Tag Archives: Stock Market

Difference between Nominal Interest Rate and Real Interest Rate

Nominal Interest Rate doesn’t take inflation into account. While Real Interest Rate takes inflation into consideration.

The formula goes like this,

Real Interest Rate = Nominal Interest Rate – Inflation Rate …(1)

Nominal Interest Rate = Real Interest Rate + Inflation Rate …(2)

(2) is obtained by rearranging (1)

Diwali Muhurat Stock Trading Tips and Tricks

Diwali is considered auspicious and many investors and traders participate actively on this day. However there are some pros and cons of trading on this day.

The first con is short delivery. Markets are open only for one hour and short selling undervalued less liquid stocks can cause severe loss to short sellers.

The second con is intraday bubble. There are chances of stocks shooting up and then fall. If you are a day trader then using market order can be risky.

If you are planning to buy stocks for long term then please prepare in advance. Check for undervalued stocks with strong fundamentals and use limit order.

If you are buying stocks just because you think it is an auspicious day then buy in small quantities. In 2018 some of the stocks I bought during Muhurat Trading fell on the following day.

Many people consider only buying stocks and many don’t throw light on booking profits. If a person has to buy a stock then there has to be a seller for the transaction to complete. Many people buy stocks on Diwali and who are these that are selling precious stocks on auspicious day ? Well, they are probably booking their swing trading or long term profits on this day. Some consider profit booking too as a good omen.

Zero brokerage. Well by this time you might have come across zero brokerage on Muhurat Trading ads. Those picking stocks for future fall under the category of stock delivery. Some brokers charge zero delivery charges on regular days too. So only day traders make profit from zero brokerage on this day.

Should you day trade on Diwali ? Well, if you are someone who is superstitious and consider making loss on auspicious day to become a jinx, then please stay away from day trading.

Well also don’t forget the law of supply and demand.

Well, that was it for this post. If you want to know about ratios that help you to pick undervalued stocks on Diwali then do check out those posts on this website. As always don’t forget to share the post with your loved ones and yes, Happy Deepawali in advance 🪔 🙂

Index Funds – Explained

Let us first understand what an index is. You might have heard names like Nifty, Sensex etc. These are nothing but indices. Nifty 50 contains the top 50 companies in India, constituents of Sensex are top 30 companies in India. Similarly there are indexes based on the category of business. For example, Bank Nifty constitutes top banks in India. Some other indexes are Nifty Metal, Nifty Pharma etc.

An index fund is a type of passive mutual fund that copy pastes the index. Basically the fund house collects money from investors and invests in the companies that make up the index. The reason why index funds are called passive mutual fund is because the fund manager doesn’t need to make excessive research and find out the good stock. All she / he does is copy paste the companies in the index. Whereas in an active mutual fund the fund manager and others under him do excess research to find out good stocks that give splendid returns. As index funds are passive, it also means that the expense ratio is low. Expense ratio is the charge that fund house charges. Expense ratio of active funds are higher than expense ratio of passive funds.

Some of you might be thinking of investing in active funds, right ? Well the problem with active funds is that the fund manager has to pick stocks that outperform the index. As the index already contains the top companies, outperforming the index is not that easy. Also if fund managers make wrong decisions then you tend to lose money. So many people prefer passive funds as they are direct reflection of the economy. Also there’s something known as defensive index which means that the index performs decently even during recession. Fast Moving Consumer Goods (FMCG) is one such sector. Fast moving consumer goods includes items like toothpaste, soap, shampoo, biscuits, noodles etc. people tend to spend money on these even during bad times, so they are considered defensive sector.

One can invest in index funds via mutual fund route or via Exchange Traded Fund (ETF). I personally prefer ETF route. Let’s understand what ETF is, it is nothing but the same mutual funds that are listed on the stock exchange. ETF can be traded just like stocks during market hours. The problem with ETF is liquidity. If the volume of ETF that gets traded is low then entry and exit is difficult. I own small quantity of ETFs so it isn’t a hurdle to exit and besides that I own ETFs that are traded in decent volume. It is necessary to own a demat account if you want to invest via ETF route.

Also there is something known as Tracking Error when it comes to index funds. Sometimes the companies in the index gets replaced by different companies, during that time even the fund manager has to replace the stocks with new companies in order to mirror the index. As we know there’s something known as volatility, the price at which the fund manager buys these new companies may be slightly higher. Therefore, the return on index fund tends to be slightly lower than the actual index. For example, Nifty may go up by 12% in a year but the index fund goes up by 11.8 percent. Also there can be other reasons for tracking error, I’ve mentioned only one in this post.

If you plan to invest in index fund, then look for funds with less expense ratio and lower tracking error.

Well, that was it for this post. If you like stock market related info then do check out other posts on this website. Also don’t forget to share this post with your near and dear ones 🙂

Disclaimer : Investing is subjected to market risks. Please read all the terms and conditions before investing. The motive of this post was to teach little things about stocks for those who do not understand much about stocks. Candidcanblog.com will not hold any responsibility for any losses incurred to the readers of this post.