NPS, National Pension Scheme - Detailed Analysis of the Scheme

 

Introduction:

Creating a retirement corpus is essential if you want to live a financial stress free life after you retire and when your income stops. That is why it is advised that you should contribute towards a retirement corpus when you are working so that by the time you retire you have sufficient funds at your disposal to meet the financial requirements of your golden years. 

There are various instruments available in the financial market which helps individuals create a retirement corpus. The National Pension Scheme, also called NPS in short, is one such scheme which is designed to create a retirement corpus for investors.

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What is National Pension Scheme?

The National Pension Scheme is a social security initiative by the Central Government. This pension programme is open to employees from the public, private and even the un-organised sectors except those from the armed forces.

The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.

Earlier, the NPS scheme covered only Central Government employees. Central Government employees joining on or after 01-01-2004 are mandatorily covered under the NPS. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis.

Who are eligible for investing in NPS?

Interested investors would have to fulfil the below-mentioned eligibility parameters if they want to invest in the National Pension Scheme –

• The investor should be an Indian citizen or NRI. In case of NRIs, though, if the citizenship of the investor changes after investment into the NPS scheme, the scheme would be closed.

• The age of the investor should be between 18 years and 60 years.

A systematic investment like this can make a massive difference in your life post-retirement. In fact, salaried people who want to make the most of the 80C deductions can also consider this scheme.

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NPS Scheme Details and Features :

Liquidity and Flexibility via Two Different Account Types

The National Pension System allows individuals to make systematic investments via either of the following two accounts. Account opening with the National Pension System is followed by the generation of a unique Permanent Retirement Account Number or PRAN issued to each subscriber. Fund management, including contribution to this scheme, is done via PRAN.

Tier-I account

Tier-II account

Tier-I account functions as a pension account and withdrawals from it are subject to specific restrictions. An individual can open this account with a minimum deposit of Rs. 500.

As for Tier-II accounts, they are voluntary accounts providing liquidity of funds via investments and withdrawals. The minimum deposit one needs to make for a Tier II account is Rs. 250. However, investments in Tier-II accounts are allowed only when an active Tier I account in the subscriber’s name exists.

Thus, as per the National Pension System architecture, individuals can subscribe to the National Pensions Scheme with PFRDA-appointed intermediaries via the two accounts mentioned above. These intermediaries can include – 

Trustee banks

Custodians

CRA or Central Recordkeeping Agency

Trust

PoP or Points of Presence

Annuity Service Providers.

Flexibility of Investment via Two Different Options

Subscribers can opt for either of the following two investment options, thus providing the flexibility of choice.

It is available as a default option for subscribers as per the system. Fund investments under this option are managed automatically by an appointed fund manager as per an investor’s age profile.

Under this option, individuals are free to decide among available asset classes in which to invest their funds. Also, they can allocate different percentages of contributed funds to be invested in with a maximum cap of 50% for Asset Class E or Equities. Other Asset Classes include Class C, i.e., Corporate Debt Securities and Class G or Government Securities.

Alongside, subscribers also have an option to switch their investment options as well as change their fund manager. These options are, however, subject to certain constraints.

Here are some basic differences between Tier I and Tier II Accounts which would give a clearer picture of the two accounts –

Basis of difference	Tier I Account	Tier II Account
Investment into the account	Investment is compulsory	Investment is optional and depends on the investor
Withdrawal from the account	Withdrawals are restricted and are allowed for specific instances	Withdrawals are allowed freely without any restriction
Tax treatment	Investment into the account would be allowed as a deduction for up to INR 2 lakhs under Sections 80C and 80CCD combined	Investment up to INR 1.5 lakhs is allowed as tax-free investment only for Government employees
Minimum investment at a time	INR 500	INR 250
Minimum investment required in a year	INR 1000	No such requirement
Minimum investment required for opening the account	INR 500 would be required to be deposited when opening the account	INR 1000 would be required to be deposited to open the account

How to open an NPS account

The Pension Fund Regulatory and Development Authority (PFRDA) regulates the operations of the NPS, and they offer both an online as well as an offline means to open this account.

Offline Process

To open an NPS account offline or manually, you will have to find a PoP – Point of Presence, (it could be a bank too) registered with the PFRDA. Collect a subscriber form from your nearest PoP and submit it along with the KYC papers. Ignore if you are already KYC-compliant with that bank.

Once you make the initial investment (not less than Rs.500 or Rs.250 monthly or Rs. 1,000 annually), the PoP will send you a PRAN – Permanent Retirement Account Number.

This number and the password in your sealed welcome kit will help you operate your account. There is a one-time registration fee of Rs.125 for this process.

Online Process

It is now possible to open an NPS account in less than half an hour. Opening an account online (enps.nsdl.com) is easy, if you link your account to your PAN, Aadhaar and mobile number.

You can validate the registration using the OTP sent to your mobile. This will generate a PRAN (Permanent Retirement Account Number), which you can use for NPS login.

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Though the scheme matures after the investor reaches 60 years of age, the investor can withdraw from the scheme fully or partially.

Let’s understand how these withdrawals work:

• Full withdrawal from the scheme before maturity If the investor wants, he can exit from the scheme before attaining 60 years of age. In such cases, 20% of the corpus is allowed to be withdrawn in a lump sum. From the remaining 80%, the investor would have to receive annuity pay-outs.

Partial withdrawals The scheme allows partial withdrawals before maturity. These withdrawals have the following terms and conditions –

• Up to 25% of the corpus can be withdrawn through partial withdrawals
• Partial withdrawals are allowed from the third year of opening the NPS account
• The withdrawal should be done only for meeting specific financial needs. These specific needs include paying for wedding related expenses, meeting a medical emergency, paying for children’s education, buying a home, etc.
• Withdrawals can be made for up to three times during the investment period
• Each subsequent withdrawal should have a gap of 5 years or more.

How to withdraw from the scheme?

Withdrawals can be done through the following steps –

• The withdrawal form should be filled in and submitted to the POP with the relevant documents.
• The POP would verify the documents and forward the withdrawal request to the Central Recordkeeping Agency (CRA) and NSDL.
• The CRA would register the withdrawal request and issue an application form which should be filled for withdrawal.
• Once the formalities are completed, the CRA processes the withdrawal application and the amount is paid.

Extending the investment period

The National Pension Scheme also allows investors to extend the maturity date. This is called deferment and this deferment is allowed for up to 10 years. This means that the investor can choose to extend the maturity age from 60 years to 70 years.

Conclusion :

Pension plans provide financial security and stability during old age when people don't have a regular source of income. Retirement plan ensures that people live with pride and without compromising on their standard of living during advancing years. Pension scheme gives an opportunity to invest and accumulate savings and get lump sum amount as regular income through annuity plan on retirement.

According to United Nations Population Division World's life expectancy is expected to reach 75 years by 2050 from present level of 65 years. The better health and sanitation conditions in India have increased the life span. As a result number of post-retirement years increases. Thus, rising cost of living, inflation and life expectancy make retirement planning essential part of today's life. To provide social security to more citizens the Government of India has started the National Pension System.

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Best Renewable Energy Stocks to buy in 2022

 

Overview of the renewable sector in India

As per the India Brand Equity Foundation (IBEF), India stands fourth in renewable energy capacity and wind power globally. It ranks fifth in solar power capacity. In October 2021, the country maintained its third position on the EY Renewable Energy Country Attractive Index 2021.

Prime Minister Shri Narendra Modi mentioned in June 2021 that India’s renewable energy capacity grew by 250% from 2014 to 2021. Besides, the share of renewable energy itself increased from 21% in 2012 to 37% in 2021. As of April 2022, the installed renewable energy capacity stood at 158.12 GW, which is 39.43% of the overall installed power capacity.

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Why has renewable energy been in focus?

Given the alarming rate of climate change and escalating environmental concerns, countries across the globe are gradually shifting from fossil fuels to renewable sources to meet their energy needs.

What are green energy stocks?

Green energy stocks are companies involved in developing alternative technologies to replace fossil fuels with renewable resources like wind, solar, and hydroelectric. Renewable energy also includes supplementary technologies that will be instrumental in green energy transformation.

Increasing environmental concerns, government support, and massive investments in the renewable energy sector in India are making it an attractive avenue for investors. Top conglomerates in the space are running at it in full swing, expanding assets and capacities to help achieve India’s 2030 target of reaching 500 GW installed capacity. In 2021-2022 alone, the industry saw a 125% y-o-y growth in investments. So it’s natural for you to be interested in riding the wave and locking in attractive returns given by the top renewable energy stocks in India.

Types of renewable energy stocks in India

1.    Clean energy stocks

Shares of any company related to renewable energy can be a clean energy stock. This includes alternative transportation technologies.

2.    Solar and wind energy stocks

As the name suggests, these are more focused and associated with solar and wind energy.

3.    Hydroelectricity stocks

These are companies that use flowing water to generate energy. Currently, hydroelectricity is one of the most popular resources used and is only expected to rise over time.

Why invest in renewable energy stocks in India?

While the industry has been developing slowly, given the rapid rate of climate change, faster development of the green energy sector is the need of the hour. Following are a few reasons why the prospects for the renewable energy sector look greener:

Green energy is the future and has a huge scope

The Central Electricity Authority has estimated that the country’s power requirement is likely to reach 817 GW in 2030, driven mostly by the transport and real estate sectors.

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Companies investing massively to aid renewable energy transformation

While the government is doing its part, companies have also been investing significant funds in the sector to accelerate progress and meet India’s target of reaching net zero emissions by 2070.

Big names like Reliance Industries, Adani Group, Tata Group, and JSW are making the most of this crisis cum opportunity. Together, they are looking to invest over Rs. 4 lakh cr. in the next 5-10 yrs in the green energy sector.

Reliance Industries aims to make India the most affordable destination for green energy globally within the decade. To enjoy swift success, it looks to mirror its telecom strategy in the green energy sector and plans to invest Rs. 75,000 cr. by 2024. Adani Group, on the other hand, wants to become the world’s largest renewable power generating company by 2030. To achieve this, they are considering an investment of over ₹1.5 lakh cr. in the sector over the next decade.

Tata Power is not far behind, having planned investment of ₹75,000 cr. in the next 5 yrs. Finally, JSW Energy Ltd plans to invest ₹75,000 cr. by March 2030 and aims to become carbon neutral by 2050.

The list of best Renewable energy Stocks to invest are given below :

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 Benefits of Investing in Energy Stocks

Energy is a key sector of the economy and will continue to see a rise in demand in the coming future, especially as India moves towards the goal of becoming a developed country. This increased demand will be met through both conventional and renewable sources of energy.

Additionally, by investing in energy stocks, investors can gain from capital growth and dividends. Many investors have earned handsome profits by investing in stocks like Reliance and Adani this year, which have returned spectacular results.

Finally, investing in energy sector stocks will help investors and traders to diversify their portfolios. They can also gain diversification benefits by investing within the energy sector as these stocks deal with various sub-sectors, such as power, solar energy, oil & gas etc.

Factors to Consider Before Investing in Energy Stocks

Investors need to bear in mind that while energy sector stocks have the potential to offer huge returns, they are also highly risky. This is because the energy markets are generally cyclical and highly volatile. The wild swings in the oil market currently are an example.

Another essential thing to be considered is the impact of government regulations. For instance, the levy of windfall taxes and higher duties on ATF fuels suddenly squeezed the margins of refining companies, thus reducing their profitability. 

Furthermore, energy companies are now being subjected to even more scrutiny over their carbon emissions. Global warming and environmental pollution are serious concerns. While many energy companies have been making efforts to reduce their carbon footprint and remodel their business, it will require a substantial amount of CAPEX. Not all companies may be able to afford it and thus may need to shut down.

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Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares. 

 

 

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Best Small Cap Stocks to buy for next 5 years

 

Meaning & Definition :

Small cap companies are relatively small and in the early stages of their development. In India, small cap stocks tend to belong to companies with a market capitalization of below Rs. 5,000 crore. These stocks have high growth potential but come with considerable risks.

Market capitalization refers to a company’s market value based on the total number of its outstanding shares. The market regulator SEBI has defined large cap, mid cap, multi cap and small cap stocks based on their market caps. Businesses that rank 1st to 100th are large-cap, 101st to 250th are mid-cap, and those below 251st are small-cap companies.

One should know that every large or mid-cap company was once a small-cap company and the one who grows their business and sustains its profits can only graduate and step up the ladder from small to midcap or largecap  company. Most of the small-cap companies have low revenues and small number of employees as compared to bigger companies.

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Features of Small Cap Stocks:

High volatility

Small cap shares tend to be more volatile than mid-cap or large cap shares. These shares are more vulnerable to market corrections than large cap stocks as these companies have lower revenue streams and less diversified operations. The small cap share prices increase significantly when the markets are bullish but underperform in bearish markets.

High potential returns

Small-cap stocks are one of the highest-yielding investment options. These stocks can potentially become multi-baggers delivering over 100% returns in favorable markets. If you choose the correct stocks, you can get handsome payouts after holding them for the long term investment.  

Low liquidity

Small-cap shares tend to be less liquid than mid-cap or large-cap shares. These companies are relatively new, and few investors know about them, resulting in fewer buyers and sellers. This is why small cap stocks are not suitable for short-term investments. Their liquidity and price discovery tend to improve over time.

Low price

Small-cap companies are often undervalued due to their lack of recognition. With time, such organizations gain recognition and acquire more capital as they expand. If you can buy small cap shares with solid fundamentals at an affordable price, you can make significant returns when these stocks appreciate.

Room for growth

All the mid-cap and large-cap companies of today are small cap companies of yesterday. Many small-cap companies have the potential to become mid-cap companies in the future and thus offer vast growth opportunities. Their wealth generation opportunity makes them an attractive investment option.

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The list of best Small Cap Stocks are given below :

1. VRL Logistics 

CMP :  Rs. 614            Target : Rs. 825

2. Maharashtra Seamless Ltd 

CMP :  Rs. 752            Target : Rs. 910

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3. Chennai Petroleum Corporation Ltd

CMP :  Rs. 264            Target : Rs. 430

4. Shoppers Stop Ltd

CMP :  Rs. 604            Target : Rs. 840

5. GMDC Ltd

CMP :  Rs. 166            Target : Rs. 270

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Conclusion:

Market capitalisation can play a significant role in your investment portfolio. As the share market passes through different phases, the performance of large-, mid-, and small-cap stocks keeps changing. When large-caps are not doing well, mid- and small-caps could be on the rise. And when mid- or small-caps are plummeting, the large-caps in your portfolio could steady your overall returns. So, it is important for stock and mutual fund investors to diversify their portfolio by investing across market caps. It will help your portfolio to tide you over changing market conditions.

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Best Intraday Trading Strategies You Should Know

INTRODUCTION

As an intraday trader, whether experienced or new, you experience volatility that investors might not. Since you complete entire transactions in a single day, you are susceptible to higher risks. However, as an intraday trader, you can also make high returns when armed with the proper knowledge and strategy. To ensure that you begin with a good understanding of the practice, here is an intraday trading guide with strategic recommendations and handy tips.

ADVANTAGES OF INTRADAY TRADING

• You require less principal amount in intraday trading as compared to investment.
• You have the potential to make substantial profits as you don’t have to wait long durations for profits.
• You can gain more money when the stock market is showing a lot of volatility.
• As an intraday trader, you do not require to lock-in your money for a long time. With this, you can have money to make other frequent trades.
• Day trading leads to lower risks which means if you are holding at least 5 small positions you will be frequently going long and short at the same time. This indicates that at least one side of your portfolio will make money.
• You can have high leverage on your trading capital. This leverage facility varies from broker to broker.

DIS-ADVANTAGES OF INTRADAY TRADING

• When you are making money faster there is also a scope of losing money faster. So there is no fixed salary on which you can depend.
• When you are overconfident with a couple of good trades or else if you are losing you might be psychologically affected. This can take a toll on your health.
• The moment you start ignoring your trading diary and trading plan, your success as an intraday trader is difficult.
• You will not succeed if you try to make money by tips or titbits from your WhatsApp groups. Here, you need to work on charts, understand structures and learn to put your own trades independently.
• You can lose money on all your positions if the market makes medium term counter trend move.
• You can be difficult to make massive returns when the market is trending very strong.
• You know that your career is a lonely one as you sit at home staring at the computer.

STEPS TO BE FOLLOWED IN INTRADAY TRADING

Choosing liquid stocks: 

Intraday trading involves the buying and selling of stocks on the same day. This practice calls for a lot of liquidity in the market. Thus, an important point you should keep in mind is trading in large-cap stocks and avoiding small-cap or mid-cap stocks. 

You should also avoid intraday trading with only one stock and aim to diversify your position across a few stocks. This kind of diversification can help you achieve a balanced intraday trading strategy and mitigate risk.

Freezing the entry and exit price:

While intraday trading, several traders fall for a buyer’s fallacy, due to which they immediately doubt their selection after buying a stock. The buyers begin to believe that they have not made a good choice, with such anxieties leading them into making hasty and wrong decisions. 

You can avoid falling for this fallacy as a trader by deciding an entry and exit price before beginning the transaction. These pre-decided prices allow you to remain objective and keep unnecessary doubt at bay. 

Set a stop-loss level:

When you are intraday trading, the stock you have chosen may fall instead of rising. In such cases, the pertinent question is how low you will allow the price to fall before selling the stock. Deciding on a price at which you must square-off position is an important tip to keep in mind. This intraday trading strategy can help reduce your losses and acts as a safety net. 

For beginners, the 3:1 ratio tip works well. Using this tip, you can set your stop-loss at a price three times lower than the price you would have closed at to book a profit. 

Booking a profit when you meet the target:

The leverage and margins offered by intraday trading are what makes this practice attractive to traders. With intraday trading, you have the potential to earn high returns. However, it is essential to remember that you need to exit the transaction while booking a profit and not get greedy. 

Unless you have good reason to believe that the stock price will climb higher, it is better to exit once you meet your target. 

Close your open positions:

One of the best intraday strategies to adopt is always to close all your open positions, i.e. complete your transactions. Often, when the stocks fail to give the set target price, traders tend to opt for delivery of the shares. The transaction takes place on the next day, hoping to reach the target then. 

However, altering the type of trading practice might not be a wise move. Since you bought the selected stocks for intraday trading, they might not present desired results through delivery trading. Therefore, look at the strength of the stock and only then take the call opting for a long-term investment.

Do not challenge the market:

Predicting the stock market is a tedious task. You will often make decisions regarding the intraday trading strategy you wish to adapt based on your market analysis. However, when you begin trading, the market may go in the opposite direction.

You must remember to refrain from challenging the market and getting fixated on your analysis during such scenarios. A better option is to sell your stock as soon as it reaches stop-loss level.

Research thoroughly: 

When you identify the stocks, you wish to trade in, make sure to research the concerned companies. Reading up about the company can help you understand how market conditions can impact the stock. You should also check for any events like mergers, acquisitions, dividend payments, etc. These events can keep you updated and help fine-tune your timing. 

Timing: 

Conducting your intraday trading transactions at the right time is of utmost importance. Many traders advise that you should avoid taking a position within the first hour after trading begins. This hour is perceived to be very volatile, and thus, several traders tend to take positions post-noon. 

BELOW IS THE LIST OF STOCKS FOR INTRADAY TRADING

Finally, Intraday trading is a reward but a risky tool. For gains, it is advisable to trade after doing thorough research. Furthermore, deep knowledge and upgraded news may enlighten the traders to select profitable stocks. 

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