A futures contract, as the name suggests, is a contract for the future. It is traded on a futures exchange; an instrument/commodity is bought or sold in the future at a certain time designated in the future. The pre-set price is called the futures price, while the price of the asset on the date of delivery is known as the settlement price. Such a contract, unlike the options contract, confers on the trader a right AND obligation to buy or sell.

Trading Stocks & Index Futures in the Indian Stock Market:

A future trading is the world’s perfect business. This is because of the fact that apart from earning big, you can do futures trading whenever you want, wherever you are and whatever you are doing! You do not need huge capital or employees/attorneys/accountants etc. Also you will not be having “customers” or competition, nor will you have to work on office space, warehousing or a distribution system! All you need is a PC, and bingo! You are all set to enter the “future” arena!

Who trade futures?

Mortgage bankers, farmers, bond dealers, grain merchants, food processors, savings and loan associations, and individual spectators – anyone and everyone can and is trading futures! However, please note that the risk of any given transaction may result in loss. Also, before entering the arena, please equip yourself with all the risk management possibilities available, though we would like to inform you that such possibilities are no guarantees and may or may not prove effective.

What does Futures Trading apply to Indian Stocks & Indices?

A future trading is a form of investment that involves speculating on the price of a security, [that may be a stock (RIL, TISCO etc.), stock index (NSE, Nifty etc.), commodity (Gold, Silver, etc.) or currency (Pound, Dollar etc.) going up or down in the future. When you trade futures, you are merely speculating where the price of a particular security would be in the “future”. The terms ‘buy’ and ‘sell’ merely indicate the direction you expect future prices will take.

For example, you would buy a stock on the NSE Nifty if you expect prices to go up in the future. You would sell if you expect prices to go down. However, neither the buyer nor the trader has to own anything to participate. All either/both have to do is deposit sufficient capital with the brokerage firm so as to be able to pay for the losses, if any.

Settling Futures Contracts in India

Futures contract are usually not settled with physical delivery. Purchase or sale of an offsetting position is used to settle an existing position. The margin balance is, at this stage, returned to the hedger, along with any additional gains, or with profit as credit towards the holder’s loss. Cash settlement is used for contracts that cannot result in delivery.

What is the purpose of the delivery option? It is to simply ensure that goods are not available at two different prices, that is the futures price and the cash price, at the same time. This strategy is known as arbitrage.

Advantages and benefits of Futures Trading in India:

To begin with, futures trading have high leverage. You can get huge profits in a short span of time. To become the owner of a futures contract, as margin put up a small fraction of the value of the contract, and if you have predicted the market correctly, your profits would be multiplied ten fold!

Secondly, futures trading guarantees profit irrespective of market condition. By choosing wisely, you can make money when the market is up or down.

Thirdly, there are relatively lower commissions or lower transaction cost. Commissions on individual stocks are not more than 1% – both buying and selling.

Lastly, futures trading market is highly liquid. Innumerable contracts are traded everyday! Market orders can be placed very quickly as there are always buyers and sellers for most contracts.

What is a PAN Number and the benefits of Permanent Account Number?

Permanent Account Number (PAN)is a typical ten-digit alphanumeric code that acts, more than anything else, as your personal identity card issued by the Government of India. A typical PAN would read like ‘ABC123456D’. PAN is considered to be similar to the social security number issued by the US Government to all its citizens.

PAN issued by the Income Tax Department of the Government of India, is issued primarily for fulfilling an individual’s financial obligations and transactions. The following persons MUST have a PAN:

  • Any person whose total income, or the total income of any other person in whose he is assessable (as in the case of HUF) under the Act exceeds the maximum amount that is not chargeable to tax; or
  • Any person carrying on any business or any other profession whose total turnover, total sales or gross receipts is likely to exceed Rs.5 lakh, or has exceeded the same amount in the previous year; or
  • Any other tax paying person

The requirement for applying for PAN has now been extended to the whole of India.

A person is required to quote PAN for the following transactions:

  • Any dealings with the IT Department like filing of returns, challans for payment of any tax or sum due to the department etc.
  • Certain notified transactions

PAN is also required for activities such as:

  • Opening an account
  • Getting a phone line
  • Receiving salary or professional fees
  • Prevent tax evasion by keeping a track of monetary transactions

PAN, once obtained is permanent and is unaffected by change of address.

Frequently Asked NRI Questions:

Q. What is the purpose of having a PAN under the new series?

A. PAN will help you have easy transactions and dealings with the IT Department and other Government organizations.

Q. What is PAN under the new series?

A. PAN is a unique, personal, permanent, ten-digit alphanumeric identification number issued by the IT Department of the Govt. of India. Under the new series, PAN is being used to replace the old PAN or GIR number.

Q. Who is to have a PAN? Or Who must apply for PAN?

A. The following persons must have/apply for PAN:

  • Individuals
  • HUF
  • Companies
  • Partnership Firm
  • Association of Persons
  • Body of Individuals
  • Trusts
  • Artificial Judicial Persons
  • Representative Assesses

Q. How to apply for PAN?

A. You are required to fill up the details asked for in Form 49A of the IT Department. You can also download the same from the department’s website. While filling up the form, you are required to furnish the following information:

  • Full Name (initials should be expanded)
  • Date of Birth (in case of individuals only) / Date of Incorporation or formation (in case of companies etc)
  • Father’s full name (in case of individuals)
  • Married women are also required to provide the full name of their father
  • In case of NRI, the applicant is to get her/his ID and address proof attested by the Indian Embassy in their respective country.

Q. Where to apply for PAN?

A. You can apply to the Assessing Officer, IF already taxed; or to the Assessing Officer dealing with new taxpayers, IF you have not been taxed earlier.

Q. What will the PAN Card contain?

A. A typical PAN, apart from having the number would contain your name, date of birth, father’s name, your photograph and your signature. In case of other taxpayers, the card would have the PAN, name and date of incorporation or formation.

Q. Can a person, under the new series, have more than one PAN?

A. Please note (and remember) that no one can have more than one PAN. Failure to comply with this rule shall attract a penalty anywhere between Rs.500/- and Rs.10, 000/-.

Q. When is it compulsory to quote PAN?

A. Any and every person having a PAN is required to furnish the same:

  • While filing returns to the IT Department;
  • Any correspondence with the IT Department regarding challans for payment of direct taxes
  • Opening a Bank account
  • Acquiring a telephone connection (landline and cellular)
  • Selling or purchasing a motor vehicle
  • Selling or purchasing immovable property worth Rs.5 lakh (INR 500,000/-)
  • Bank transactions exceeding Rs.50, 000/-
  • Transactions with Post Office exceeding Rs.50, 000/-
  • Selling or purchasing securities (shares or debentures etc.) whose contract value exceeds Rs.10 lakh (US$ 1 million)
  • Paying hotels or restaurants amount exceeding Rs.25, 000/-

You must also furnish PAN, if tax is being deducted at source, to the person deducting your tax, so that the same could be mentioned in the TDS certificate.

Q. Do I need to apply for PAN when moving from one city/state to another?

A. While you are not required to apply for PAN while changing your residence, you are to inform about the change to the Assessing Officer for transfer of your PAN and other documents to the new Assessing Officer.