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CAMS IPO Analysis
IPO Filings/DRHP’s are some of the best places to learn from when you are trying to understand the company and industry it operates in. In this letter, we will delve into the IPO filing of CAMS (the largest RTA in the country)
Founded in 1998, CAMS ( Computer Age Management Services Pvt. Ltd ) is India’s largest registrar and transfer agent of mutual funds with an aggregate market share of 69.4% based on mutual fund AUM managed by its clients (Asset Management Companies) during November 2019
This IPO is an offer of sale .i.e. the proceeds from the IPO will be going only to the existing shareholders selling their shares.
Shareholding pattern is available here. The subreddit does not let us post pictures.
Growth in the mutual fund industry on back of increasing savings moving towards financial assets: See chart here. Company has shown 17.4% CAGR from 2000-2019.
India’s mutual fund AUM as a % of GDP is significantly lower than the world average: See chart here. India is at 11%, compared to 103% for USA, 75% for France, 68% for Canada
The number of mutual fund houses have been largely stable over the last few years, hence, the growth in the revenues will be largely on back of growth of AUM managed by the fund houses.
Mutual fund industry comprises of 41 AMCs (excluding Infrastructure Debt Funds) and a majority of the total mutual fund AUM is managed by the top five AMCs which have approximately 60% of the total market share as of March 2019. (Market share of top five AMCs has risen in the last few years from 54% in financial year 2015 to 58% in financial year 2019)
Services provided by RTA’s to AMC’s:
Knowledge partner of AMC’s: Given the history of RTA’s association with AMC’s, they apply analytics to accumulated data and help AMCs in the development of innovative products
Service aggregator: RTA’s bring cost efficiency to the table due to having similar scope of work across major AMC’s (e.g. sending notifications to the customer)
Revenue is derived from fees charged for servicing the AAUM (average assets under management ) of the funds serviced by CAMS
Charge higher fees for equity mutual funds v/s debt funds
Contracts with Mutual fund and AIF clients are typically perpetual in nature, unless terminated by either party while it is 3-5 years for other clients
Major part of the revenue earned (estimated to be over 80%) is by means of tiered fees charged on the AUMs managed for which the MF RTAs provide service. These tend to decrease as a proportion of total AUMs once the AUMs surpass the tiers for which the fees are agreed on.
With the increase in AUM managed, the fees charged as proportion of AUM has been falling, but the extent of decline in pricing despite the strong growth in AUM (i.e. approximately a 30% CAGR) indicates the reasonably strong bargaining power enjoyed by MF RTAs
In FY 2020, MF RTAs witnessed some pricing pressure, as the SEBI reduced the total expense mutual funds were allowed to charge.
According to CRISIL, a moderate reduction in fees charged by RTAs as a proportion of AUM as the size of industry AUM increases is expected. However, RTAs will benefit from an expected increase in the share of equity and hybrid funds in industry AUM.
There is no impact of direct plans growth on RTA’s as RTAs as these are charged based on AUM, irrespective of which plan is opted for by investors
RTA’s also offer similar services to Alternate Investment Funds (AIF)
In addition, RTA’s also have offer similar services to insurance companies for policy servicing of e-insurance policies. There are 4 insurance repositories in India :
CAMS Insurance Repository Services Limited;
Central Insurance Repository Limited;
KARVY Insurance Repository Limited; and
NSDL Database Management Limited.
Following are the are the mutual fund registrar and transfer agents operating in India:
Computer Age Management Services Limited (“CAMS”),
Sundaram BNP Paribas Fund Services (acquired by Karvy in October 2019)
Franklin Templeton Asset Management (India) Private Limited
See market share and total AUM of top fund houses here. CAMS services the 4 out of the top 5 AMC’s and 9 of the 15 largest AMC’s. It has been able to manage and hold on to its market share in the last few years: See chart here. CAMS is the clear leader vs/ peers in profitability with RoE of 29.5% , PAT margin of 19% and witnessed the revenue CAGR of 20% over 2016-19: See chart here. CAMS also has a 3X higher business per branch despite having only 22% higher number of branches than Karvy: See chart here. There are multiple reasons for the oligopolistic nature of the RTA industry leading to significant entry barriers:
High client stickiness due to humongous hassles involved in migration ,business disruption , customer and regulatory hassles . New players have not gain traction, only consolidation or building in-house RTA have led to switching of RTA’s - this is evidenced by the CAM’s number of clients being the same over the last 5 years: See chart here.
The average term of CAM’s relationship with its ten largest mutual fund clients is 18 years as of September 30, 2019
High Technology intensity requiring continuous up gradation of systems due to changes in regulations
Need of extensive branch network to address service needs of customers
High operating leverage: RTA helps in addressing investor and distributor needs which are not addressed online
CAMS also has a significant presence in insurance repository market: Given the miniscule penetration of e-policies, there is a significant headroom for growth in this market.
Regulatory Risk : SEBI in its press release in September and October 2018 had provided a maximum cap on the Total Expense Ratio (TER) which can be charged by mutual fund companies on the various type of products . This capping can potentially impact the revenues of service providers like CAMS since the AMC’s can renegotiate their fee contracts with CAMS
Client concentration Risk: Top 5 clients have contributed to 65-67% of revenues in last 4 years. Given the Oligopolistic nature of the market, the client concentration doesn’t seem to be reducing soon.
Consolidation in Industry: M&A in AMC’s can reduce the number of clients and grant more bargaining power to the AMC. In the past, they lost one of mutual fund clients’ due to their merger with another mutual fund that was serviced by a competitor
Provides portfolio of technology-based services, such as transaction origination interface, transaction execution,payment, settlement and reconciliation, dividend processing, investor interface, record keeping, report generation, intermediary empanelment , brokerage computation and compliance related service
Also provide certain services to alternative investment funds, insurance companies, banks and non-banking finance companies.
Managed mandated transactions (collections , reconciliations) for AMC,s NBFC’s etc
For Insurance companies - processing of new applications, holding policies in demat form, servicing and support for policies
Digitization of account opening, back office processing for banks and NBFC’s
Number of folios serviced by CAMS are 38.3 million as of September 30, 2019
Has 278 service centers, four call centers, four back offices of which three are in Chennai
See chart here. CAMS operates in 7 business verticals namely: Mutual Funds Services Business, Electronic Payment Collection Services Business, Insurance Services Business, Alternative Investment Fund Services Business, Banking and Non-Banking Services Business, KYC Registration Agency Business and Software Solutions Business Mutual Fund vertical services
Transfer services like transaction origination , managing KYC , execution of transaction processing from investors and payments, calculation & payment of brokerage commission fees to distributors, risk management services like reporting to SEBI, anti money laundering services, Customer care services through service branches for customer and distributors and call centre.
Distributor services like record and maintenance of brokerage structures , computation of payable /clawback brokerage/ distributor queries
Also has developed a bunch of applications including mobile apps and solutions for investor, corporate and AMC needs
Electronic Payment Collection services: Manage end-to-end automated clearing house transaction and electronic clearance services and service mutual funds, non-banking financial companies and insurance for automated payments Insurance services: Scrutinizing and processing of applications, training and onboarding of new insurance agents, submission of proposals, scanning, indexing and data entry, reminding policyholders of payment receipts Alternative Investment Fund Services: Similar to MF Banking and Non Banking Services Customer interface and back office processing KYC Registration Agency Business: Maintain KYC records on behalf of capital market intermediaries registered with SEBI, eliminating the need to repeat KYC procedure. Software Solutions Business: Software solutions business through subsidiary, SSPL which owns, develops and maintains the technology solutions for mutual fund clients, with a team of 362 people .
As of September 30, 2019, CAMS employed 4,314 full time and 2,136 contractual employees.
Given the high operational intensity of the business, employee expenses is the major cost at ~38% of the revenues.
Dividend Distribution Policy:
Company adopted a formal dividend policy on February 20, 2018 which was further amended on January 2, 2020.
Company aims to distribute a minimum dividend of 65% of the consolidated profit, net of tax, for relevant financial year
Notes on financial information:
Nearly 254 Cr investments in mutual funds , 45 Cr of trade receivables, 157 Cr of cash & cash equivalents as of HYFY19
No debt on the books, just long term lease liabilites of 105 Cr as of HYFY19
Bulk of the revenues is from data processing
Data processing comprises of core AAUM based revenue, revenue from services to insurance companies, banking and non-banking financial services companies and services to alternative investment funds and our KYC registration agency business.
Customer care services primarily comprise paper transaction volume-based fees and NACH volume based fee from electronic payment collection services business.
Recoverables comprise out of pocket expenses incurred on clients
Miscellaneous services comprises revenue from call centre services and fees for applications made available to clients. Software license fee, development and support services comprises fee earned by Subsidiary, SSPL for providing services to external clients.
Major part (~50%) of the operating expenses is the service expenses
Service expenses: Out of pocket expenses incurred for communication services to investors or distributors, stationary and postage on behalf of clients
Data entry expenses: primarily incurred to process paper applications in mutual fund services business
Customer service centre charges: Expenses primarily associated with management of service centres and payment of fees to centre heads
Claims: Incurred on account of claims raised against CAMS as well as funds set aside by CAMS to provide for future claims
There is no debt on the books of the company or its subsidiaries
At current share capital of 48,760,000 shares, this translates to a price of 1230/- , meaning a current P/E of 36x on FY20E
Other comments: Given that the growth in the CAM’s business with be primarily driven by the clients’ AUM growth , unless CAMS acquire more clients (which looks difficult to high entry barriers) and low pricing power, the earnings growth in the future will be largely in line with industry AUM growth. Note: All the notes are based onthe filed CAMS IPO prospectus, please consult your financial advisor for advice before investing in any product. P.S - Apologies. A lot of the charts are images that cannot be posted on this subreddit. However, all of these are available on the source article - https://www.thegalacticadvisors.com/post/computer-age-management-services-decoded.
Hello autists. I thought I shall share some tips on why I trade futures instead of options. If it is not your cup of tea, feel free to ignore this. After all, everybody's risk appetite is different. Tailor it to your Personal Risk Tolerance. Note: I am not a financial advisor. These are my ideas alone and anyone looking to go through with this must consult their advisor. Before i get started, I should warn newbies that it is not advisable to start off with futures. I have been doing this for 2 years now, starting off with 2L and saved up my salary every month to put it in my account. I realized that Mutual Funds were managed by tards and I do not want to enjoy a yatch when i am 60. But before all this, I started off with conventional stocks and slowly dipped my feet into futures. Pre-requisites: 1. Some understanding of your emotional levels (do you immediately square off your position if things are not looking good, or do you wait for it to play out? ) 2. Do you have a trade setup you trust? Do you keep a log of how it performs and how it does in a bull or bear market? 3. Is the money in your trading account something you can afford to lose? If not, save up more and come back. Futures: I shall not get into the details of what futures are, and why it was started in the commodity business. Basically, for brevity, the equity futures go by lot size. For example, Reliance has a lot size of 500. If reliance is trading at 1000, the margin given by zerodha is Rs. 2,00,000 approx to hold these shares overnight. For intraday, you need a margin of ~1Lakh. Imagine, if you wanted to buy the same amount of shares you would need an account size of Rs. 5L. Now, with great power comes great responsibility. Lets say, there is a huge oil fight and oil prices drop. The price of reliance drops 20% to 800. If you had bought the shares, your account size also drops 20% to 4L. But if you had bought futures, your account size of 2Lakhs now loses 1Lakh, which is a 50% loss. The plus side is, you can also make the same if you are right. Now why do i trade futures instead of options: Lets say my account size is 2.5 Lakhs, and I want to buy reliance and hold it overnight. 1. 2 lakhs is taken up for my margin, and i have a balance of 50k. If the next day, reliance goes up by Rs.20. I would have made a profit of Rs. 10000 (500x20). Now if i by the end of the night, my account size becomes 2.6Lakhs. That is i can use the full 2.6L margin now. This is very important for me. These profits are already realized in your account. And this is called Mark to Market (MTM). Note: in options, the profits you make are unrealized. They are sitting in your account until you square it off.
If i were to buy the same amount in shares (for 2 lakhs). The next day, i can only trade with 50k in my account. The 2 lakhs do not show up until i square off. But when i am holding futures, and the next trading day starts, I convert my overnight positions to intraday, thus saving up 50% of the margin. When things dont go my way, I immediately square off and use the full margin for my next trade.
If you are buying options, you need to be right about the direction of price movement AND the time it would get there (also called as delta and theta). Implied volatility also comes into play, meaning, when a herd of people are betting the same, you will still lose if you are with the herd. In futures, you only have to be right about the direction.
You ever get a thrill when the VIX is sky high? with so much volatility you profits keep shooting up and your losses are devastating at the same time? Do you enjoy that feeling? Then fuck it, you have a gambling addiction. But, thats how i feel like trading future. Even in a low volatility environment my losses can wipe away 10% of my account in a single trade. Know yourself first.
Hope this helped a few autists. Good luck trading. Current positions: https://imgur.com/a/arBO6RT Tldr: if you can't read this, stick to yoloing options
Rant on certain questions asked in the trading community
There are certain questions that get repeated in the trading community What is the capital required? Capital deployed? These questions make 0 sense and serve no purpose. Eg: If i make 1 lac and i share the screenshot. And i caption it on twitter as "Look I had 20k in my zerodha account before the day started , and now it is 1 lac" PAISA 5x ho gaya. That invites a lot of attention. But let's break this further. The importance of risk management: Maximum traders are trading with a risk of 1-2% of TOTAL capital. That means if their capital is 1lac, they are risking close to 1-2% of overall capital. Maximum traders trade with a risk:reward of 1:1, 1:2, 1:3 (proper autists only) That means they are risking 1000rs to make 1000rs reward . Risk to reward=1:1 (RR=1:1) Now. Let's go back to my first retarded example. "I MADE 1 LAC WITH 20K. LOOK AT MY ZERODHA BALANCE" Now, to make 1 lac I would be risking say 1 lac. RR=1:1 To risk 1 lac i would have to have a capital of 1crore (assuming i trade at 1% risk per trade) Cool? Now maximum traders have funds in various accounts- equity account , commodity accounts , and with some other brokers, just in case to prevent random buttfucking from a broker. So, if you see a profit screenshot, STOP asking "What is the capital required" That doesn't make sense. The person could be trading with 50x margin. It does not make sense. The only logical question that makes sense is: 1.On average what kind of Risk:Reward are you playing with? 2. How much of your total capital do you risk per trade? It's all probabilities With 1% risk per trade you get to YOLO 100 times before you lose everything With 2% risk per trade you get to YOLO 50 times before you lose everything With 5% risk per trade you get to YOLO 20 times before you lose everything With 10% risk, just don't .STOP.
I don't know if it is only me, but Zerodha's P/L and tradebook and ledger really needs a lot more work to be properly usable. I trade solely on equities, and for the love of my life, I still cannot get a clear idea of the charges incurred for each transaction. Let's say I have Rs 5000 as my opening balance on a fine morning. I haven't placed any sell order within a week, and so, there is no chance of DP charges. I place a bunch of buy orders, amounting to about Rs. 4990, they go through, I am happy and go to sleep. I wake up the next day, and instead of Rs 10 balance, it's negative. Obviously, going through the contract note gives me an idea of additional charges incurred. Now, to add to the problem, Zerodha Console's P/L needs a lot of time to be updated. The DP charges incurred on 20/05/2020 has still not been updated in P/L. I understand the system of eventual consistency, but, seriously? 4 days and it still hasn't been updated? Also, Kite app's funds doesn't seem to be up-to-date. According to my ledger, it turns out I placed buy orders with negative balance, where I know for a fact that Kite rejects any CNC buy order if I don't have adequate margin. The entire system seems to be kludgey. Currently. if you want to calculate and recheck your balance, you have to move between Ledger and Tradebook in Console, and Contracts in email. Is it not possible for Zerodha to provide a simple order-wise breakdown of transactions, along with incurred charges? Or am I missing something?
Hi, Iam from cryptocurrency trading futures and spot trading, i know a bit about analysis, ta and fa..iam new but iam not completely oblivious. I know these questions might be seem too stupid for you to answer..but hey, any help is appreciated. How does futures and options market work in India, what are the differences between both ? which do you prefer? which is the one where you can bail out of the contract by selling ? (in bitcoin the contract is perpetual and be closed at anytime)
How much capital do i need to start trading, are there size limits of lots?..is adding margin or leverage possible in futures/options?
Is zerodha an ok broker for futures/options trading?
Do the futures/options on equities have a different ticker on exchange..does it have a prefix/suffix?
Zerodha margin calculator helps you to calculate the margin money needed to execute trades. Now you can also know Zerodha future margin for all buying or selling exchanges like futures & options, equity futures, commodity, and more within a second.
Securities and Exchange Board of India (Sebi) has allowed stock exchanges to extend timing of equity derivatives trading till 11:55 pm with effect from October 1, 2018. The move is aimed to enable integration of trading of various segments of securities market at the level of exchanges, Sebi said. Trading in equity derivatives will take place from 9:00 am to 11:55 pm, similar to the trading hours for commodity derivatives segment which are presently fixed between 10:00 am and 11:55 pm starting October.
These measures pertain to margin collection requirement and computation of liquid net worth for the equity derivatives segment. The provisions of the circular will be effective from June 1. With regards to client's margin collection requirement in the equity derivatives segment, SEBI said that clearing members or trading members should include initial margin, exposure margin or extreme loss margin, calendar spread margin and mark to market settlements. Client margins are required to be compulsorily collected and reported to exchange or clearing corporation. This is likely to have a negative impact on option writers and traditional brokers. The initial margin required for the positions is computed using a software called SPAN (Standard Portfolio Analysis of Risk). SPAN margin covers almost of the risk for of the day. Exposure margin is the margin charged over and above the SPAN margin which is the discretion of the broker. Failure to have requisite SPAN margin in the account can result in penalty being levied by the exchanges. “These changes will impact the brokers who collect minimum margins for F&O trading especially option writers” said Nitin Kamath, founder and CEO, Zerodha. “Now brokers will have to collect span margin, exposure margin and MTM loses upfront, while the penalty on margin shortages is huge”.
Margin for Equity intraday trades. Read more about MIS, NRML, ... Zerodha Broking Ltd.: Member of NSE & BSE – SEBI Registration no.: INZ000031633 CDSL: Depository services through Zerodha Broking Ltd. – SEBI Registration no.: IN-DP-431-2019 Commodity Trading through Zerodha Commodities Pvt. Ltd. MCX: 46025 – SEBI Registration no ... Zerodha Equity Margin Calculator. Let’s discuss Zerodha Equity Margin very first. Nevertheless, do not forget to carry out an exhaustive analysis of this stock before employing margin on top of it. You may find yourself a margin of whatever in between three and 20 times based on the stock and the order type. Zerodha Equity Margin. Equity is one of the most popular trading segments. You can get a margin of anything in between 3 times to 20 times depending on the stock and the other type. And for MIS, your leverage is in the range of 3 to 10 times and the order will get auto-square off around 3:15 pm if you don’t do it by yourself manually. Every stockbroker, Like the Zerodha trading platform, also provides some margin to traders. Let me help you to understand with an example. Suppose that you have a total capital of 1000 Rs. And your broker provides 10 times margin. That means that you can trade up to 10000 Rs. Zerodha Intraday MIS Charges. When we refer to MIS in Zerodha or any stock-broker, for that matter, it typically means Intraday trading. The full form of “MIS is Margin Intraday Square Off” and is a product code applied to your Zerodha order.
2018 Zerodha Margin Trading (Live Tutorial) in Hindi. Get Zerodha Leverage up to 20X for Intraday (MIS) trading. You can use Zerodha Margin Calculator to cal... Margin Available is the total amount available on trading account for the client to trade. Margin Used is the amount which you have used used for trading that amount has been blocked. Zerodha Earn minimum 1000 daily by investing 5000 in Intraday trading 100 % works strategy - 1 - Duration: 17:59. BestManiar Trading Strategies 483,305 views 17:59 INTRADAY TRADING STRATEGY 100% WORKING IN STOCK , BEST INTRADAY TRADING STRATEGY 2020, intraday trading strategy, intraday trading, stock trading strategies, share trading strategies, intraday ... Zerodha Trading Tutorial & Zerodha Kite Demo with Intraday Trading & Share Delivery Buy and Sell Process explained in Hindi. https://zerodha.com/open-accou...