no money. There is no ownership assigned to participants at the end of gambling transactions.

Investing is well-planned, gambling isn't

Investing can happen with a specific goal in life. The goal could be anything like retirement planning, education, house planning, vehicle planning etc. While batting is done in pleasure to earn more money. One can also plan its future goals based on gambling but the risk is comparatively too high.

Investing isn't Addictive, Gambling is

Several organizations identify gambling as addictive and lead to severe mental problems. While there are no such cases associated with investing. Instead, investing is a financial practice that is done for a healthy economic life.

Thin Line of Difference Between Investing and Gambling

It is extremely important to learn the thin line between investing and gambling.

Gambling is quite riskier than investing. The risk tolerance level of gamblers is slightly higher than investors. Gambling is a risk taken under certainty while investing involves risk under uncertain conditions. Gambling mainly depends on luck while investing on the other hand purely depends on practice, patience and knowledge.

Stock Trading is not Gambling

Many people think putting money into the stock market is gambling. However, this is not so true. Share market trading in the stock market is not like a dice game.

In fact, trading is one of the best ways of investment as it involves examining past information of stock aka stock market research, analyzing its past performance and predicting its future growth with the help of fundamental analysis and technical analysis and other methods.

To invest in the right stocks, traders analyze their past trades, and then plan out their strategy such as which stocks to buy, at how much quantity and how much amount need to spend. Investors are well known before spending a single penny into it. These are the prerequisite for stock market trading.

Fantasy Sports Sites Banned in 7 States of India

Recently, fantasy sports sites were banned in 7 states of India including Tamil Nadu, Telangana, Andhra Pradesh, Odisha, Assam, Nagaland and Sikkim.

Reasons Why Fantasy Sports banned in These States

1. One of the top reasons behind banning these sites is that if you win a huge amount, let's say Rs 10,000 from these sites, then you are required to pay 31% as tax.
2. Secondly, most of these sport sites are promoted by famous cricketers and because of this many youths are encouraged to play these apps. Due to bad influence and non-adequate knowledge, many people are losing their money and some even did suicide.
3. Many children below 18 years of age are using their parent's information to verify fantasy sports accounts which may be the reason for banning these apps in these states.

Takeaway

Fantasy sports apps is another example of gambling and therefore it is suggested to stay away from such sites. Instead, spend your time investing in different sectors. When it comes to investment, the stock market comes second to none. Investing in the right stocks with adequate knowledge leads to huge gains.

Two months ago, no one could have predicted that April would be the worst month of 2021 with an increasing number of COVID 19 infections among patients. The second wave of Covid 19 seems to be very fierce as it has already started slowing down the economic growth of the country while the inflation rate remains high.

Amid this uncertainty, Reserve Bank of India governor Shaktikanta Das on Thursday gave a positive statement regarding the economic activities held in the country.

He confidently said that the new wave of COVID 19 would not derail the economic journey. He maintained the RBI’s recent 10.5 percent growth forecast for the upcoming fiscal year (FY 2022). In other words, RBI Governor Shaktikanta Das has come up with an exclusive idea of keeping liquidity sufficient enough to rein in yield, preventing the currency from appreciating and inflation from going upside.

The governor’s assurance assumes significance amid apprehension about surging new COVID cases and resultant lockdown being clamped in many cities.

Many states along with the COVID hotspot state of India - Maharashtra that has marked a huge number of cases more than 50,000; are seeing a massive surge in pandemic infections, irritating the equity and bond market.

The worry is that most of these infections are caused by the strain that came this year but not the initial COVID 19 that killed over 1.5 lakh people in the country.

It may be noted that the RBI governor has given a 10.5% growth for FY 22 and the governor firmly believes that never sees a downward revision in 10.5% growth. He also does not believe that the complete lockdown will be held this year which the country witnessed last year.

When the developed markets are unleashing large fiscal stimuli, U.S. treasury yields are rising and commodity prices are going down.

The inflation rate for the Feb month was around 5 %, however, the core inflation rate in January was at 6%. Now, some economists say, there is a chance that the inflation rate could oscillate between 5.5% to 6%.

Fortunately, some helpful base effects are expected to hold down food prices.

Growth: A New Concern

The Indian economy somehow returned to its original track i.e. growth in the last quarter of the year 2020 and is expected to surge again by the end of March. However, with the rising Covid 19 infections, the sequential growth may drop thereafter.

As the cases are rising with strict state-wise restrictions, the country expects soft, steady growth in Q1 FY 22, financial experts said in one of her reports.

RBI clearly monitors the growth factor of the Indian economy, keeping the inflation rate in mind. According to Madhavi Arora, an economist at Emkay Global, RBI leaves no stone unturned in maintaining FY 22 growth.

Rising Inflation Can't Be Ignored

Rising Covid infections lead to high inflation that even MPC will not be able to ignore the inflation effect. Retail inflation rose to 5.03% which is a three month high in February as food prices saw a modern bounce back. According to the MPC said in its last meeting, fundamental requirements such as food, fuel all have risen.

Maintaining retail inflation at 4% with a margin of 2% is a quite challenging task, especially in the current circumstances, said Govinda Rao, chief economic advisor at Brickwork ratings.

As the inflation rate is still moving upward, excess liquidity and volatility in crude oil prices could lead to upward risk, Rao further said. Once the current output gap narrows, surplus liquidity conditions could put pressure on prices, and the RBI will have to be vigilant.

Liquidity: Excesses to Continue

At the last of the last MPC, RBI had decided to restore CRR (cash reserve ratio) in two phases. However, Governor Shaktikanta Das had assured to maintain the market liquidity despite restoring a huge amount of CRR. Also, he mentioned that a reversal of CRR cut will be given to central bank space to conduct larger bond purchases.

Rao further said, the RBI may likely drain excess liquidity. But given the higher government borrowings, which may put pressure on bond yields, the RBI may go slow in reversing its liquidity measures.

The RBI also all set to announce its first monetary policy in the first week of April. Also, high government borrowings at record high leads to soaring yields. Shaktikanta Das said, there is no fight between the central bank and the bond market.

The governor further assured, the RBI will ensure the bond purchases are of equal quantum. The RBI’s foreign exchange reserves are all its requirements.

The government took a new decision to privatize the state-run bank, he said the central bank is in continuous discussions with the RBI on the same. The centre always took into consideration the viewpoint of the regulator on such issues, he said.

Also, RBI is working on a central bank digital currency (CBDC). RBI’s stance on cryptocurrency has revealed that it will bring a new bill on cryptocurrencies.

It has been noticed that there are few practical operationalizations of CBDC which makes RBI more responsible while launching a safe and robust model. RBI further said that the UPI can act as the best medium for providing the best yet fast services for cross border payments.

Adding to this, Shaktikanta Das, further said the day is not too far when we (India) will experience cheaper, safer and faster cross border remittances, adding Rupay card which in future, will make a mark in the global financial landscape.

Bottom Line

Needless to say, the second wave of infections badly threatens the economy which in turn increases inflation to a greater extent. Growth is clearly losing its momentum as many sectors fail to generate revenue in the upcoming months.

At this point in time where the second wave of COVID ruins almost everything, many investors are trying to save their money for future perspective. Therefore, many investors are seeking the best stock broking company which help them to grow business financially.

India has been an attractive destination on investor’s RADAR including Non-Resident of India’s. One of the greatest reasons behind NRIs investment in India is its worldwide popularity.

Many NRIs nowadays seek India as the best place to invest. This is because Investments made by NRIs are treated as a foreign investment according to Indian foreign exchange regulations. Also, remittance and liberalized regulations, makes India one of the best places to invest in.

According to the regulations laid by RBI, the Non-Resident Indian (NRI) are allowed to invest in the equity shares of both listed/unlisted Indian companies. The government permits NRIs to invest in multiple financial securities including listed NCD (Non-convertible bonds), stock market trading, government securities, debentures and more.

Here is the list of popular investment options that are exercised by NRIs are discussed below:

Bank Deposits

There are three types of bank accounts that are opened by NRIs in India. These are:

• Non-Resident Ordinary Rupee Account (NRO Account):
• Non-Resident (External) Rupee Account Scheme (NRE Account)
• Foreign Currency (Non-Resident) Account (Banks) Scheme (FCNR Account)

NRO account is specified to the cases where NRIs are allowed to book their investment only in the Indian sourced income such as rent, dividend, a pension earned in India. Under NRO accounts, remittance outside India is permitted to $1 million per year. Repatriation of the amount that exceeds $1 million requires prior approval from the Reserve Bank of India (RBI).

NRE accounts are used by NRIs so that they can easily book their foreign earnings/savings in Indian rupees. The account is maintained in the form of current, savings, recurring or fixed deposit account and designated as Non-Resident Rupee Account.

Foreign Currency (Non-Resident) Account (FCNR)

FCNR account is designated in foreign currency i.e. funds in this account can be maintained in any permitted currency, which is freely convertible including US dollar, euro, Australian dollar, Japanese Yen. FCNR accounts provide ease of repatriation of funds and protection from foreign exchange rate fluctuations.

Equity Investment

RBI allows NRI investors to invest in equity shares of Indian companies. Also, NRIs can do equity trading and invest in equity shares of both listed and not listed companies, depending on certain conditions, sectoral restrictions and other parameters.

If NRI do investment in an unlisted company on a repatriation basis then the investment comes under foreign direct investment which is subjected to strict pricing norms, reporting requirements and sectoral restrictions.

Note: NRIs can now also invest in equity shares through online stock trading method,

Mutual Funds

NRIs are allowed to purchase units of mutual funds irrespective of mutual fund type i.e equity-oriented or debt-oriented. The total return NRIs get from investing in mutual funds is available in the form of dividends, equity dividends.

If the duration of redemption of equity-oriented mutual funds held for a period exceeding more than 12 months is known as long term capital gains. Also, long term capital tax is subject to tax at 10 per cent. While redemption for mutual fund units those held up for 12 months are known as short term capital gains and are taxable at 15 per cent.

If we talk about debt oriented mutual funds, the holding period decided by the Indian government should be more than 36 months, taxable at 20 per cent. Whereas the mutual fund's units held up for 36 months comes under short term capital gains and are taxable at applicable slab rates.

How are capital gains taxed for NRIs?

Long term Capital Gain on Sales of Equity Shares (Listed) or Equity Oriented Mutual Fund Units:

Long term instruments such as equity shares or equity-oriented mutual funds are those held for a period of 12 months.

For instance, equity shares or equity-oriented mutual funds come under long term capital gains and tax implications on the sales of these instruments shall be taxable at the rate of 10% if the gain on sale is more than 1.1 Lakh rupees. If the gain on sale is less than 1 lakh then the tax is exempted in such cases.

In equity-oriented mutual fund units, NRIs must be paid STT (Securities Transaction Tax) on the sale and acquisition of equity share units. Also, RBI doesn’t allow indexation benefits on the cost of acquisition.

Long term Capital Gains on Other Assets

If unlisted shares excluding (debt mutual funds) are held for more than 24 months, are classified under long term capital gains assets. The tax liability of unlisted shares is mentioned as 10%.

In terms of debt-oriented mutual funds, if the units are held for more than 36 months then they are defined as long term capital gain assets. The tax liability on debt-oriented mutual funds is 20% after indexation.

Short Term Capital Gain on Equity Shares (Listed) or Equity Oriented Mutual Funds

If the listed equity shares or equity-oriented mutual funds are sold before 12 months of its acquisitions, then the gains are considered as short term capital gain and these gains are taxable at 15%.

Short Term Capital Gain on Other Assets

For short term capital gain, the securities and shares holding period must be less than 24 months. The tax on short term capital gain is applicable as per the slab rate assigned to the non-resident.

The debt oriented mutual funds are classified as short term if they are held for less than 36 months. However, the gain on such instruments is calculated based on the applicable tax slab rates.

How Non-Resident Pays Tax on Capital Gains

Unlike Indian residents, NRIs are not allowed to get the basic benefits in health and education. It should be noted that any redemption made by a non-resident is subjected to tax deduction at the highest tax rates. The TDS applied for any short term capital gains on unlisted securities shall be at 30%.

Relief from Double Taxation

If India has signed the Double Tax Avoidance Agreement (DTAA) with the country of NRI’s resident, then the NRI may feel some kind of relief. According to the treaty, the NRIs can pay tax in either of the countries or pay the taxes in both countries.

As investments come under different schemes/options that could be based on both repatriable or non-repatriable basis, it is crucial to understand the difference between the two modes.

Takeaway

The tax rates mentioned in this blog are exclusive of applicable surcharges. This should be taken into account to compute the actual rate of tax. Further, the NRIs can avail of the benefit of lower tax rates under the Double Tax Avoidance Agreement between India and the country of their residence.

Who is a Merchant Banker?

A merchant banker is your one-stop shop for complex financial needs. They're financial specialists who cater to the big leagues of finance, specifically businesses and wealthy individuals. Here's what they do:

• Valuations: Merchant bankers are certified by SEBI to perform valuations, which are crucial for various purposes such as raising funds from private equity (PE) or venture capital (VC), understanding the value of the company for better negotiation in fund-raising, mergers, acquisitions, and other corporate restructuring activities. Getting valuations done by registered merchant bankers ensures accuracy and regulatory compliance.
• Financial Consulting: They act as trusted advisors, providing expert guidance on a range of financial needs, including how to raise funds, the best methods and timing for raising funds, and strategies for company growth. Mergers and acquisitions (M&A) and corporate restructuring are also part of their services, and they also offer broader financial guidance and planning.
• Long-Term Funding: In need of funds to grow your company? Merchant bankers can assist in securing long-term financing through either equity funding or debt syndication. They offer a range of options, including private equity, venture capital, direct investments from family offices, and raising capital through public offerings such as IPOs. Additionally, they can help obtain both secured and unsecured loans to meet your financial needs.
• Intermediary: They act as matchmakers in the financial world, connecting companies issuing securities (like stocks) with investors looking to buy them.
• IPO/FPO Management: They are instrumental in managing Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs), ensuring compliance with SEBI regulations and overseeing the entire process from prospectus preparation to final share allotment.
• Underwriting Expertise: Launching an IPO? They can act as underwriters, guaranteeing to buy unsold shares to ensure your fundraising success.

Think of them as financial architects, building customized solutions to help your business grow.

Scope of Merchant Bankers

1. Changing Policy of Financial Institutions (FIs): FIs require the services of merchant bankers due to changing policies.
2. Growth of New Issues Market: Both domestic and foreign investors are establishing businesses, leading to a surge in public and private issues.
3. Financial Engineering: New financial instruments are constantly being innovated. Merchant bankers help by coming up with new ways of deal structuring and financial structuring.
4. Disinvestment: To obtain funds, companies may reduce some assets, and merchant bankers assist in this process.
5. Corporate Restructuring: Merchant bankers help companies review their strategies, structure, and operations, resulting in corporate restructuring.
6. Debt Market Development: Significant capital is raised through debt instruments, leading to the development of the debt market.

Importance

• Promote the growth of primary markets.
• Assist in purchasing securities.
• Ensure capital flow.
• Promote financial surplus.
• Coordinate activities related to share issues.
• Ensure compliance with rules and regulations.
• Help give guidance or a roadmap to a company.
• Help raise funds for small businesses and large corporations.

Advantages

• Provide investment advice.
• Have access to companies owned by dealers, financial institutions, and clients.
• Aid in the distribution of profits to investors.
• Assist in cash management and leasing operations.

Disadvantages

• Limited access to all potential products.
• Lack of control over interest rates or returns.
• Size constraints that must be met.
• No guarantee of start-up funding.

Categories of Merchant Bankers

1. Category I Merchant Bankers: These are the top-tier merchant bankers certified by SEBI, authorized to perform a wide range of activities including issue management, underwriting, portfolio management, and advisory services. They are involved in IPOs/FPOs, valuations, and equity financing.
2. Category II Merchant Bankers: These merchant bankers can act as advisors, consultants, co-managers, and underwriters. They provide limited services compared to Category I, focusing primarily on advisory roles and co-managing public issues.
3. Category III Merchant Bankers: These can act as underwriters, advisors, and consultants to an issue. They cannot act as lead managers for issue management.
4. Category IV Merchant Bankers: These are limited to acting as advisors or consultants to an issue. They do not engage in underwriting or issue management activities.

Category I Merchant Bankers- Highest Category

Category I Merchant Bankers, certified by SEBI, perform vital functions such as:

• Valuations: They are authorized to conduct valuations of companies, which is crucial for mergers, acquisitions, and other corporate restructuring activities. Getting valuations done by registered merchant bankers ensures accuracy and regulatory compliance.
• IPOs/FPOs: They play a pivotal role in launching IPOs and FPOs, ensuring compliance with SEBI regulations and managing the entire process from preparation of the prospectus to final allotment of shares.
• Equity Financing: While they do provide debt syndication services, their primary focus is on equity financing. This includes raising funds through private equity, venture capital, or direct funding by investors or family offices.

Functions of a Merchant Banker

1. Fundraising Assistance:
   • Raise funds for projects after determining the promoter’s contribution.
   • Help companies raise finance via IPOs/FPOs.
   • Assist corporate clients in obtaining syndicated loans from commercial banks.
2. Stock Brokerage Services:
   • Buy and sell securities for clients.
   • Conduct detailed stock market research and advise clients on profitable investments.
3. Project Management:
   • Prepare project reports.
   • Determine financing patterns.
   • Appraise the project’s technical, commercial, and financial viability.
   • File application forms for obtaining funds from institutions.
4. Handling Public Issues:
   • Advertise corporate securities, including shares and debentures.
   • Pre-issue activities: Prepare and file prospectuses with SEBI and the Registrar of Companies; help fix issue prices.
   • Post-issue activities: Collect and screen application forms, determine allocation strategies, and handle allotment letters, share certificates, and refund orders.
5. Portfolio Management:
   • Advise investors on investment decisions.
   • Ensure investments yield maximum returns with minimum risk.
6. Advisory Services:
   • Act as intermediaries in mergers and acquisitions.
   • Negotiate payment methods in mergers, which involve combining companies, or takeovers, which involve one company acquiring a controlling interest in another.

The Bottom Line

Merchant bankers are like financial powerhouses, offering specialized services to fuel the growth of large corporations and high-net-worth individuals. While they may not be as common as commercial banks, their expertise is crucial for complex financial needs.