How to Calculate Brokerage in the Share Market?

When trading in the stock market, one of the most important expenses that you will have to account for is the brokerage. However, many beginner traders miss out on doing that, partly because they fail to understand the impact that brokerage has on their revenue generating potential.

Whether you’re into full-time trading or just occasional investing, it is crucial for you to be aware of what the brokerage on a trade that you’re about to make is likely to be. And that requires calculating the brokerage on every single trade you make.

If that sounds overwhelming, don’t worry. In fact, it is extremely easy and takes only a couple of minutes to calculate the brokerage. But to get there, you would first have to understand the concept of brokerage. So, let’s start off by trying to decode what ‘brokerage’ means.

What is brokerage?

In order to start trading in the stock market, you need to have a trading account and demat account in your name. And to open these accounts, you would have to get in touch with a stock broker. In a way, the stock broker, also often known simply as the broker, acts as an intermediary that connects you and the stock market.

Now, in exchange for enabling you to buy and sell stocks on the share market through them, these stock brokers charge a fee. This fee is what is known as the brokerage. The brokerage is charged on every single trade that you execute, and this includes both ‘buy’ transactions as well as ‘sell’ transactions.

The brokerage charged by stock brokers is not fixed or regulated by any central authority. As a result, the brokerage charges across multiple service providers are not uniform or consistent. What this essentially means is that while one broker may choose to charge, say Rs. 20 for every successfully executed trade that you make as brokerage, another may charge a lower or a higher amount. This makes calculating brokerage slightly challenging. But once you know the rates and how to go about making the calculations, it gets extremely easy.

Why do different brokers charge brokerage at different rates?

In India, there are two different types of brokers – full service brokers and discount brokers. And depending on the category that a stock broker falls in, the brokerage they charge tends to vary.

Full service brokers, as the name itself signifies, provide a whole gamut of services ranging from investment advice, research reports, Portfolio Management Services (PMS), and more. And as a result, they tend to charge slightly higher amounts of brokerage. The brokerage charges of full service brokers generally tend to be a percentage of the trade value, ranging anywhere from 0.01% to 0.50% of the total trade amount.

Discount brokers, on the other hand, do not provide the additional services like investment advice and PMS. This allows them to keep their operational costs low, and consequently, it directly results in lower brokerage costs for the end user. That’s you. Nearly all discount brokers charge a nominal flat fee for every successful trade.

What are the different ways in which brokerage is levied?

Currently, in India, there are three different ways through which stock brokers levy brokerage charges. Let’s take an in depth look at these details.

●        Brokerage as a percentage of the trade value

According to this method, stock brokers charge a percentage of the total trade value as brokerage. Generally, full service brokers use this method of levying brokerage.

Since the brokerage that you would have to pay for each trade depends on the trade value itself, it tends to vary from one trade to another. Simply put, the higher the value of a trade, the higher the brokerage is likely to be. And vice versa.

●        Flat fee for every trade

This is by far the most popular method of levying brokerage on trades. While nearly all discount brokers have adopted this method of brokerage, some full service brokers have also migrated to this model.

In this model, for every trade that you make, a nominal flat fee of say Rs. 10 to Rs. 20 is charged. This is done irrespective of the value of the trade. Even if your trade value is in the hundreds or lakhs, the brokerage that you would have to pay will continue to remain the same.

●        Monthly trading plans

A few stock brokers have come up with monthly trading plans that allow you to place an unlimited number of trades in a month irrespective of the value of the trades. And in return, they charge a monthly subscription fee.

This is exceptionally convenient for very active traders who place multiple trades in a day, since it allows them to save quite a bit on brokerage. That’s not all. These kinds of plans don’t require you to calculate brokerages for every trade as well.

How to calculate brokerage for a trade?

Now that you know the different ways in which stock brokers charge brokerage, let’s take a quick look at a couple of examples and see how you can calculate the brokerage for a trade.

●        Brokerage as a percentage of the trade value

Assume that you’ve opened an account with a stock broker who charges 0.25% as brokerage for every trade that you make. Now, let’s say that you wish to buy 100 shares of Reliance Industries. The share price is currently at Rs. 2,500 per share. So, the brokerage that you would have to pay would be calculated as follows.

Brokerage on this trade = 100 shares x Rs. 2,500 x 0.25% = Rs. 625

After a couple of days, say the share price rises up to Rs. 2,600 and you wish to sell the shares for a profit. Here’s what the brokerage on this ‘sale’ transaction would come up to.

Brokerage on this trade = 100 shares x Rs. 2,600 x 0.25% = Rs. 650

As you can see, the total brokerage that you pay in this instance comes up to Rs. 1,275 (Rs. 625 + Rs. 650).

●        Flat fee for every trade

On the contrary, let’s now assume that you’ve partnered with a stock broker that charges a flat fee of Rs. 15 per trade. Going by the same example as seen above, you wish to purchase 100 shares of Reliance Industries at Rs. 2,500 per share.

The brokerage that you would have to pay for the ‘buy’ transaction would be Rs. 15 and for the ‘sale’ transaction would again be another Rs. 15. This effectively means that the total brokerage that you get to pay in this instance only comes up to Rs. 30, which is very economical.  

Using a brokerage calculator

Although the above calculations take only a couple of minutes to do, there’s a way to simplify it even further. Using a dedicated brokerage calculator can help you here. Here’s a quick overview of how you can use one.

For this example, let’s take the brokerage calculator from TradeSmart. Here are the steps that you would have to follow to use the TradeSmart brokerage calculator.

  1. Firstly, navigate to the brokerage calculator page on the TradeSmart website.
  2. Select the brokerage plan that you’ve opted for – Value Plan or Power Plan. In the Value Plan, the brokerage that you’re liable to pay on a trade is 0.007% of the trade value. And in the Power Plan, the brokerage is a flat fee of Rs. 15 per trade.
  3. Once you’ve selected the right plan, choose the segment that you wish to trade in – Equity F&O, Currency, or Commodities.
  4. Next, enter the particulars of the trade. This includes specifying the segment, trade quantity, buy price, sell price, and the exchange.
  5. In the case of Power Plan, you may have to specify an additional field, namely the number of orders that you wish to execute.
  6. As soon as you enter the above details, the brokerage that you will have to pay on the trade will automatically be displayed on your screen.

It is as simple as that! And in addition to the brokerage, the TradeSmart brokerage calculator also displays other charges that you would have to pay on the trade as well. This includes Turnover Charges, GST, SEBI charges, Stamp Duty, and Securities Transaction Tax (STT).

However, if your stock broker is someone other than TradeSmart, make sure to use their version of the calculator since the brokerage that they charge may be different.


Whether you’re using a dedicated calculator or performing the calculations manually, always remember to also account for the various other charges that you would have to pay in addition to the brokerage, such as the STT and the GST. This will ensure that you get a more comprehensive picture of the amount of expenses involved with a trade.

Types of FDI

Foreign direct investment, also typically referred to as FDI, is an investment made in a business by an entity, individual or company, from a foreign country. The defining characteristic of FDI is that it represents a degree of direct control that the investor possesses with regards to their stake, rather than just facilitating a transfer of funds. FDI is one of the most vital channels for international direct investments and acts as an indicator of a nation’s socio-economic and political stability. Unlike Foreign Portfolio Investment, FDI allows the investor to hold a stake in a company based in a foreign country while exercising some control over their investment. FDI can also provide insight into the economic conditions of a country; the greater the number of foreign investments, the likelier it is that the recipient country has a dynamic and flourishing economy.

Understanding the Workings of Foreign Direct Investment

FDI can be categorized as ‘organic investment’ or ‘inorganic investment’.  Organic investments are when a foreign investor lends capital to a certain established business to facilitate its growth and expansion. On the other hand, when a foreign entity buys out said business, it is known as inorganic investment.

In emerging economies and developing markets such as India, FDIs are a stimulus that can provide a much-needed boost to a business that is in need of financial support. In order to direct investments through this channel, the Indian government has introduced a multitude of measures that serve to promote FDI in various sectors of the economy like IT, telecom sector, defence production and PSU oil refineries. In India, FDI is a promising candidate for becoming a spearhead for economic development, since it is a non-debt resource. Foreign direct investment has been made thanks to two main factors- globalisation and internationalisation. There are a few reasons for the viability and popularity of FDI; they have helped in overthrowing monopolistic business practices, they can provide control over businesses in foreign countries and they provide a helpful cushion that protects companies in the event of a sudden decline in business due to market fluctuations.

Exploring the Methods of Foreign Direct Investment

Foreign investors can partake in foreign direct investments in a number of different ways. They can expand their own operations in a foreign country, or they can obtain voting stocks of a business based in a different country. Here are a few different ways in which FDIs can be used to penetrate overseas markets:

  1. Acquisitions or Mergers
  2. Acquiring voting stocks in a company based in a foreign country
  3. Proposing joint ventures with overseas firms
  4. Expanding by means of a new subsidiary or branch of a domestic business in a foreign country.

What Are the Different Types of FDI?

The investment market is vast, with several avenues for investment opportunities. Even within FDI, there are four distinct types of investments, each with its own approach. Here are the different types of foreign direct investments:

      1. Horizontal FDI

Horizontal FDI is the most common type of foreign investment. It involves investing capital in a foreign company that belongs to the same industry sector that the investor conducts or owns business operations in. Thus, the investment is made through the domestic company in a foreign company, both of which produce similar goods and belong to the same industry. The distribution of funds is seen horizontally across the sectors, despite being in different countries since the core business undertaking is the same. It can also be seen as an expansion of the investor’s domestic business overseas.

  1. Vertical FDI

A vertical FDI is when an entity invests within the supply chain of a business, but the component may not necessarily belong to the same industry. Thus the investor chooses to invest in a foreign company that can supply that component. For instance, a coffee producer may invest capital in overseas coffee plantations. Here, since the investing company is purchasing a provider in the supply chain, this is known as backward vertical integration. On the other hand, when the investor invests in a foreign company that is placed higher in the supply chain it is known as forwarding vertical integration. For example, the same coffee company may want to invest in a foreign grocery chain. Thus, the business expansion occurs on a different level in the business supply chain, but the undertakings are still associated with the primary business. This helps the investor is effectively strengthening their supply chain without drastically modifying their business.

  1. Conglomerate FDI

When an investor chooses to invest in two entirely different businesses based in completely different industries, it is known as conglomerate FDI. In this scenario, the FDI is not directly linked to the foreign investor’s business. For instance, an automobile manufacturer may decide to invest in Pharma. Here, the investor is undertaking foreign business investments that are completely unrelated to their domestic business. This type is relatively uncommon since the difficulty of establishing a business in a new country is compounded by the difficulty of a breakthrough in a new market or industry. The goal of a conglomerate FDI is to expand into new niches and explore different business opportunities.

  1. Platform FDI

Platform FDI is the final type of foreign direct investment. In this case, the investor’s business works towards expansion in a foreign country, with the ultimate aim of exporting the manufactured products to a completely different, third country. For example, a clothing brand based in North America may outsource their manufacturing process to a developing country in Asia, and sell the finished goods in Europe. Thus the expansion occurs in one foreign country, and the output is carried on to a different foreign country. This type of FDI is generally seen in free-trade regions in countries that are actively seeking FDI. Luxury clothing brands are a classic example of this type of FDI and manufacturing process.

What Are The Advantages and Disadvantages of FDI?

After 1991’s economic liberalization, India was able to open its markets to foreign investors. The past few decades have seen several government reforms that have been introduced to encourage foreign direct investments in the country. In addition to facilitating business expansion and economic growth, FDI also plays a significant role in building trade relations, creating new employment opportunities, improving managerial expertise, technological advancement and bettering infrastructure. According to the UN’s World Investment Report 2020, India received a record-shattering  USD 51 billion in FDI in the year 2019 across all economic sectors. However, in spite of their benefits, FDIs do carry certain disadvantages. Here is a brief overview of the pros and cons of FDIs.

Advantages :

  • FDI can help garner tax breaks, preferential tariffs or certain incentives
  • FDI can allow for greater investment diversification
  • Countries receiving foreign capital can utilize it for maximizing employment opportunities
  • Foreign capital can act as a stimulus for the recipient country’s economy
  • FDIs can facilitate access to new technology and management strategies

Disadvantages :

  • The involvement of foreign investors can cause other local or domestic businesses to lose out if they cannot keep up with the speed or scale of production
  • Megacorporations can utilize FDIs as a tool for taking over domestic markets in foreign countries, and thus hamper local economies
  • Profit repatriation is an everpresent risk; it is possible that the profits generated in a particular country may go directly to foreign investors and may not benefit the domestic economy at all

To Sum It Up

The last decade or so has seen a steady influx of foreign direct investment in India in numerous sectors such as automobiles, pharmaceuticals, transport and textiles. This inflow is expected to not only continue but also increase considerably in the coming years. Some economic sectors such as Indian airlines have been made 100% open to foreign investment. FDI infusion is also expected to help programs such as ‘Make in India’. If you’re looking to invest via foreign direct investment, you need to acquaint yourself with how FDIs work and what different types of FDI come into play. The investments made through FDIs can be greatly beneficial for your own business or can bring considerable returns through another.

The Importance of Knowing Share Market Terminology

Acquainting yourself with current terminology related to the stock market is a must, for new investors and seasoned traders alike.  This essential knowledge is necessary for understanding the share market and how investments are conducted. Moreover, this field-specific jargon is used by equity analysts and market experts to describe the state of the share market. By expanding your share market lexicon, you are equipping yourself with the fundamental know-how of the market and improving your chances of success as an investor or trader.

Stock market or share market terminology refers to the jargon which is commonly used in relation to the markets. These terms are used to break down stock market patterns, indices and trading strategies. For instance, “bull market” and “bear market” are two frequently used terms in the market. Bull market refers to when the economy is stable and the market is on an upward trajectory. Meanwhile, bear market is when the market is experiencing an extended period of decline in price. In order to ensure successful gains in the stock market and to understand economic events better, familiarizing yourself with such jargon is essential. This article aims to introduce and explain some essential terms that can aid you in your share market endeavours.


The ABC’s of The Share Market

Here is a glossary of stock market terms that you should know as a trader or an investor:


In the share market, an agent is the brokerage firm that performs the buying and selling of stocks on behalf of the investor.


The ask or offer is the lowest market price the owner is ready to sell an equity share at.

At the money:

This term refers to a scenario where an option’s strike price is the same as the market price of its underlying asset.

Bear Market:

This is a period during which the prices of equity shares is on a decline for a prolonged duration.


A broker is an intermediary who conducts the sale and purchase of stocks on behalf of the investor, in exchange for a commission.


When stock prices are on the rise for an extended period of time, the market is a bull market.


Beta is a measure of the relationship between stock market movements and the price of an equity share. Market beta is 1, and if the beta of a stock is greater than one, it is considered riskier than the market.


A bid is the highest price that a buyer agrees to pay for a certain stock.

Blue Chip Stock:

This term refers to equity shares offered by solid companies which have stable finances and high market capitalization.

Board Lot:

Every exchange board determines a standardized trading unit that depends on the price of each share. Common board lot sizes are 100, 500 and 1000 units.


This is a fixed income financial instrument that represents a particular amount lent to the bond’s issuer for a pre-determined period of time at a certain interest rate. It is issued by a company or the government.


This is an electronic record that organizes all the purchase and sale orders of stocks that are pending.

Business Day:

Any given day of the week from Monday to Friday, except for statutory holidays.

Call Option:

Call option refers to the right of the buyer to buy the underlying asset at a particular time at a specific price.


Capital refers to an investor’s financial assets in various securities, fixed assets and cash.

Capital Gain or Loss:

This refers to the profit or loss sustained in the process of trading capital assets in the stock market; these include investment property, stocks, etc.

Capital Gains Distribution:

This refers to a distribution of gains by the issuer, which is taxable and typically paid to security-holders of funds, partnerships, trusts,etc. It is paid in cash or securities. The payable date, amount and record date are set by the issuer, and the respective exchange determines the entitlement date.


This is a physical document that represents ownership of a security such as a stock or a bond.

Clearing Number:

This refers to a clearing member or participating organization’s trading number.

Client Order:

When participating organization’s retail customer places an order, it is known as a client order.

Closing Transaction:

This refers to an order for closing out an open options or futures contract.

Close Price:

On a given trading day, this is the final price at which a company’s equity shares are traded or sold.


Commodities are the raw material products used for manufacturing goods, such as oil, timber, agricultural produce, metals, and so on. These are traded on a separate commodities exchange, and they are what futures contracts are based on.

Common Shares:

Common shares are financial instruments that indicate partial ownership or stake in a company, and they typically entail voting privileges for the shareholder. Common shareholders are paid after preferred shareholders, debt holders and creditor’s in case the company liquidates.

Convertible Securities:

Securities like debentures, bonds, preferred stocks which can be converted into other securities of the same issuer are known are convertible securities.


Debentures are another fixed-income investment, and are not backed by any collaterals or physical assets.

Defensive Stock:

Defensive stocks are those which offer stable and consistent returns, regardless of what state the stock market is in. IT, Pharmaceuticals and FMCG are defensive sectors.


This refers to the ratio representing the change in a derivative’s price in reaction to a change in the underlying asset’s price. Higher the delta, greater the sensitivity of the derivative to the underlying asset’s price changes.


Diversification is the process of reducing investment risk by investing in a variety of securities from multiple companies in different economic sectors.


This refers to the sum paid by the issuer of a share directly to the shareholder.

Exchange-Traded Fund (ETF):

An ETF is a unique index mutual fund that is actually traded like it is a stock. It allows investors to buy multiple stocks at once through one single instrument, which gives returns similar to those of the corresponding stock market index it tracks.

Face value:

Face value is the cash value or sum of money that the holder of a security earns from the issuer at the date of maturity.

Initial Public Offering (IPO):

An IPO is an issue of shares offered by a company to the general public to raise capital with certain needs in mind.

International Securities Identification Number (ISIN):

This refers to a code that acts as a unique identification for every security. This is the international standard and constitutes two alphabetic characters representing the country code as directed by ISO 6166, followed by 9 alphanumeric characters that are the security identifier, with an ISIN check digit at the end.

Moving Average:

It refers to the average price per unit of an equity share with respect to a specific period of time. Some popular time frames used to study the moving average of a stock include 50- and 200-day moving averages.

One-sided Market:

Market situations where only sellers are present or only buyers are present, but not both simultaneously.


A portfolio is a document listing all the securities or investments held by an institution or individual, and includes holdings of the investor from different companies as well as sectors in the economy.

Rupee Cost Averaging:

This is the act of investing a set number of rupees in a particular security, at fixed intervals over time. This lowers the average cost of each share, and the investor can buy fewer shares at a time of price hike and more shares when the prices drop.

Short Selling:

This is a trading strategy that involves the seller attempting to sell a security they do not own or have borrowed. The assumed risk is that the investor hopes to buy a certain stock for less than the current price.


This is the difference between the ask price and the bid for an equity share. This can be seen as the difference between the price at which you would prefer to purchase the stock and the price at which you would like to sell it.


This refers to the price fluctuations in the market. During a trading session, very volatile stocks experience extreme highs and lows. Risky bets have the potential to bring great gains, if you have the experience to master them. However, they may also result in considerable loss after they crash.


This is the number of stocks traded in a particular period on average, such as the daily trading volume.

Yield/Dividend yield:

This refers to the amount paid out by a company in dividends on a yearly basis, in comparison to the stock price.


How to Earn 1 Lakh per Month from Share Market?

Whether you’re a beginner or an individual with some experience with stock trading, chances are that you might have heard or read about traders making Rs. 50,000 and Rs. 1 lakh each month. While in most cases they’re true, there are a lot of underlying factors and things that you should know about if you’re about to try it for yourself.

This article can help you understand whether earning Rs. 1 lakh per month from the share market is possible and the various ways in which you can attempt to do it. So, let’s first begin by answering the elephant in the room.

Can you earn Rs. 1 lakh per month from the share market?

To put it simply, of course. It is possible to earn Rs. 1 lakh each month from just indulging in stock trading alone. But, before you get all inspired to jump fully into the world of stock trading, here’s something that you should know.

Achieving this target month after month is not easy even for experienced investors and traders alike. It not only requires a lot of hard work and patience, but also needs quick thinking and appropriate decision making skills.

The stock market, although well-known for its ability to generate high returns, is a very complex environment and can frankly be quite unpredictable at times. That said, it is very much possible for you to earn that much money each month from the share market.

Different ways that you can use to get to the target of Rs. 1 lakh per month

Now, the first step to achieving your target of Rs. 1 lakh per month is understanding the different ways through which you can go about generating that income. Here are three of the most common ways that traders use to generate returns from the stock market.

●        Delivery Trading

Delivery trading is one of the most common forms of trading that individuals take part in. In this, you place a buy order for the shares of a company from your trading account. And once your buy order is executed, the shares of the said company are automatically ‘delivered’ to your demat account within T+2 days.

And once the shares are delivered to your demat account, you can then sell them at any point in time as you see fit. While this is a great way to trade, it may not always give you the returns that you’re expecting each month. This is simply due to the fact that there’s a time delay of around 2 days from the date you purchase the shares to actually getting them delivered into your demat account.

●        Intraday Trading

On the other hand, intraday trading involves buying and selling shares of companies on the same day. Here, traders don’t actually wait for T+2 days for the shares to get delivered to their demat account. Instead, they bypass the entire share delivery process completely by buying and selling the shares within the same trading day or session.

Since the demat account is not used for intraday trading, technically, you can make do by just opening a trading account alone. Also, traders interested in intraday trading should make sure that they select the ‘Intraday’ or ‘MIS’ option when placing buy or sell orders. Not selecting this option would mean that the trade would default to the ‘Delivery’ mode.

And considering the fact that you buy and sell shares within the same day or session, intraday trading has a higher potential to deliver quick returns since you can place multiple trades within a day. However, the amount of return per trade may not be as high as delivery trading though.

●        Derivatives Trading

If you’re really interested in earning Rs. 1 lakh per month from the share market, one of the best ways, if not the best, to do it would be to start trading in derivatives. Derivative contracts of shares such as futures and options are slightly more complex concepts that require in depth research before you can start trading in them.

One of the primary advantages of derivative trading is that you don’t have to put up the entire amount of investment upfront. Instead, you will only have to pay a small portion of it called the ‘Margin’.

By paying only a portion of the entire investment value, derivatives allow you to purchase more contracts than you would have normally been able to. Buying more contracts can result in amplified profits if the market were to respond to your expectations, getting you closer to your intended target amount much faster than the other two ways.

However, there’s also a pitfall here. While your profits can be amplified to a large extent, your losses, if you were to happen to encounter them, can also be magnified. And this can put your entire investment capital at risk even. Since derivatives carry a very high risk to reward ratio, they’re something that only experienced individuals should trade in.

Things to focus on in your pursuit of earning Rs. 1 lakh per month from the share market

So, we’ve covered the different ways through which you can achieve your monthly target of Rs. 1 lakh per month. It is now time to take a look at a few of the most important things that you should always keep in mind when attempting such a feat.

●        Be disciplined in your approach

Discipline in the form of having a set systematic approach to stock trading and consistency is key. Especially since you plan to earn Rs. 1 lakh each month, being disciplined in your approach can take you a long way.

●        Do extensive research

While you might be tempted to go by research reports and trading advice from established stock brokers and traders, it is a good idea to refrain from doing so. That said, if you’re ever hard pressed to follow them, always make sure to do extensive and adequate research. This way you can minimise the risks involved in stock trading to a large extent.

●        Keep a close eye on your investments

If you have a portfolio of investments, then it is extremely crucial for you to regularly monitor their progress. While the ‘buy and hold’ and ‘buy and forget’ approaches may work well for individuals that have a long-term view, it may not be very lucrative if you’re planning to generate consistent income of Rs. 1 lakh each month. By rigorously monitoring your investments, you would be in a much better position when it comes to taking the right decisions at the right time.

●        Keep your expectations realistic

Once in a while, you may experience much higher profits and returns than what you would have expected. In such cases, it is important for you to know that such incidents are not the norm and may only present itself to you once in a while. Instead, having more realistic expectations of what a trade might give you is a much better way of approaching stock trading. For instance, if you’re investing Rs. 1 lakh in the stock market, expecting a return of 10%, which comes up to Rs. 10,000 is what is called a realistic expectation.


The stock market can be a very unpredictable environment. And so, the market may not always move according to your expectations, leaving you with a chance of not being able to make a steady income of Rs. 1 lakh per month regularly. This is something that you must account for without fail. That’s not all. You should be prepared for losses as well.

Also, when placing multiple trades in a short period of time, brokerage charges are again something that you should keep an eye on. Some stock brokers tend to charge as much as up to 0.25% to 0.50% of the trade value as brokerage, which can drastically reduce your income considerably.

Here’s where TradeSmart excels. You get multiple brokerage plans ranging from 0.007% of the trade value to a flat fee of Rs. 15 on each executed order. You can get more information regarding the brokerage plans on offer from TradeSmart Online by clicking this link here.

How to Calculate Share Price?

Share Prices and the Market

 Ordinarily, supply and demand drive the stock market in the same manner that they propel forward other markets. Each time a stock is sold, its buyer and seller swap money for share ownership. The new market price is the price at which the stock is bought for. As and when more stocks sell, their selling prices become the newest market prices. 

 The Influence Demand and Supply Has on Share Prices

 The greater the demand there is for a stock, the more intensity with which its price rises. Similarly, in the event that the demand for a stock is lacklustre at best and it continues to dip, so too, does its price. 

 Now, the quantity of a stock also drives its price. Should a stock be limited in its quantity, its price is likely to rise upward whereas if there are ample amounts of a stock available, its price is likely to move downwards. 

 This means that while, theoretically speaking, a stock’s initial public offering or IPO is offered at a price that equals the value of its future dividend payments, its price still fluctuates keeping in mind supply and demand.

 Understanding Factors That Affect Share Prices Directly

 In addition to demand and supply, the following factors directly impact share prices.

 The earnings and profitability of a company via their production and sale of goods and services.

The behavioural factors of investors and traders operating the market can cause stock prices to move.

In the event that supply and demand are equal, stability prevails within a company’s share prices and they experience only a minor increase or decrease in their prices. In the event that the supply or demand suddenly outweighs the other, an abrupt price change can be expected.In instances of a company issues new shares in the market to be purchased by the public, the quantity offered is ordinarily limited. In the event that tons of investors seek to get their hands on these shares and the supply remains limited, the share prices will rise.

In case a company chooses to buy back its shares from the market, it reduces the number of shares that circulate within the market. With the reduced supply now available, the prices of the company’s shares can rise.

 Understanding Factors That Affect Share Prices Indirectly

 Listed below are some of the factors that indirectly influence the prices of company stocks.

  • Changes made to economic policies
  • Deflation
  • Global fluctuations
  • Industry trades
  • Inflation 
  • Interest Rates
  • Market sentiment 
  • Natural disasters

 Company Share Price and Company Value

 While the law of supply and demand is fairly straightforward to understand, understanding demand in real time can be tricky. Investors’ feelings towards a company’s worth are showcased in the price movement of a stock. However, how do investors decide what a company is worth? One area they definitely do take into account is said company’s current earnings i.e., the extent to which and how much profit it accrues. Yet most investors do tend to look beyond these numbers as well. This means that the price of a stock isn’t exclusively reflective of its company’s prevailing value. It also indicates the company’s prospects and the growth the investors believe – or rather, expect – it to achieve in the future. 

 Predicting a Company’s Share Price

 Quantitative techniques and formulas are utilised in order to predict what a company’s share prices will amount to. These models are called dividend discount models (or DDMs) and are created keeping in mind the idea that a stock’s current price is equivalent to the sum total of each of its dividend payments made in the future when discounted back to their current value. By discerning a company’s share by its anticipated future dividends in their totality, dividend discount models actively employ the time value of money (or TVM) theory.

 The Gordon Growth Model

 While there exist plenty of dividend discount models, some are more popular than others. The Gordon Growth Model, for instance, is popular owing to its inherent straightforwardness. Myron Gordon, an American economist is credited with developing this model in the 1960s.

 The present value of stock is equal to dividend per share divided by the discount rate from which the growth rate has been subtracted. 

 The equation that the Gordon Growth Model employs is represented as follows. 

  P = D1  / r – g


P = current stock price

g = constant growth rate in perpetuity anticipated for the dividends of the stock

r = constant cost of equity capital for said company (this is also referred to as the rate of return)

D1 = value of the following year’s dividends

 Using an Example to Understand Share Price Valuation 

 Let us assume that company ABC’s stock is trading at INR 100 per share. Now, this company requires a 5 % rate of return (r) as its minimum and presently pays INR 2 dividend per share (D1). This figure is expected to rise by 3 per cent on an annual basis (g).

 The intrinsic value (p) of the stock can therefore be calculated as follows. 

 INR 2 / (0.05 – 0.03) = INR 100

 As per the Gordon Growth Model, since these shares prices’ match their intrinsic value, they are correctly valued and appropriately price. If, however, they were being traded at a price of INR 150 per share, they would be overvalued by 50 per cent. Similarly, if they were being traded at a price of INR 80 per share, they would be undervalued by INR 20. If this undervalued price prevailed, it would create a buying opportunity for value investors that actively seek out stocks that are operating below their intrinsic value as it gives them a chance to score a profit in the future.

 The Gordon Growth model considers a stock’s current value in the same way it would treat perpetuity, which here means a constant stream of the same cash flows for an unending period of time. However, in real life companies do not and are not able to maintain the same rate of growth each year and their stock dividends aren’t necessarily going to increase at a constant rate. 

 Further, while a stock price is conceptually decided keeping in mind its anticipated future dividends, it is important to understand that several companies do not distribute dividends.


 Those seeking to make profits from the stock market often look out for shares whose market prices fall below their intrinsic value. Investors who purchase these shares frequently are called value investors and they aim to hold onto these shares for a significant period of time or until the market price equals if not exceeds their intrinsic value such that they can generate returns on their investments. Methods used by value investors to discern which stocks operate below their intrinsic value include the following.

Price to earnings (or P/E) ratio 

Price to book (P/B) ratio

Debt to equity (D/E) ratio

Free Cash Flow

Price/ earnings to growth (or PEG) ratio

NSE vs BSE – Which is Better?

Looking at the Scope of a Stock Exchange

 A stock exchange fosters the trade of varied securities including shares and bonds. Investors and traders alike navigate the stock exchange in the hopes of scoring a profit and generating a return on their investment. Those seeking to make trades can take on the help of brokers and agents or may proceed to make trades themselves.  The stock exchange can be characterized as a marketplace that is organized and regulated and encourages varied financial activities including the issuance, sale and purchase of shares. Via the stock exchange, it is possible for companies to raise money. It also plays an important role in setting up the economy of a nation as it allows for the sale of derivatives as well as security debts.

 Organizations and investors hoping to invest can make important decisions with the aid of real-time pricing data made available by the stock exchange. Listed companies, however, are required to adhere to certain rules and regulations if they hope to raise capital. 

 India’s two major stock exchanges are the Bombay Stock Exchange (or BSE) and the National Stock Exchange (or NSE). This article seeks to understand the differences that exist between the two. 

 An Overview of the National Stock Exchange

 Founded in 1992, the NSE is one of the country’s newer stock exchanges. This exchange received its big break in 1993 as it enabled the trading industry to take advantage of its entirely automated, screen-based and most, importantly, electronic systems. Since 1995 the NSE has made available to the public a secure platform that allows for the trade of shares and bonds. The introduction of this electronic system helped remove the paper-based trading system that was previously in place.

 Nifty-50 which is the NSE benchmark index was launched in 1995-96. April 1996 saw the introduction of the Nifty which tracks the 50 most liquid stocks that are constantly traded (and listed) on the NSE. By keeping tabs on the Nifty 50, you can better understand prevailing economic trends. This index can also help investors determine what stocks are viable investments. 

 An Overview of the Bombay Stock Exchange

 Recognized as not just the oldest stock exchange in India, but in Asia, the BSE come into being in the year 1875. Ever since, they have made available high-speed trading instruments including derivatives, mutual funds, currencies, equity, and debt instruments. Founded by Premchand Roychand, this exchange was previously called the Native Share and Stock Brokers Association. 

 BSE only gained recognition by the Central Government of India in 1957 as the country’s premium stock exchange. The benchmark index of this exchange is the SENSEX (which is a play on the words sensitive index) and is the country’s first equity index. This index keeps tabs on the 30 largest companies that are listed on the BSE and are its frontrunners. These companies hail from more than 10 sectors and showcase the prevailing trends in the Indian economy as well as the stock market as a whole.

 NSE or BSE – Which Exchange is Better?

 While there exist only a few minor differences between the National Stock Exchange and the Bombay Stock Exchange, it is important to be careful in terms of selecting which exchange to trade on. This holds particularly true in the case of new investors. Beginners who have limited to no experience trading are advised to first navigate BSE’s waters as the NSE is best suited to seasoned investors. The NSE is appropriate for day traders who are capable of and enjoy taking on risks.

 Tabulating the Differences between the NSE and the BSE 

 Examine the table mentioned below to gain insight into the varied ways in which the country’s two leading exchanges differ from one another. 

Area of Consideration NSE BSE
Summary The National Stock Exchange serves as the country’s largest stock exchange that provides a screen-based, electronic and entirely automated trading system to interested traders, companies, organizations and investors to utilize.  The Bombay Stock Exchange is the country’s oldest and first stock exchange. In fact, it happens to be the oldest stock exchange in India and offers its clientele high-speed trading opportunities.
Date of Establishment Although this stock exchange was founded in 1992 it only gained credence in 1993. While this exchange was incorporated in 1875, it was only recognized as a premier stock exchange by the Central Government of India in 1957.
Ranking NSE ranks as the world’s 11th largest exchange in cash market and largest in derivatives in the world. BSE is ranked number 11 in the world’s largest stock exchange rankings in cash segment. 
Benchmark Index Nifty 50 is the NSE’s benchmark index. 

Of the 1600+ stocks listed on the NSE, this index tracks 50 of the largest companies whose stocks are the most liquid.

The benchmark index for the BSE is the SENSEX which is comprised of the leading 30 largest companies that are listed under the BSE. 

The SENSEX is the country’s first equity index.

Network The NSE network is present in over 1500 cities. The BSE network extends across 450 cities.
Companies Listed Approximately 1700 companies are listed on this index. Approximately 5800 companies find themselves listed on the BSE.
Liquidity The NSE is more liquid in comparison to the BSE owing to the greater trading volume it experiences. The liquidity level of the BSE is comparatively lower than  that of the NSE.
Market Capitalization NSE’s market capitalization amounts to Rs. 253.029 lakh crore as of August 2021*. The market capitalization of this index amounts to nearly Rs. 276.713 lakh crore*.
Products  Products traded on the NSE include offer for sale, equity, institutional placement program, currency, mutual funds,  initial public offering, traded funds, corporate bonds, security lending and borrowing schemes.  Products traded on the BSE include offer for sale, initial public offering, currency, equity, corporate bonds, commodity derivatives, mutual funds and traded funds.
Vision This exchange is committed to improving the financial well-being of individuals and seeks to always be a leader and establish a global presence for itself.   This exchange seeks to be the country’s premium stock exchange that boasts of the best-in-class global practices with regard to its customer service, product innovation, and most importantly, the technology it incorporates.
Ideal Investor Profile This exchange is best suited to those who have a high threshold for risk and are seasoned investors. 

Day traders often like trading on the NSE as it has a comparatively higher level of liquidity.

This exchange is better suited for those who have limited to no experience trading. 

It also features new companies to invest in.

*source: wikipedia

Summing Up 

 The NSE as well as the BSE are key players with regard to the Indian economy and play a major role in shaping it. They also help develop the country owing to which their importance cannot be minimized. Countless traders and brokers navigate these exchanges on a daily basis in the hopes to profit from their transactions. Each of these exchanges is located in Mumbai which is the country’s commercial capital.  

How to Earn 1000 Rs per Day from Share Market

A Brief Overview of the Markets and their Potential 

 Individuals often navigate the stock markets in the hope of accruing a fair number of profits and generating returns on their investments. The stock markets are an incredibly lucrative avenue for those seeking to make money provided they have the skills needed to navigate it. While several people hope to make INR 1000 each day from these markets, not many are able to walk away with such rewards as they don’t have the skills, knowledge, or experience that enables others to do so. 

 A number of factors govern the movements of share markets, and they may pertain to domestic as well as international events. Owing to the fact that they are situational, they are beyond anyone’s control. As it is hard to predict a market’s daily movements, experienced traders ordinarily prefer setting targets that they seek to earn each month as opposed to setting them for each day. This is owed to the fact that each day does not bring with it the opportunities for trade and if traders attempt to earn from the share market on a daily basis, they can end up incurring major losses in the process. Ideally virtual trading is the best place to begin one’s trading journey and provided it is a success, individuals should then head on over to real trades. 

 One of the primary factors to bear in mind is that there are no limits imposed on the extent to which an individual can invest. You have the choice to begin your journey across these markets with INR 1000 or INR 100,000, if not more. The extent to which you choose to spend is entirely up to you and there are no caps imposed on the extent to which you are able to earn. Theoretically speaking therefore, unlimited amounts of money can be earned from the share markets.  

Earning INR 1000 Daily from the Share Markets

If you are curious how to walk away with INR 1000 on a daily basis from the share markets, consider the strategies provided below that allow for easy earnings. 

 Suggestion #1. Gravitate Towards High Volume Shares 

 One of the primary rules of thumb pertaining to intraday trading dictates that traders should always keep tabs on shares that are highly liquid and have a high volume. Volume here refers to the number of shares that changes hands frequently in the course of a single trading day. As you must close your position prior to the trading day ending, your profit is determined upon how liquid the stock in question is. 

 You must therefore always be certain of the stock you plan to invest in. Only consider other people’s opinions and analyses once you have made up your own mind. Provided that you are confident about certain indices or stocks, you should invest in them. If you aren’t, hold your horses. You can begin by making a list of 8 to 10 shares that you seek to target and can begin by researching them yourself. During this time, you should take into account the manner in which the prices of these shares fluctuates and only then consider investing in them.

 Suggestion #2. Steer Clear of Feelings of Greed and Fear

 It is imperative for those navigating the stock markets to not be governed by feelings of fear and greed. Each of these emotions can adversely impact your trading decisions. More often than not, these feelings lead traders astray and encourage them to take on more than they can handle. Therefore, it is important to have a clear idea of your stance towards certain stocks and hold on to this position. 

 As a trader you must be willing to accept the fact that you can’t earn profits each time you trade. If you have such ideas, you must abandon them immediately as they can leave you feeling most disappointed. Intraday traders must set firm limits and operate within them.

 Suggestion #3. Determine What your Entry and Exit Points Are and Don’t Budge

 Now that you know what you ought to avoid doing, consider this next suggestion which is capable of increasing your profits. In order to be able to earn a certain amount each day from the share market you should determine what your entry and exit points will be while you trade and maintain them. It is of paramount importance for traders to determine what these two pillars are as they help foster successful trades and only once they are pinpointed can you proceed to think about earning a profit. 

 This means that prior to placing a buy order determine what your entry point will be and the price target. Price target here refers to the price that a stock will amount to keeping in mind the stock’s history and projected earnings. In the event that the stock in question operates below this price, you should consider investing in it as you can stand to make a profit once the stock reaches its target price again or surpasses it.

 By keeping a fixed entry and exit point in place, you will not be likely to sell your shares the moment there is a slight rise in their prices. If you do, you may end up missing out on the opportunity to earn a bigger profit if the price continues with its upswing. 

 Fixed entry and exit demarcations prevent traders from being governed by fear or greed as they provide a level of certainty to the trading process.  

 Suggestion #4 Utilize Stop Loss Orders to Curtail your Losses 

 Stop-loss orders serve as one of the most pertinent aspects of intraday trading. These orders help limit the loss an investor may expose himself to. By incorporating a stop-loss, you can drastically reduce the extent to which you lose from a trade owing to which this technique should not be shied away from and should in fact be used with frequency.

 Stop-loss orders imposed should be proportionate to the targets you set for yourself. Beginners should therefore set stop-losses at 1 per cent. In order to understand this better, consider the following example wherein trader ABC purchases shares of company XYZ for INR 1200 and imposes a stop loss-order at 1 per cent i.e, INR 12. Now, if the price of these shares drops to INR 1,188, your position on the stock closes such that you don’t incur any additional loss. By curtailing the extent of your losses, you can be better positioned to fulfil your financial goals.  

 Stop losses operate by virtue of triggering the sale of stocks in the event that their price drops below a certain specified limit. Potential losses can be controlled with the aid of stop-loss orders. 

 Suggestion #5. Follow the Trend

 One of the safest ways to score a profit while partaking in intraday trading is by following the trend. While making trade decisions that weigh in on the possible reversal of these trends may score profits on occasion, more often than not, such trades do not generate returns. 

 Suggestion #6 Start with Small Steps

 In your bid to earn a certain amount of money each day from the stock markets, begin by investing with a small amount of money. This holds particularly true if you don’t have ample amounts of knowledge pertaining to the markets. Rather than waiting for one major break, aim to ear small profits which can collectively be worth a significant sum. 

 Wrapping Up

 While you might be anxious to earn a certain amount of money from the stock market, you should always have realistic expectations and should proceed with caution. Always take into account your risk profile and the risks tethered to the asset class you seek to invest in prior to taking the plunge and investing or trading in them.

What is an IPO? IPO Full Form

After a private limited company is unable to grow further with its own capital or borrowed money it decides to go to public to raise funds. Going through this route of raising money for the first time is called Initial Public Offering.

What is IPO? IPO Investment Explained

Defining an IPO

 An initial public offering, which is often referred to by its acronym IPO, is the process by which a private corporation begins to offer shares to the public via a new stock issuance. With an IPO, it is possible for a company to generate capital via public investors. During this transitional period wherein, a private company becomes public, private investors stand to fully realise gains from their investments as IPOs ordinarily include a share premium for current private investors. During this time public investors also have the opportunity to participate and can stand to potentially profit from the company’s growth in the future. 

To be eligible for being listed in the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE), the company has to have a minimum paid-up capital of at least Rs.10cr and post issue, the market capitalization should not be below Rs. 25cr.

Criteria for filing an IPO

Any private company can go public if they like, provided they meet the following criteria

  • The company’s operating profit should be a minimum of Rs. 15cr for at least three years in the preceding five years.
  • The company should possess net tangible assets which are nothing but physical assets plus monetary assets of at least Rs. 3cr in each of the last three years. Virtual assets which are fluctuating in nature like shares don’t count.
  • The size of the IPO cannot exceed the company’s worth more than five times.

But the above criteria are not compulsory to fulfil. If the company still wishes to go for an IPO then it has to get approval from the Securities and Exchange Board of India (SEBI), but can only opt for the book-building IPO issue. In a book-building IPO, 75% of the stock has to be sold to Qualified Institutional Investors (QII) if not the IPO will be cancelled and all the capital raised has to be returned.

The IPO process in India

How an IPO is filed from the company’s point of view involves a lot of processes and can be summarized in the point below.

  • The company approaches an underwriter, which is normally an investment bank to do the due diligence and background checks and gives a nod if the company can go ahead for applying for the IPO.
  • The company must then submit the necessary documents to the Securities and Exchange Board of India (SEBI) for examination
  • One of the important documents that it needs to prepare is the Draft Red Herring Prospectus and send it across to SEBI for approval. 
  • Ince approved, the company and the underwriters then decide the date for the IPO and the price of the shares and the number of shares to be issued to the public. In this case, there are two types of IPO filings it can follow
    • Fixed price IPO where the price of the shares are fixed and decided in advance
    • Book-Building IPO where there is a range of prices and the bidding is done within that price range.
  • Once that is decided, then the bidding process is open to the public. The interested investors then submit their applications.
  • After the bidding process is over, the company then sits and allots the shares based on the number of subscribers it has received. There are two instances that can happen here
    • When the number of subscribers is less than the number of shares available then all of them will receive the desired number of shares.
    • When the number of subscribers is more than the number of shares available then in this case the SEBI rules will apply where the company will try and accommodate as many investors as they can. If the number is still very big then the process of allotment takes place via lucky draw.
  • Once the shares are allotted then the company is officially registered as a public company and the shares are available to be traded in the stock market.

What you should know when investing in an IPO

  • Once you have been allotted shares of an IPO of the company, you are exposed to the fortunes of the company. Meaning the success and failure of the company has a direct impact on your earnings.
  • There is a risk in the investment, in the sense that there is potential for the company to give huge returns, yet it can also lead to drowning your investment. Stocks are subjected to changes in demand and supply.
  • The amount once invested, the company is not indebted to pay the capital to the investors. The situation will only arise when the company dissolves.
  • Only invest once you’ve done your due diligence. If you’re new then it is better to take the help of an expert to guide you to make better decisions.

Terminology to remember with IPO

When applying for an IPO, you will surely come across a lot of terms used often and we will cover the most frequently used ones below

  • Issuer – the company or the firm that gives out shares to the public in exchange for money to grow its operations.
  • Underwriter – These are institutions like banks, financial institutions, brokers or merchant brokers who assist in determining the price of the stock to be sold. They also play a role in subscribing to the balance shares if the IPO is not fully subscribed.
  • Draft Red Herring Prospectus – It is the document that makes all the information about the company available to the public as approved by SEBI. It contains the following information.
    • Purpose of raising funds
    • Balance sheets
    • Promoters expenses
    • Net proceeds of the company
    • Earning statements in the last three years
    • Commission and discounts of the underwriter
    • Details of the underwriters, officers, directors who possess 10% or more than the outstanding stock
  • Under subscription and oversubscription – under subscription is when the number of shares subscribed for is lower than the number of shares available. Similarly, oversubscription is when the number of shares subscribed for is more than the number of shares available for subscription.
  • Green Shoe Option – This is a situation where there is an overallotment. It is an underwriting agreement that permits the underwriter to sell more shares than what was initially planned by the company.

The final word

 IPO’s in general are a good sign as it signals that the company wants to expand its business and has a good future planned out. That leads to providing investors with handsome returns. But keep in mind that not all IPOs successful and one must be cautious before deciding to make an investment in one

​​Understanding How Shares Are Allotted in an IPO

A Brief Overview – Understanding Why IPOs are Popular 

 IPOs or initial public offerings serve as financial tools with which companies can raise public funds that they can leverage to grow and expand their business. Companies put in a lot of time and research prior to committing to going public as it leads to big changes.  

 On occasion, companies announce their desire to go public following which investors scramble to invest in the same such that they can diversify their portfolios and holdings. Companies that have big plans have the potential to bring in big returns provided they continue to be profitable in the future which is why IPOs are often flocked to. However, not all IPOs are able to generate sufficient traction in the market. 

Why is the Decision to Go Public a Big Deal?

 With an IPO, companies are able to raise capital by issuing public share ownership. This decision to go public is a major one and is only taken up provided the business model is strong enough and has the scope for ample growth in the future. 

 Only after a company has reached a certain level of maturity keeping in mind its growth cycle does it take a decision to go public or not. This is because while there do exist several benefits associated with public shareholding, there are also several regulatory requirements in place that must be fulfilled. Each stage of the IPO process, from filing an application for an IPO to said application being approved (or not) is tracked by reporters and frequently makes headlines. 

 IPOs and the State of the Market – The number of companies that issue IPOs each year varies and is indicative of the state of the economy. During the financial crisis of 2008, for instance, the IPO market performed poorly, and several companies made the conscious decision to postpone their launch into the public domain. 

Issuing IPO Shares 

 Issuing IPO shares involves the following considerations.  

  • Interest vs. Allocation – When IPOs are issued, shares are meant to be allocated among investors that are interested in the same. However, just because an investor is interested in a company’s IPO offering, doesn’t necessarily imply that they will receive the same. 
  • Determining Share Volume – Companies going public are required to ascertain the share volume assigned to each investor. Share allotments are decided in accordance with rules outlined by the SEBI and there are category-based reservations. These categories are qualified institutional buyers, non-institutional investors and retail investors. At times, the number of shares set aside for retail investors may be oversubscribed.

Understanding Instances of IPO Oversubscription

 IPOs are often oversubscribed. In order to understand what this means, consider the example mentioned below.

 Company ABC’s IPO was oversubscribed by 2 times, indicating that there was twice as much demand for the stocks. The demand for ABC’s stocks, therefore, exceeded its supply. Owing to this fact, underwriters now have the authority to adjust the price of ABC’s IPO stock and generate more capital.

However, in most instances, share prices are attractively priced in order to gain interest among investors. This strategy is frequently employed to raise funds.

In the event that oversubscription occurs, the allocation of shares is impacted as is their trade. The rules that govern allotment vary from one class of investors to another.

IPO Allotment for Qualified Institutional Investors – In the event that a company is oversubscribed to by such investors, the holdings they are provided decline. This means that if company ABC was oversubscribed 4 times, institutional investor A who asked for 100,000 shares will now only receive 25,000 shares of the company. 

IPO Allotment for High Net-worth Individuals – Here too, in the event that oversubscription arises within this category, individuals receive fewer shares than what they originally applied for. The total share allocated is equal to the total shares applied for divided by the number of times they have been oversubscribed.

IPO Allotment for Retail Investors – Shares are issued in lots which means that an investor can place bids in multiples of the lot size. This means that if the lot size of a company is 50, investors can place bids in multiples of 50 like 100 or 250. As per SEBI guidelines, in instances of retail investors bid applications amounting equally to the offered lots, each applicant receives at least one lot. The remainder is allocated proportionally. Oversubscription within this category results in computerized draws that are used to select applicants for IPO allotment. 

Understanding the IPO Allotment Procedure

As mentioned earlier, IPO bids for retail investors are done in the form of “Lots”. Meaning you can’t subscribe for any number of shares you want. Let’s now see the procedure with the help of an example.

Suppose company ABC wants to issue 1,00,000 shares in its IPO with a lot size of 5 shares per lot. This means that each lot will comprise 5 shares and the total number of lots will be 1,00,000/5 which is 20,000 lots available for subscription. Investors can only bid with the number of lots and not shares. Once the bidding date is closes, there can be two situations

  1. Total cumulative bids is lesser than the total number of bids available – in this case, each bidder will be given the number of lots subscribed for.
  2. Total cumulative bids is more than total bids available – in this case the SEBI rules are considered where maximum number of bidders are included by giving at least 1 lot.

This however leads to more sub-cases of subscription

  1. Small over subscription – in this the bidders will be allotted 1 lot of shares and the balance shares left will be allotted accordingly.
  2. Large over-subscription – In this case since there are a huge number of bidders where giving even 1 lot is a tough ask, then a lucky draw is taken into consideration. Those who don’t get it will not get a lot of shares and the money will eventually be refunded into their account.

Possible reasons for not getting an allotment

There are mainly three reasons why you as an investor did not get a lot for the bid you made

  1. As mentioned above, your number did not appear in the lucky draw
  2. You entered your details incorrectly in the IPO subscription form
  3. In case of book-building IPO, if you bid for a price lower than the allotted share price after bidding is closed then those who bid lower than the price will not be considered for allotment.

Merchant Bankers and IPO Prices

Merchant Bankers conduct pre-marketing research and analysis in order to determine the price of IPO offerings. This price is crucial as it helps lure investors which is why discounted prices are often listed. Fundamental techniques help value the company in question.

A company can choose to employ one or more merchant bankers who are responsible for varied aspects of the IPO process including document preparation, marketing, diligence, and issuance. 

IPOs and the Markets Today

The IPO market in India is a very attractive avenue for many investors to begin their journey in trading and with the growth of financial literacy as compared to a decade ago, the competition to get allotments is only going to be tougher. So it is advisable to always do proper research and select the IPO to invest accordingly as this helps in determining your end goal and how much risk you are willing to take with the company.

Understanding the Role of Depositories, Depository Participants and DP Names in an IPO

Examining the IPO Landscape Today

 The past few years have witnessed several initial public offerings crop up. More investors and traders alike are beginning to gravitate towards the primary market. Since IPOs are easy to sign up for and invest in, their popularity has surged. In the past, those hoping to invest in IPOs had to fill out and submit physical forms. Today, however, IPO applications can be made online with ease. While the medium has changed, the technical terms that govern IPOs remain the same. Some of these, such as DP can confuse individuals. In order to understand what DP names are, you must first comprehend the role of depositories and depository participants. 

 What are Depositories?

 In order to function, stock markets require investors who each possess the following accounts.  

  • A Demat account – This account is run by the depository
  • A trading account – This account is operated by a broker or by the depository participant directly
  • A bank account – This account is held and operated by the bank. 

 Investors must transfer money from their bank accounts to their trading accounts in order to purchase shares. Such transactions are conducted via the exchanges and in lieu of the money invested, specific securities are added to the investor’s Demat account.

 How Do These Securities Exist? 

 Now, you might be wondering the manner in which these credited securities exist within an investor’s Demat account. They exist in a dematerialized i.e., electronic form and aren’t handed over in any physical form. These securities lie within an investor’s Demat account which is under the control of a depository.

 Defining a Depository – A depository is responsible for storing securities that switch hands-on stock exchanges. 

 Depositories in India – India is home to the following depositories.  

  • National Securities Depository Limited (or NSDL) – This was the country’s first depository and was promoted by the National Stock Exchange in addition to the IDBI and UTI.
  • Central Depository Services (India) Limited (or CDSL) – The Bombay Stock Exchange promoted this depository and was followed by major banks like HDFC Bank and the State Bank of India doing the same. 

Advantages Associated with Depositories

 The following advantages are associated with the usage of a depository system.

  • Dematerialization – Prior to shares being held in a dematerialized form, it wasn’t easy to participate in share markets. The depository system enabled securities to exist in this electronic form which allowed for a paper-free share market. Not only is this market easier to operate, but it also allows for safer trades to occur. 
  • Ease of Exchange – Dematerialization views securities of the same class as identical thereby enhancing their interchangeability. The cost of exchanges has reduced and the speed with which trades are conducted has been accelerated with the aid of depositories being in existence. 
  • Free Transferability – Transferring securities between depositories is free and is carried out via a secure electronic system. Since this system is employed, share transfers occur instantly, however it does take T+2 days for the final settlement to appear.

 Taking a Look at Depository Participants

 Depositories can be understood as the vaults that hold securities. However, they must not be confused to be directly engaging with investors or the companies that issue said securities. 

 Who are Depository Participants?

  • SEBI-registered entities are depository participants that serve as the interface between investors and the depositories. 
  • They can be any institution such as a banking institution or a brokerage.

 What Then, is a DP Name?

 Now that you know the differences that exist between a depository and a depository participant, you should not be confused in case you see a question asking about the DP name at the time of filling out an IPO application. 

 A DP name is simply the depository participant’s name. In this case, TradeSmart will be the name of the DP that is registered with the CDSL. Therefore, the DP name box is filled out with the name of the broker. Ordinarily, the DP name follows the Depository, DP ID, and DP account. Demat account numbers issued by the NSDL and the CDSL are fairly easy to identify. Those issued by the NSDL begin with ‘IN’ while those issued by CDSL begin with a numeric digit. Under the depository section, you must choose whether your depository is NSDL or CDSL. 

 What is a DP ID?

  • A DP ID refers to the number allocated to a depository participant by their depository. This DP ID number varies from the 16-digit Demat account number assigned to those seeking to participate in the markets.
  • Ordinarily, the first eight digits of an individual’s Demat account number constitute their DP ID. 

Applying for an IPO with TradeSmart

Now that you’ve understood the meaning of a DP name and DP id, the process of applying for an IPO is pretty straightforward. An account with a broker is a prerequisite for investing in an IPO. The investment can be done by following the below mentioned steps:

  • Do your preliminary research and assess whether the IPO is worth investing in. Log in to your TradeSmart broker account with your email address and mobile phone number.
  • Login to BOX and under the portfolio menu, select the ‘IPO’ option


Understanding the Role of Depositories, Depository Participants and DP Names in an IPO

  • From the list of Current & Upcoming IPO’s, click on BID to participate in the IPO offer

Understanding the Role of Depositories, Depository Participants and DP Names in an IPO

  • Enter your UPI ID.
    • Please make sure the UPI ID is mapped to your personal bank account.
    • The IPO application is liable to get rejected if the person who is applying is different from the one whose bank account is used to apply. Third person bank accounts are not accepted.

Understanding the Role of Depositories, Depository Participants and DP Names in an IPO

  • Place your bid(s). Please note the below points.
    • While placing the bids, only quantity that is a multiple of the lot size is allowed. 
    • If you wish to apply at the cut-off price, simply click on the checkbox next to ‘Cutoff-price’. If you want to place a bid at a different price, you can do so by entering a price in the ‘Price’ field.
    • Once you’ve completed all these steps, click on the checkbox to confirm that you have read the RHP and other documents.
    • Click on Continue

Understanding the Role of Depositories, Depository Participants and DP Names in an IPO

  • Accept mandate request on your UPI App:

Understanding the Role of Depositories, Depository Participants and DP Names in an IPO

  • At the end of the day after submitting the IPO bid, you will receive an SMS from the exchange confirming your application. You may also check the status of your bid in My Applications tab.

Wrapping Up

 Applying for an IPO has never been easier as the process has been simplified greatly. As there are several details that are still required to be filled out while applying for an IPO, it is easy to get confused. This article, however, should have provided you with sufficient clarity such that you can apply for an IPO with ease.

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