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Stock audit of bank borrowers

Working capital finance in the form of cash credit/overdraft facility against the security of hypothecation of stock and debtors is one of the most common modes of finance frequently adopted by various bankers. The borrowers in such cases are expected to submit the details of stock and debtors every month on the basis of which Drawing Power after reducing the prescribed margin is calculated by the banks. Stock and debtors being the primary security, bankers for ascertaining the genuineness & correctness of such statements appoint chartered accountant firms at frequent time intervals to conduct stock audit specifically where the exposure exceeds the predetermined threshold limit (generally over Rs. 100 Lacks).The stock audit involves audit of latest stock and debtor’s information of the borrower and the report should give the position of stock and debtors ideally on the date of visit. Further it will also make examination of past data submitted by the borrower to the bank and appearing in the books of accounts of the borrower, to check reliability of information submitted by the borrower.

The banker appointing the CA firm for conducting stock audit has main objective of ascertaining whether the security (borrower’s stock and debtors) against which finance has been made is safe and is valued correctly.

Objectives of Stock Audit

The various purposes expected to be achieved through stock audit may be summarized as follows:-
• To ensure proper preservation/storage and handling of stock. •
• To identify whether there exist any obsolete stock & if yes, whether it has been segregated & written off.
• To verify whether the stock is adequately insured against fire and other natural calamities (in appropriate cases against other risks like theft, burglary, marine, riots etc. as per sanction terms) •
• To ascertain whether physical stock tally with the stock statement submitted to the banker
• Checking for diversion of funds. •
• To find out reasons when there are too many qualifying remarks about stocks and receivables in the Auditor’s report on the Balance Sheet of the borrower
• Ensuring that the terms and conditions of limit sanctioned have been complied
• To ascertain whether hypothecated stock is realizable. •
• To confirm that stock is owned by the borrower and finance is made against value of paid stock only. •
• To examine the age wise debtors outstanding as per books and as per statement submitted by the bank, steps taken for recovery of long pending debtors and likely instances of debtors turning bad, if any.
• Any other matters of interest to the bank.

Steps involved in stock audit

Stock audit is necessarily required to be conducted at the borrowers place for obvious reasons. But before visiting the borrower, understanding the entity, its banking operations and financial affairs is must. Therefore, it is advisable to visit the respective branch where the borrower is having the account so as to gather the information relating to Sanction, account operations, nature of business, performance of the borrower and other fundamental information along with the comments / observations noted by other auditors (like Internal Auditors, Concurrent Auditors etc) to have a brief understanding about the borrower and its financial affairs. You should get an appointment before visiting the branch as well as borrowers office.
(A) Visit to Borrower’s Branch –
Banks generally has the system of maintaining two folders (in few cases only one folder) for each borrower of which one is used for keeping original documents executed by the borrower (viz. Demand Promissory Note, Hypothecation Deed, Guarantee Bond etc.) while other folder contains Application form, project report, Sanction Letter, Audited Financial Statements, previous stock audit report etc. Stock statements submitted each month by the borrower are filed with the correspondence file or may be kept in a single file meant for keeping stock statements of all the borrowers. Scrutiny of both the files along with the account operations and DP Register with reference to terms of Sanction helps stock auditor to gain insight about the borrower’ affairs and conduct audit of the account.
Important:- If the borrower operates any other bank account e.g.-Term loan, you have to verify for diversion of funds. •
Documents Required From the Bank Branch Officials:

  1. Sanction Letter and latest renewal letter.
  2. Stock Statements (latest 6).
  3. Bank Statement for the last 6 months.
  4. Turnover report for last financial year and current financial year (till date)
  5. In case of Company, Copy of Form No. 8 & 32 for creation/ modification of Charge or ROC search report.
    CERSAI copy in case of other than company.
  6. Balance Outstanding in All Accounts with the bank.
  7. DP register.
  8. QMR/QMS/QIS/QPR for the last 2 quarters.
  9. Branch inspection report (for last 2 quarters).
  10. Latest 3 GST/excise returns(It could be taken from borrower also).
  11. Valuation report for collateral securities.
  12. Audited FS for the last financial year ended (It could be taken from borrower also).
  13. Half yearly/Quarterly book debt CA certified book debt statement.
  14. Insurance policy copy for both primary and collateral securities (It could be taken from borrower also).
  15. If the major transactions with same party reflects in account statement, than relation with such party and genuineness of such transaction should be verified at party place.
  16. Any other document related to stock audit to conduct more effective audit or reporting.

(B) Visit to borrower and verification of stock
Once the basic information is collected from the bank branch, it is time to visit the borrower. It is advisable to carry audit questionnaire at the time of visit so that no important point / area is missed out (You should draft a detailed questionnaire with help of audit format). Visit to borrower involves verification of stock and debtors, inquiry about internal control, and analysis of past results and bank operations. Although audit is related to stock and debtors only, understanding of overall financial scenario and inquiry as to sister concerns & their businesses may also help the stock auditor to finalize the report in a better manner.
Before you start stock verification you need to understand the nature of goods, especially with regard to the storage- whether stored at multiple locations, whether they are deteriorating nature etc.
The process involved in manufacturing, production and ascertaining whether any part of the work is to be sent out of the entity for further processing.
Physical verification of stock
 Godown inspection with regard to its location, condition, rent payments (if godown on rent), maintenance etc.
 Actual counting of stock and match it with book figures) reconciliation with the book figures if there is any difference.
 Check on record- Opening stock, purchases, production, sales and closing stock.
 Age wise analysis of stock and movement of stock.
 Check abnormal increase/decrease in stock.
You have to verify all major creditors and debtors.
Documents required from the Borrower:

  1. Stock position as on date of Verification.
  2. Trial balance or Provisional Balance Sheet as on date of Verification.
  3. Copy of latest audited balance sheet.
  4. Insurance Policy (Incl. Bank Hypothecation Clause for primary as well as secondary Collateral Security.
  5. Figures of Purchase and Sales for last 6 months as well as for current month till date of Verification.
  6. Invoices of Purchases & Sales, Stock Register & other supporting Documents for verifying internal controls.
  7. Method of valuation followed for Inventory with detailed working.
  8. Copy of latest Excise/GST Returns filed.
  9. Break up of Sales into export and domestic.
  10. Details of non-moving and obsolete stock and also stock held for more than 6 months.
  11. ABC analysis of stocks based on the value of annual consumption of major items. (Only if Available)
  12. Products manufactured with details of licensed capacity, installed capacity and actual utilized capacity.
  13. Month wise details of purchases and sales, stock, debtors and creditors for last 6 months
  14. Major creditors (operational) and debtors and their transaction should be verified on random basis.

Common irregularities / observations in stock audit –
The common irregularities that may be observed by the CA firm during stock audit can be summarized as follows –
Observations about statement submission & Scrutiny –
• Stock Book Debts statements not submitted/ submitted but not within time. •
• Inadequate details viz. rate, quantity and amount of different type of stock items not stated in the statement. •
• DP Register not written up to date. •
• Age wise analysis of Debtors not given / done.
• Debtors over 90 days (or as per sanction) considered for drawing power. •
• Drawing power not correctly calculated. •
• Latest visit report by branch official not on record. •
• Operations in the accounts not scrutinized with reference to projections,
• QIS statements, audited accounts etc. not in records. •
• Defects pointed out by the Internal Auditors / Concurrent Auditors are not complied.
• Account not renewed / belated review.
Observations about account operations –
• All sales as per financial statements not routed through account. •
• Account not operated actively. •
• Cash withdrawal during current period is abnormal. •
• Frequent overdrawing in the account. •
• Balance over drawing power although within Sanctioned Limit.
Observations about Insurance coverage – •
• Under insurance of stock. •
• Insurance expired and not renewed. •
• Premium for renewal policy paid but policy not on record. •
• Insurance Policy without Bank Clause. •
• No coverage of all risks as per sanction. •
• Wrong items / description of goods on insurance policy. •
• Location of goods wrongly stated. •
• All locations of stock not covered.
General Observations – •
• Stock book not maintained/ not updated. •
• Obsolete stock not excluded from stock figures submitted to bank. •
• Deteriorating stock turnover ratio. •
• Stock, debtors, and creditors figures submitted at the year end in stock statement and as per financial statement not matching.• •
• Confirmation for inventory with third party not obtained or physical verification of Inventory not done. •
• Material received from third parties for job work not excluded while calculating drawing power.

Findings of Stock Audit and its uses –
Stock audit by external CA firm is one of the important tools of credit monitoring for the bank. Apart from ensuring safety of realizable security, it also helps the bank to discipline the borrower or may act as a warning signal against probable future NPA. It may aid the bank to take timely remedial measures to avoid substantial future losses. It also highlights the weaknesses, if any in the existing monitoring system of the branch through comments about maintenance of DP register, scrutiny of statements, and review of accounts and compliance of audit findings.
Over and above, stock audit also has the utility for the borrower. Comments about insurance inadequacies, wrong product description and locations stated in the policies, if rectified timely may save the borrower from avoidable future losses.
Therefore, in my opinion unlike Statutory Audit where there is thrust only on the compliance under respective statute, the Stock Audit is a knowledge value addition exercise for both – bankers as well as borrowers.

Income tax benefits for Senior Citizens


In budget 2018 the finance minister announced some special tax benefits for Senior Citizens.

Definition of Senior Citizen-
A person becomes senior citizen under Income Tax Act after attaining age of 60 even for one day. Once he attains 60 years, his status as senior citizen in that financial year and a person whose age is 80 years he becomes super senior citizens.
“Senior Citizen” has been defined under Income Tax Act, as an individual resident in India who is the age of 60 years or more at any time during the previous year.

“Super Senior Citizen” has been defined under Income Tax Act, as an individual resident in India who is of the age of 80 years or more at any time during the previous year.

Benefits for Senior Citizens-
1. Increase in Basic Exemption Limit- Under Income Tax Act, basic exemption limit has increased for Senior citizens up to Rs. 3,00,000 or for Super Senior Citizens up to Rs. 5,00,000, means Senior citizens having income up to Rs. 3,00,000 there is no tax liability or for Super Senior Citizens having income up to Rs. 5,00,000 they have also not to pay any income tax.
Example 1-
Mr. X, age of 62 years having total income of Rs. 2,95,000 during the financial year 2018-19. What is his tax liability for the financial year 2018-19?
Mr. X is senior citizen so the basic exemption limit under Income tax is allowed up to Rs. 3,00,000. Therefore Mr. X has No Tax Liability for the financial year 2018-19.

Example 2-
Mr. X, age of 82 years having total income of Rs. 4,80,000 during the financial year 2018-19. What is his tax liability for the financial year 2018-19?
Mr. X is super senior citizen so the basic exemption limit under Income tax is allowed up to Rs. 5,00,000. Therefore Mr. X has No Tax Liability for the financial year 2018-19.

2. Increase an amount of deduction under section 80D- Under section 80D, the deduction is allowed for premium paid on health insurance and health check is allowed up to Rs. 50,000 for senior citizens.
If, Mr. Ramesh age of 55 years, pays medical insurance premium of Rs. 28,000/- on his health and health of his wife and dependent children and pay Rs. 42,000/- on the health of his parents which are senior citizens. What will be the amount of deduction under section 80D during the financial year 2018-19?
Answer: –
Mr. Ramesh would be eligible for a deduction under section 80D for Rs. 67,000/- (Rs. 25,000 + Rs. 42,000) during the financial year 2018-19. In such case where assessee is not senior citizen while his parents are senior citizens, so the deduction is allowed Rs. 25,000 in respect of his family and Rs. 50,000 in respect of insurance of their parents.

Preventive Health checkup covered under section 80D- Preventive health checkup expenses to the extent of Rs 5,000/- can be claimed as tax deductions. Keep in mind, this is not over and above the individual limits.
Example 4 –
If, Mr. Samir (65 years) has a Mediclaim policy and paid Rs 55,000 as premium. He also spent Rs 8,000 towards health check-up. What will be the deduction amount under section 80D?
Mr. Samir is a senior citizen, he can claim deduction to the extent of Rs 50,000 only under Section 80D. Even he has paid Rs. 63,000/- (Rs. 55,000+ Rs. 8,000). The deduction of health checkup is included in tax deduction slab.
Special deduction for Super Senior Citizens under section 80D -If you or any member of your family or either of your parents is a super senior citizen (i.e. 80 years or above in age) but is not covered under any health insurance, you can still get a tax deduction of Rs. 50,000 (w.e.f. 2018-19). The deduction is allowed for medical expenses.

3. Increase an amount of deduction under section 80DDB- Under Section 80DDB, the deduction is allowed for actual expenses incurred on medical treatment of specific diseases or Rs. 1,00,000 whichever is lower.
Example 5-
During the financial year 2018-19, Mr. X spent Rs. 90,000 on medical treatment of specified diseases of his father with the age of 65 years. He has received Rs. 35,000 by way of reimbursement of such expenditure from a medical insurance policy. Can he claim any deduction in respect of expenditure incurred by him on medical treatment of specified diseases under section 80DDB?
Mr. X can claim deduction under section 80DDB of Rs. 55,000 [i.e., Rs. 90,000 (Maximum limit of Rs. 1,00,000 or Actual Expenses of Rs. 90,000 whichever is less) – Rs. 35,000 reimbursement from a medical insurance policy].

Example 6-
During the financial year 2018-19, Mr. X spent Rs. 1,20,000 on medical treatment of specified diseases of his father with the age of 65 years. He has no medical insurance policy. What amount can he claim for deduction in respect of expenditure incurred by him on medical treatment of specified diseases under section 80DDB?
Mr. X can claim deduction under section 80DDB of Rs. 1,00,000 (i.e. Maximum limit of Rs. 1,00,000 or Actual Expenses of Rs. 1,20,000 whichever is less)

4. Increase an amount of deduction under section 80TTB- Under Section 80TTB, the Interest earned from banks, cooperative societies or post offices under Saving accounts/Fixed Deposits/Recurring Deposits etc. is exempted up to Rs. 50,000.

5. Increase to invest money under Pradhan Mantri Vaya Vandana Yojna- The Investment limit under Pradhan Mantri Vaya Vandana Yojana has increased up to Rs. 15,00,000. The limit on maximum investment has now revised to per senior citizen (and not per family). So now in a family if both husband and wife are senior citizen. Both can invest 15 lakhs each as purchase price (total 30 lakhs)

6. Non-Deduction of TDS on Interest under section 194A- If the total taxable income of any person who is senior citizen not exceeding their basic exemption limit they can file form 15H for non-deduction of TDS on Interest to any banks or post offices.

7. Standard Deduction- If any person who is senior citizen having income from pension can claim standard deduction of Rs. 40,000.

8. Exemption from payment of Advance Tax- If any person who is senior citizen, is exempted from payment of advance tax if they do not have income under the head “Income from business or professions”. They have to pay their tax liability at the time of filing or their income tax return.

TDS on Sale of Immovable Property Section 194IA


TDS on Sale of Immovable Property Section 194IA


TDS on sale of Immovable Property comes under section 194IA, is inserted by Finance act 2013 w.e.f. 01.06.2013. If any person purchased any immovable property (other than agricultural land) is required to deduct TDS from the amount payable to the seller, if the property value is greater than Rs. 50.00 lakhs. The seller should be “Resident in India”.
There is no requirement for obtaining Tax deduction account number (TAN) to the buyer. Only PAN of the buyer is required for filing form 26QB.

Rate of TDS-
If the property value is greater than Rs. 50.00 lakhs then the TDS will be deducted as the rates below-
• TDS will be deducted @ 1% on the amount payable to the seller.
• If the seller has no PAN, then the TDS will be deducted @ 20%.

(If the property value is greater than Rs. 50.00 lakhs)

Example 1- (If seller has PAN number)
Mr. Ram sells the Residential House to Mr. Sham, at a consideration amount of Rs. 65.00 lakhs. Whether TDS will be applicable, if applicable what is the amount of TDS?
Yes, the TDS will be charged @ 1% on Rs. 65.00 lakhs i.e. come to Rs. 65,000/-
(TDS will be charged because the property value is exceeding to Rs. 50.00 lakhs and the seller has PAN so, TDS will be deducted @1%)

Example 2- (If seller has NO PAN number)
Mr. Ram sells the Residential House to Mr. Shyam, at a consideration amount of Rs. 65.00 lakhs. Whether TDS will be applicable, if applicable what is the amount of TDS?
Yes, the TDS will be charged @ 20% on Rs. 65.00 lakhs i.e. come to Rs. 13.00 lakhs.
(TDS will be charged because the property value is exceeding to Rs. 50.00 lakhs and the seller have No PAN so, TDS will be deducted @20%)

(If the property value is Less than Rs. 50.00 lakhs)

Example 3- (If seller has PAN number)
Mr. Ram sells the Residential House to Mr. Sham, at a consideration amount of Rs. 45.00 lakhs. Whether TDS will be applicable, if applicable what is the amount of TDS?
No, TDS will be charged because the property value is below to Rs. 50.00 lakhs.

WhenTDS under section 194IA is not applicable-

• Where section 194LA regarding compulsory acquisition is applicable.
• If the seller is non-resident or NRI then TDS is to be deducted under section 195 on basis of capital gains.

Time of Deduction-
TDS will be deducted at the time of credit of such sum to the account of the payee or at the time of payment whichever is earlier. If the payment received in installments, TDS will be deducted at every installment not at final installment.
Due date of payment of TDS-
The purchaser of the property should deposit the deducted amount of TDS on Form 26QB, within 30 days from the end of the month in which payment is made.

TDS Certificate-
The buyer has to provide TDS certificate in form 16B to the seller within 15 days from the day of filing Form 26QB.
Interest charged under section 201-A- The interest amount will be calculated on monthly basis not day to day basis, part of month will be calculated as full month.

1. Non-Deduction of TDS- 1% per month from the date on which TDS was due till the date it was deducted.
2. TDS deducted but not deposited- 1.50% per month from the date of deduction till the date it was deposited.
Example 4-
If you have failed to deducted TDS of Rs. 10,000 on 05.07.2017 but deducted on 12.10.2017 and deposited on same day, you have to pay interest of 4 months @ 1% i.e. comes to Rs. 400/- for non-deduction of TDS.
Example 5-.
If you have deducted TDS of Rs. 10,000 on 05.07.2017 and deposited on 12.10.2017, you have to pay interest of 4 months @ 1.50% i.e. comes to Rs. 600/- due to not deposited in time.

Penalty for Delay or Non-filling of Form 26QB-
1. Late filing Fees- Under Section 234E, the buyer has to pay Rs. 200 per day for late filling of form 26QB till the date default continues. The penalty should not exceed the total amount of TDS.
2. Non-Filling Fees- Under Section 271H, the buyer has not filled form 26QB within one year from the due date, the penalty should not be less than 10,000 or more than Rs. 1,00,000.


16 Rules for the Master Swing Trader


Swing trading can be a great way to profit from market upswings and downswings, but as I’ve always said, it’s not easy. Mastering the swing- trading techniques takes time and effort. To help get you started, I am giving you 16 Rules to think about as you begin – and ultimately master – swing trading.

Rule 1: Trends depend on their time frame.
Make sure your trade fits the clock. Price movement aligns to specific time cycles. Success depends on trading the right ones.

Rule 2: Price has memory.
What happened the last time a stock hit a certain level? Chances are it will happen again. Watch trades closely when price returns to a battleground. The prior action can predict the future.

Rule 3: Stand apart from the crowd at all times.
Trade ahead, behind or contrary to the crowd. Be the first in and out of the profit door. Your job is to take their money before they take yours. Be ready to pounce on ill-advised decisions, poor judgment and bad timing. Your success depends on the
misfortune of others.

Rule 4: Buy at support. Sell at resistance.
Trend has only two choices upon reaching a barrier: Continue forward or reverse. Get it right and start counting your money.

Rule 5: Short rallies, not selloffs.
Shorts profit when markets drop, so they start to cover. This makes it a terrible time to enter new short sales. Wait until they get squeezed and shaken out, then jump in while no one is watching.

Rule 6: Manage time as efficiently as price.
Time is money in the markets. Profit relates to the amount of time set aside for analysis. Know your holding period for every trade. And watch the clock to become a market survivor.

Rule 7: Trades that work in hot markets destroy accounts in cool ones.
Stocks trend only 15% to 20% of the time. Price ranges cause grief to momentum traders the rest of the time.

Rule 8: The best trades show major convergence.
Watch for the bull’s eye. Look for a single point in price and time that points repeatedly to a trade entry. The market is trying to tell you something.

Rule 9: Don’t confuse execution with oppourtunity.
Save Donkey Kong for the weekend. Pretty colors and fast fingers don’t make successful careers. Understanding price behavior and market mechanics does. Learn what a good trade looks like before falling in love with the software.

Rule 10: Control risk before seeking reward.
Wear your market chastity belt at all times. Attention to profit is a sign of immaturity, while attention to loss is a sign of experience. The markets have no intention of offering money to those who do not earn it.

Rule 11: Big losses rarely come without warning.
You have no one to blame but yourself. The chart told you to leave, the news told you to leave and your mother told you to leave. Learn to visualize trouble and head for safety with only a few bars of information.

Rule 12: Bulls live above the 200-day moving average, bears live below.
Are you flying with the birds or swimming with the fishes? The 200-day moving average divides the investing world in two. Bulls and greed live above the 200-day, while bears and fear live below. Sellers eat up rallies below this line and buyers come
to the rescue above it.

Rule 13: Enter in mild times, exit in wild times.
The big move hides beyond the extremes of price congestion. Don’t count on the agitated crowd for your trading signals. It’s usually way too late by the time they act.

Rule 14: Perfect patterns carry the greatest risk for failure.
Demand warts and bruises on your trade setups. Market mechanics work to defeat the majority when everyone sees the same thing at the same time. When perfection appears, look for the failure signal.

Rule 15: Trends rarely turn on a dime.
Reversals build slowly. Investors are as stubborn as mules and take a lot of pain before they admit defeat.

Rule 16: See the exit door before the trade.
Assume the market will reverse the minute you get filled. You’re in very big trouble when it’s a long way to the door. Never toss a coin in the fountain and hope your dreams will come true.


TDS under GST ~ Frequently Asked Questions


TDS under GST
GST Law mandates Tax Deduction at Source (TDS) vide Section 51 of the CGST/SGST Act 2017, Section 20 of the IGST Act, 2017 and Section 21 of the UTGST Act, 2017.
GST Council in its 28th meeting held on 21.07.2018 had recommended the introduction of TDS from 01.10.2018.

Q.1 Who shall be required to Deduct TDS under GST ?
Ans. Following classes of person shall be required to deduct tax at source @2% ( CGST 1% + SGST 1%) on the payment made or credited to the supplier: –
a) Department or establishment of Central Government b) Local authority c) Government Agencies d) Establishment in which Govt hold 51% or more equity control e) Societies established by Central or State Govt. under Societies Registration Act and f) Public Sector undertakings.

Q2. What is the Effective date for deduction of TDS under GST?
Ans. TDS provision has been made operative with effect from 01.10.2018 vide Notification No. 50/2018-Central Tax dated 13.09.2018.

Q3. When TDS to be deducted ?
Ans. TDS to be deducted at the time of making payment or crediting the supplier, if the total value of taxable supply under a single contract (excluding GST) exceeds Rs.2.5 lakhs.

Q4. What is the rate of TDS under GST ?
Ans. TDS to be deducted @2% ( 1% CGST + 1% SGST) or @2% IGST depending upon nature of supply.

Q5. What is the due date of deposit of TDS to the Government ?
Ans. TDS to be deposited in Government account within 10 days after the end of the month in which deduction was made.

Q6. What is the time limit for filing TDS return ?
Ans. TDS return to be furnished in Form GSTR-7 within 10 days after the end of the month in which deduction was made.

Q7. What is the due date of furnishing TDS certificate ?
Ans. The system generated TDS certificate in FORM GSTR-7A to be furnished to the deductee within 5 days of crediting payment of TDS to the Government.

Q8. Whether TDS to be deducted in case of supply made by Composition scheme dealer ?
Ans. Yes, TDS to be deducted if the contract value exceed Rs. 2.5 lakhs.

Q9. Is TDS provision applicable in case of taxable supply covered under RCM ?
Ans. No. in case of supply covered under RCM, TDS not to be deducted.

Q10. Is their any separate registration required for TDS by a registered person under GST?
Ans. Yes, separate registration under GST is mandatory (Just like TAN under Income Tax Act), even if a person registered under GST.

Q11. What are the penal provision for Non compliance of TDS Provision ?
Ans. Default in furnishing TDS return/ TDS certificate within due dates will attract late fee of Rs.100/day subject to maximum amount of Rs. 5000/- each under CGST Act & SGST/UTGST Act.

Q12. When tax deduction is not required to be made under GST ?
Ans. Tax deduction is not required in following situations:
a) Total value of taxable supply ≤ Rs. 2.5 Lakh under a single contract.
b) Contract value > Rs. 2.5 Lakh for both taxable supply and exempted supply, but the value of taxable supply under the said contract ≤ Rs. 2.5 Lakh.
c) Receipt of services which are exempted vide Notification No.12/2017-Central Tax Dated 28.06.2017, as amended from time to time.
d) Receipt of goods which are exempted. For example goods exempted under notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.
e) Goods on which GST is not leviable. For example Petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.
f) Where the location of the supplier and place of supply is in a State(s)/UT(s) which is different from the State / UT where the deductor is registered.
g) All activities or transactions specified in Schedule III of the CGST/SGST Acts 2017, irrespective of the value.
h) Where the payment relates to a tax invoice that has been issued before 01.10.2018
i) Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.18, to the extent of advance payment made before 01.10.2018.
j) Where the tax is to be paid on reverse charge by the recipient i.e. the deductee.
k) Where the payment is made to an unregistered supplier.
l) Where the payment relates to “Cess” component

Q13. How can a deductor discharge his TDS liability?
Ans.TDS liability can be discharged by debiting of Electronic Cash Ledger only at the time of filing return in FORM GSTR 7.

Q14. Can the deductee adjust the TDS credit declared by the deductor?
Ans. Yes. After filing of return by deductors (DDOs) in FORM GSTR-7, the amount so deducted will be auto-populated in ‘TDS/TCS credit receipt’ table of respective suppliers. The supplier (deductee) has to accept or reject the amount so auto-populated in the table after logging on the portal. The accepted amount will be credited to Electronic cash ledger while rejected amount will be auto-populated in Amendment table of next month’s FORM GSTR-7 of the deductor.

Q15.Is there any provision of refund to the deductor or the deductee arising on a/c of excess or erroneous deduction made under GST?
Ans. The refund to the deductor or the deductee arising on account of excess or erroneous deduction shall be dealt with in accordance with the provisions of section 54. Further no refund to the deductor shall be granted, if the amount deducted has been credited to the electronic cash ledger of the deductee.

Basic knowledge of Indian Power Sector


1. Ministry of Power – Website https://powermin.nic.in

2. The Ministry of Power started functioning independently with effect from
2nd July, 1992. Earlier it was known as the Ministry of Energy sources.

3. Power – Ministry of State (Independent Charge) – R.K.SINGH

4. Electricity is a concurrent subject at
“Article 246 – Seventh schedule – List III- Entry 38” of the Constitution of India.

5. The Ministry of Power is primarily responsible for the development of electrical energy in the country.

6. The Ministry of Power is responsible for the Administration of the Electricity Act, 2003, the Energy Conservation Act , 2001 and to undertake such amendments to these Acts, as may be necessary from time to time, in conformity with the Government’s policy objectives.

7. The Ministry is concerned with perspective planning, policy formulation, processing of projects for investment decision, monitoring of the implementation of power projects, training and manpower development and the administration and enactment of legislation in regard to thermal, hydro power generation, transmission and distribution.

8. Electricity Act 2003 has been enacted and came into force from 15.06.2003.
The objective is to introduce competition, protect consumer’s interests and provide power for all.

9. The Act provides for National Electricity Policy, Rural Electrification, Open access in transmission, phased open access in distribution, mandatory SERCs, license free generation and distribution, power trading, mandatory metering and stringent penalties for theft of electricity.

10. Electricity act 2003 is a comprehensive legislation replacing
Electricity Act 1910,Electricity Supply Act 1948 and Electricity Regulatory Commission Act 1998.

11. The Electricity Act, 2003 has been amended on two occasions by the
Electricity (Amendment) Act, 2003 and the Electricity (Amendment) Act, 2007.
The aim is to push the sector onto a trajectory of sound commercial growth and to enable the States and the Centre to move in harmony and coordination.


The Overall generation (Including generation from grid connected renewable sources) in the
country has been increased from 1110.458 BU during the year 2014-15 to
1173.603 BU during the year 2015-16,
1241.689 BU during the year 2016-17 and
1306.614 BU during 2017-18.
The performance of Category wise generation during the year 2017-18 was as follows:-
Thermal Increased by 4.27 %
Hydro Reduced by 3.07 %
Nuclear Increased by 0.87 %
Bhutan Import Increased by 13.55 %
Renewables Increased by 23.48 %
Overall Growth rate recorded by 5.35 %

Power Sector at a Glance ALL INDIA :- (Data as on 31.06.2018)
There are three major pillars of power sector these are Generation, Transmission, and Distribution.
As far as generation is concerned it is mainly divided into three sectors these are
Central Sector, State Sector, and Private Sector.

Central Sector – 30.2%
State Sector – 24.6%
Private Sector – 45.2%

Power Generated by using following Fuel :
S.no. Fuel % S.no. Fuel %
1 Total Thermal 64.8% 2 Hydro (Renewable) 13.2%
(a) Coal 57.3% 3 Nuclear 2%
(b) Gas 7.2% 4 RES* (MNRE) 20.1%
(c) Oil 0.2%

*RES (Renewable Energy Sources) include Small Hydro Project, Biomass Gasifier, Biomass Power, Urban & Industrial Waste Power, Solar and Wind Energy

Performance of Generation from Conventional Sources :

The electricity generation target of conventional sources for the year 2018-19 has been fixed as 1265 Billion Unit (BU).
i.e. growth of around 4.87% over actual conventional generation of 1206.306 BU for the previous year (2017-18).

1. The natural resources for electricity generation in India are unevenly dispersed and concentrated in a few pockets.

2. Hydro resources are located in the Himalayan foothills, North Eastern Region(NER).
Coal reserves are concentrated in Jharkhand, Odisha, West Bengal, Chhattisgarh, parts of Madhya Pradesh, whereas lignite is located in
Tamil Nadu and Gujarat.
Also lot of power station, generating from Gas and renewable energy sources like Solar, Wind etc. have been installed in various parts of country.

3. Powergrid Corporation of India Limited (POWERGRID), a Central Transmission Utilities (CTU), is responsible for planning inter-state transmission system (ISTS). Similarly there are State Transmission Utilities (STU) (namely State Transco/ SEBs) responsible for the development of Intra State Transmission System.

4. 13,820 circuit kilometres (ckm) of transmission lines have been commissioned during 2017-18 (April-November 2017). This is 59.9% of the annual target of 23,086 ckm fixed for 2017-18.

5. As on 30th November 2017, the total transmission capacity of the inter-regional links is 78,050 MW.

6. The transmission lines are operated in accordance with Regulations/standards of Central Electricity Authority (CEA) / Central Electricity Regulatory Commission (CERC) / State Electricity Regulatory Commissions(SERC).However, in certain cases, the loading on transmission lines may have to be restricted keeping in view the voltage stability, angular stability, loop flows, load flow pattern and grid security. Power surplus States have been inter-alia, able to supply their surplus power to power deficit State Utilities across the country except for some congestion in supply of power to Southern Region.

7. Power Grid Corporation of India Limited (POWERGRID, the ‘Central Transmission Utility (CTU)’ of the country and a ‘Navratna’ Company operating under Ministry of Power, is engaged in power transmission business with the responsibility for planning, implementation, operation and maintenance of Inter-State Transmission System (ISTS).
POWERGRID is a listed Company, with 57.90% holding of Government of India and balance by Institutional Investors & public.

8. As a part of Government of India plan to connect 250,000 Gram Panchayats (GP) in the Country, POWERGRID one of the implementing agencies for Bharat Net project and has been entrusted with the task of development and maintenance of the National Optical Fiber Network in states, namely Andhra Pradesh, Telangana, Himachal Pradesh, Jharkhand and Odisha.

9. Further, POWERGRID is playing a significant role in carrying forward the distribution reforms through undertaking Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS) works on behalf of the Govt. of India in the country.

POWER DISTRIBUTION & Various Schemes :

Distribution is the most important link in the entire power sector value chain.
As the only interface between utilities and consumers, it is the cash register
for the entire sector.

Under the Indian Constitution, power is a Concurrent subject and the responsibility for distribution and supply of power to rural and urban consumers rests with the states.

Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) Ujwal Discoms Assurance Yojana (UDAY ) Integrated Power development Scheme
(IPDS) Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY)

Important Points :

1. URJA MITRA – App by Ministry of power
“Monitoring of power Availability and sending power cut information through SMS”
2. 30.01 Crore LED bulbs distributed under UJALA Scheme
3. Vision of the Prime Minister – Power for ALL (24X7)
It is a Joint venture of Government of India and States & UT
Objective : States ready to ensure 24×7 power for all from 01.04.2019
4. India’s Rank on World bank’s Ease of getting Electricity Ranking
In 2018 – 29th Rank
In 2014 – 111 Rank
5. India 1st time became net exporter of Electricity.

Facts about NTPC :

• NTPC is India’s largest energy conglomerate with roots planted way back in 1975 to accelerate power development in India.
• NTPC became a Maharatna company in May 2010, one of the only four companies to be awarded this status.
• NTPC was ranked 400th in the ‘2016, Forbes Global 2000’ ranking of the World’s biggest companies.
• The total installed capacity of the company is 53,651 MW (including JVs)
• Presently, Government of India is holding in NTPC has reduced to 69.74%.
• NTPC has been ranked as “6th Best Company to work for in India” among the Public Sector Undertakings and Large Enterprises for the year 2014, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times.

Subsidaries of NTPC :
• NTPC Electric Supply Company Ltd. (NESCL)
• NTPC Vidyut Vyapar Nigam Ltd. (NVVN)
• Kanti Bijlee Utpadan Nigam Limited
• Bharatiya Rail Bijlee Company Limited (BRBCL)
• Patratu Vidyut Utpadan Nigam Limited (PVUNL)

Trading Psychology and Risk Management


Learning objectives

After studying this chapter the student should be able to understand:

  • Why to put stop loss and use optimal trade size
  • Qualities of successful traders
  • Do’s and Don’ts in trading
  • Trading along with trend
  • Choosing the Right Markets to Trade
  • Importance of Discipline in trading

NSE Certified Capital Market Professional Course Introduction

It is generally noticed that when we invest or trade our focus is on potential gains rather than dwelling on possible losses. Traders are often so confident about their trades that they push back their minds and don’t think that something could go wrong. But in order to be successful trader, we must keep our mind open to the potential losses and we should know how to manage and control those losses.


If you are making huge profits in the market on a very small or average trading account,

it is most likely that you are not implementing sound money management. May be you are

lucky for one or two days that has earned you windfall profits. But you have exposed yourself to obscene risk because of an abnormally high “Trade Size.” If you continue trading in this manner, probabilities indicate that very soon you would land up with series of losses and you may lose your entire capital.


Trading, like every other business, needs to start with a certain amount of equity or “seed

capital”. Traders remain in business so long as they have this seed capital with them. Many

traders start and end their trading capital in just one month! By not controlling risk and by

using improper “Trade Size” a trader can go broke in no time. It usually happens like this;

they begin trading, get 5 to 8 losses in a row, don’t use proper position size and don’t cut their losses soon enough. After 5 to 8 devastating losses in a row, their funds become too small to continue trading.


Novice traders tend to focus on the trade outcome as only winning and therefore do not

think about risk. They don’t ask themselves, how much can they afford to lose on this trade

and hence they fall prey to the “risk-of-ruin” outcome. Failure to implement good money

management program will leave you subject to the deadly “risk of ruin” exposure leading

eventually to a probable equity bust.

Professional traders focus on the risk and take the trade based on a favorable outcome. Thus, the psychology behind ‘Trade Size’ begins when you believe and acknowledge that each trade’s outcome is unknown when entering the trade. You either adjust your “Trade Size” or tighten your stop-loss before entering the trade. In most situations, the best method it to adjust your “Trade Size” and set your stop-loss based on market dynamics.

During “draw-down” periods, risk control becomes very important and since good traders test their trading systems, they have a good idea of the probabilities of how many consecutive losses in a row can occur. Taking this information into account, allows the trader to further determine the appropriate risk percentage to take on each trade.

Let’s talk about implementing sound money management in your trading formula so as to

improve your trading and help control risk. The idea behind money management is that given enough time, even the best trading systems will only be right about 60% to 65% of the time.

That means 40% of the time we will be wrong and have losing trades. For every 10 trades,

we will lose an average of 4 times. Even certain trading set ups with higher rates of returns

nearing 80% usually fall back to a realistic 60% to 65% return when actually traded. The

reason for this is that human beings trade trading systems. And when human beings get

involved, the rates of returns on most trading systems are lowered. Why? Because humans

make trading mistakes, and are subject from time to time to emotional trading errors.

If we are losing 40% of the time then we need to control risk! This is done through implementing stops and controlling position size. We never really know which trades will be profi table. As a result, we have to control risk on every trade regardless of how sure we think the trade will be. If our winning trades are higher than our losing trades, we can do very well with a 60% trading system win to loss ratio. In fact with risk control, we can sustain multiple losses in a

row without it devastating our trading account and our emotions.

 Risk Management

Risk is there in every business and proper risk management is road to success for any business.

Equity trading is a lucrative business which is very rewarding but this reward is not risk free, as theoretically and practically risk free trade does not exist. Because risk is associated with the reward, it becomes essential to manage risk in order to protect one’s capital.

Risk management is very essential for trading as markets have potential to take back all life

time profits in just few bad trades. Risk managements help in preserving initial capital and

accumulated profits so that one can stay alive long enough in financial markets for wealth

creation, thus it provides biggest edge in trading.

 Components of risk management

 Stop loss

Stop loss is an integral part of risk management. Stop loss is an order placed to buy or sell

security once certain price is reached. It is basically designed to limit the amount of loss on

buy/sell position. In fact by placing the stop loss one is just closing the losing position and

limiting the amount of loss which can increase beyond imagination.


 Analyze reward risk ratio

Before initiating a trade, the trade should analyze reward risk ratio. On a conservative basis

if the said ratio is less than 1.5 then one should not initiate the trade.

 Trail stop loss

Initially stop loss is placed to protect one’s capital on a losing trade, but once the trade is

in profit stop loss should be so moved that trade is at zero risk even if trailed stop loss gets


 Booking profit

Profit is the only goal for which we all trade. But at the same time profit is profit only when it is realized otherwise its notional profit. Hence one should book profit at predefined target levels and one should not be carried away by one’s emotions specially greed when prices are near to predefined target levels.

 Use of stop loss

A trader should always put Stop Loss and trade a fraction of his capital. It is very important for the trader to have sound knowledge in the area concerned and should be comfortable with the trading system. He should be aware that it is possible and inevitable to have a losing streak of five losses in a row. This is called drawdown. This awareness will help the traders prepare as to how to control risk and choose their trading system.

What we are striving for is a balanced growth in the trader’s equity curve over time.

 Qualities of successful traders:

  1. Always use stops
  2. Trade size should be determined on the basis of trading account equity, and stop loss

price for every trade.

  1. Never trade more than 10% on any give sector
  2. Never exceed a loss of 2 to 5% on any given trade
  3. Always trade with risk capital, money you can afford to lose.
  4. Never trade with borrowed money and don’t overtrade based on the time frame you

have chosen to trade

Golden rules for traders

Want to trade successfully?

It is very important to choose good positions over the bad ones. Poor trading sense leads

to a heavy loss of both the confidence and money. Without a system of discipline for your

decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times.

Many short-term players view trading as a form of gambling.

Many short-term players without planning or discipline jump in the market. The occasional

big score reinforces this easy money attitude but sets them up for ultimate failure. Without

defensive rules, insiders easily feed off these losers and send them off to other hobbies.

Technical Analysis teaches traders to execute positions based on numbers, time and


This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally “works”.

 Do’s and Don’ts in trading:

The science of trend allows you to build systematic rules to play these repeating formations

and avoid the chase:

  1. Forget the news, remember the chart. You’re not smart enough to know how news

will affect price. The chart already knows the news is coming.

  1. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just

waiting to jump in the pool.

  1. Don’t chase momentum if you can’t find the exit. Assume the market will reverse

the minute you get in. If it’s a long way to the door, you’re in big trouble.

  1. Trends test the point of last support/resistance. Enter here even if it hurts.
  2. Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
  3. If you have to look, it isn’t there. Forget your college degree and trust your


  1. The trend is your friend in the last hour. As volume cranks up at 3:00pm don’t

expect anyone to change the channel.

  1. Avoid the open. They see YOU coming sucker
  2. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key

moving average line and buyers to come to the rescue above it.

  1. Price has memory. What did price do the last time it hit a certain level? Chances are it

will do it again.

  1. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the

market and lead to sideways action.

  1. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds

buyers and the first sharp rise always finds sellers.

  1. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes

stocks to drop from their own weight.

  1. Beat the crowd in and out the door. You have to take their money before they take

yours, period.


 Rules to Stop Losing Money

  1. Don’t trust others opinions – It’s your money at stake, not theirs. Do your own analysis,

regardless of the information source.

  1. Don’t break your rules – You made them for tough situations, just like the one you’re

probably in right now.

  1. Don’t try to get even – Trading is never a game of catch-up. Every position must stand

on its merits. Take your loss with composure, and take the next trade with absolute


  1. Don’t believe in a company – Trading is not investment. Remember the charts and

forget the press releases.

  1. Don’t seek the Holy Grail – There is no secret trading formula, other than solid risk

management. So stop looking for it.

  1. Don’t forget your discipline – Learning the basics is easy. Most traders fail due to a

lack of discipline, not a lack of knowledge.

  1. Don’t trade over your head – Concentrate on playing the game well, and don’t worry

about making money.

  1. Don’t chase the crowd – Listen to the beat of your own drummer. By the time the

crowd acts, you’re probably too late…or too early.

  1. Don’t trade the obvious – The prettiest patterns set up the most painful losses. If it

looks too good to be true, it probably is.

  1. Don’t ignore the warning signs – Big losses rarely come without warning. Don’t wait

for a lifeboat to abandon a sinking ship.

  1. Don’t count your chickens – Profi ts aren’t booked until the trade is closed. The market

gives and the market takes away with great fury.

  1. Don’t forget the plan – Remember the reasons you took the trade in the fi rst place, and

don’t get blinded by volatility.

  1. Don’t join a group – Trading is not a team sport. Avoid acting on messages, fl ashes and

fi nancial TV. Your judgment may be more correct than all of them put together

  1. Don’t have a paycheck mentality – You don’t deserve anything for all of your hard

work. The market only pays off when you’re right, and when your timing is really, really


  1. Don’t ignore your intuition – Respect the little voice that tells you what to do, and

what to avoid. That’s the voice of the winner trying to get into your thick head.

  1. Don’t hate losing – Expect to win and lose with great regularity. Expect the losing to

teach you more about winning, than the winning itself.

  1. Don’t fall into the complexity trap – A well-trained eye is more effective than a

stack of indicators. Some time Common sense is more valuable than a complex set of


  1. Don’t confuse execution with opportunity – Overpriced software won’t help you

trade like a pro. Pretty colors and flashing lights make you a faster trader, not a better


  1. Don’t project your personal life – The outcome of your trade is defi nitely likely to get

affected by the situation at your home. Get your own house in order before playing the


  1. Don’t think its entertainment – Trading should be boring most of the time, just like the

real job you have right now If one could sum up the single most important aspect of successful trading it would be to stick

with the trend as much as possible.

“The Trend is your friend until the end when it bends.” Anonymous

If you have been around trading for any time at all you’ve probably encountered that quotation a thousand times by now. But in all those times have you ever really tried to understand what this well worn expression is saying to you?

Whoever was the fi rst to say, it knew the secret to making money in the markets. Trading

with trend is not just another axiom that rolls off the lips of traders, but it is the very core

of successful trading. As almost any successful trader will tell you, there are infi nitely better

opportunities to trade with the trend then against it.

So, if it is such a commonly accepted truism among traders that the best way to make money

in the markets is by trading with the trend, why is it that so many traders chose to take

positions against the predominant market direction?

I suppose one reason is that within each of us is a rebel. It is part of human nature to go against

the *crowd*. Our society embraces individualism and as a result everyone strives to be an

individual. Sometimes this is interpreted as doing the opposite as everyone else.

There is something romantic about being the underdog. Everyone roots for the underdog.

Traders have even coined the term *contrarian* to describe the strategy of trading against

the trend.

Now does that mean that you will never lose money by trading with the trend? Of course not!

Every trend ends and reverses eventually which will stop you out. Furthermore markets make

regular pullbacks as a part of an ongoing trend which could stop you out prematurely.

You should always trade with the trend until it hurts. You should follow the trend until you can

not possibly conceive how the market could go any higher/lower. And then you should trade

with the trend some more. One must Paper trade it. I think you’ll be pleased with the results.

One of the things that the majority of folks fi nd most challenging about trading is determining

which is more important: a good entry or a good exit?

As has been pointed out so many times before, the three components of good trading are

market analysis, money management and mental attitude.

As every experienced trader knows, market analysis is the easiest part to learn. However, that

by itself only turns you into a good PAPER trader!

There is a world of difference between paper trading and real trading. And the difference is

the emotional impact trading has on us, when we trade with real money.

Emotions make a trader hang on to a losing trade, because he has the hope that the market will

turn around and get him back to break-even, causing him to ride a bad trade into oblivion.

Emotions will keep a trader out of entering a perfectly good trade, because he is afraid of this

being a losing trade.

Emotions make a trader exit a good trade, right after he entered, because the normal jiggles

in price make him doubtful of his analysis and afraid of losing on this trade, thus making him

miss out on what could be a long ride.

Trades are rarely entered at the low point of a V-shaped bottom. The great majority of our

trade entries are followed by some form of ‘chop’, right after entry.

This applies to both position trades and day trades. The time frames may be different (days,

in case of a position trade, and minutes, in case of a day-trade), but the principle is the same:

What looked like a perfectly well thought-out trade before the order was placed can turn into

a struggle with fear and doubt.

Once these emotions surface, it becomes diffi cult to stick with the original plan. Many traders

then take the easy way out, by escaping to the safety of being on the side lines. And there

goes another good trade without them!

A carelessly placed entry almost always results in such misery.

On the other hand, take those incidences when a buy was made right at the low. What a nice and

relaxed feeling, when the market goes in the right direction immediately after entry!

So what, if there are some wiggles! There is a profi t, even if it’s only a small profi t. Now it is

so much easier to keep a cool head and make the right decision.

Therefore, it is my belief that a trader should strive to perfect his entry techniques fi rst, and

worry about the exit later on.

Here are some tips for the newcomer, aimed at relieving trading-stress:

Use stops! Many traders trade without stops. They argue that they don’t need to place stop

loss orders because they are closely monitoring the market.

This may be so, but the intense monitoring required, and the ever present possibility of a

quick adverse price move, create unnecessary additional stress. A well placed stop can do a

lot to relieve the tension associated with a new position.

Keep your positions small! Many newcomers try to make a quick killing by using positions that

are too large for their account, or trading a stock that’s too volatile for them. A sure way to

increase the stress level!

Accept yourself for what you are! There are many ways to trade the markets. But we all have

different personalities, and many trading styles simply don’t fi t our personality and emotional


Some people are natural long-term investors; some people are natural day-traders. Find out

what suits you best, and then throw away those books that try to turn you into a person you

can never be.

7.4 Choosing the Right Markets to Trade

An often overlooked part of trading is choosing the right markets to trade. Most traders do

not pay too much attention to the mix of markets they follow. New traders are sometimes at

a loss as to how many markets or sectors to trade and which ones to follow. It is a common

misconception that you need to follow a lot of stocks to be a successful trader. This is not true.

For most traders, choosing six to eight stocks to follow should be adequate. It is important

to allow some diversifi cation among the markets you follow however, so as to allow for the

maximum number of trading opportunities.

You would not want to choose all power stocks to follow, or all grains if trading in commodities.

By taking one or two picks from each category you should have enough of a cross section to

catch most of the opportunities within that category.


7.4.1 Importance of discipline in trading

Overtrading is the biggest reason for failure of people in trading While there is no defi nitive

rule for how many times you can (or should) trade, new traders should be especially cautious

not to overtrade. Industry statistics show that 90% of new traders will not make it to their fi rst

anniversary. Why? Overtrading is one factor that has been identifi ed as a defi nite ‘no-no’.

So why do traders overtrade?

  • Traders overtrade because of the reason that they are hooked on the rush that comes

form being in the markets

  • Some overtrade because they feel they that will miss a golden opportunity if they don’t


  • Some traders overtrade because their system does not have specifi c enough entry criteria

to keep them out of bad trades.

  • Many traders in a hurry to start trading don’t wait for a good opportunity but start trading

with a fi rst trade that looks good.

  • Some traders overtrade because they feel that the more they trade, more the money they

will be able to make.

This is the real secret in making more money with your trades: learning to identify the best

market opportunities.

There are three positions that a trade can have in the market namely: long, short or fl at. But

the trader’s don’t realize this. Many of them feel that they have to be constantly in the market

for which they need to acquire either a long position or a short position. It is equally important

to recognize that the third option, being fl at, is as legitimate a position as the fi rst two.

Being fl at allows you to watch the market set up so that you can best take advantage of

the market when it is ready. This is what traders mean when they tell you *not to chase the


It is important to learn to wait for the markets and let them come to you. Then your job as a

trader is to be ready for them.

Buy, sell, or stand aside. Just make sure it’s the right decision at the time.

There are many methods to build superior trading habits. Good trading habits will make

trading a part of routine, rather than a task. Getting in the habit of doing everything exactly

to plan will boost trading profi ts, marking one more step in the path to fi nancial freedom.

  1. Trading discipline – One’s own trading plan is very important to success. It should be

followed strictly. Emotions have no place in trading and it could easily lead to losing of

money. Proven techniques and strategies should not be edited for any reason; follow the

plan and let it work for you.

  1. Understanding risk – Difference between gambling and investing is what is called as

managing risk. Profi table traders can quickly calculate how much of a drawdown they are

willing to incur before cutting a position. It is important to have a plan for pruning losses

and minimizing the damage of drawdown.

  1. Stick to your niche – Niche trading is considered to be the best strategy to remain

profi table. Sticking to an area in which one specializes is the best way to minimize losses.

If one is best in high volume trading, then only trade during periods of high volume.

Finding your trading niche will help you to become more a more effi cient trader.

  1. Look at every time frame – Even when trading short 5 minute ticks, it is important to

evaluate all timeframes for market data. It just might happen that a 100 day moving

average is acting to support your position. You’ll never know this unless you take the time

to study all timeframes rather than just a few. Long term trends can and do impact short

term trading positions. Day traders are more susceptible to trading in only one timeframe

because of how time-sensitive their investments are. Swing traders are probably used to

checking multiple timeframes for entry points.

  1. Trading is affected by emotion – It is diffi cult to get away with the trading. Holding

open positions can increase the amount of stress. Day traders should try and limit the

exposure and keep the stress at lower level.

  1. Trade as your capital allows –High levels of margins can be easily exceeded by the

day traders that greatly exceeds there trading capital. Exceeding the credit limit can

be very dangerous and it can accumulate losses as fast as gains. Momentum trading

with many different entry points can end up in costly mistakes if your account becomes


Even the best traders in the market have trading sessions that are less than optimal. Human

nature dictates that we make mistakes, and trading the stock market is no exception.

Subsequently, there is always room for improvement, whether you are a novice trader or a

seasoned veteran.

  1. Stick to your Guns – Running from the market is no solution. One should try to stay in

the game and earn profi ts. Sticking to the trading plan and enacting trading discipline are

the best ways to produce profi ts.

  1. Set stop losses and take profi ts – The most profi table trading is one in which we

“Set and forget”. Once should remember to place exit along with placement of trade.

Technical analysis will tell you the best price or selling (near resistance) and the best

place for buying (near support). Support and resistance points are the best places to put

limit orders.

  1. Don’t watch minute to minute – The minute to minute movements should be avoided

by the traders. It is diffi cult to have a potentially profi table trade after having minute to

minute movements. There is no reason to get out of a trade for quick profi ts if you’re

in for the long haul. Small ups and downs create temporary stress and can reduce

swing traders to day traders. Niche trading works because you’re specialized in your own


  1. Eliminate high probability trading – You wouldn’t expect to make consistent profi ts

at the roulette wheel, and you shouldn’t do the same with your investments. The active,

professional trader only takes quality trades opposed to quantity of trades.

  1. Accept that full-time day trading is rough – It is very diffi cult to trade on a full time

daily basis. The ups and downs of full-time day trading are very stressful. Stress will

make you think differently and trade differently. A professional trader will need to fi nd

ways to vent their frustrations as bad days do happen to the best of traders.

  1. Don’t get attached –one should not be too attached with the stock. Investor should be

ready to dump it off when the price is right.


  1. Pick swing traders or day traders – Know exactly what kind of trader you want to be.

It is diffi cult to be very good at swing trading while following short term movements of

day trading. Defi ne what kind of strategy you want to follow and stick with it.

  1. Talk to other traders – Communicate with other traders and share their experiences.

Aim should be to get trading down to a point where it comes naturally to you.


New terms

Drawdown: A Drawdown is the peak-to-trough decline during a specifi c record period of an

investment, fund or commodity. A drawdown is usually quoted as the percentage between the

peak and the trough.

Test: In technical analysis, it is when a stock price approaches a support or resistance level

set by the market. If the stock stays within the support and resistance levels, the test is

passed. However, if the stock price reaches new lows and/or new highs, the test has failed.

Trend: The general direction of a market or of the price of an asset is known as a Trend.

Trends can vary in length from short, to intermediate, to long term. If you can identify a trend,

it can be highly profi table, because you will be able to trade with the trend.

Holy grail: As the community of traders has evolved, the “Grail buy” has been nicknamed

“the dip”, implying a place where a buy may be set up. The “Grail sale” has been nicknamed

“the ding”, implying a place where a short sale may be set up. This refers to the Holy Grail

technique. The key is to buy pullbacks in an established uptrend, or sell bounces in an

established downtrend and avoid trading ranges.

Stop loss: A stop loss is an order to buy (or sell) a security once the price of the security

climbed above (or dropped below) a specifi ed stop price. When the specifi ed stop price is

reached, the stop order is entered as a market order (no limit) or a limit order (fi xed or predetermined


Contrarian: One who takes a contrary view or action, especially an investor who makes

decisions that contradict prevailing wisdom, as in buying securities that are unpopular at the



How, to select a stock for Investment?

How, to select a stock for Investment
or u can say How to check fundamentals of a stock?

First Go to https://www.bseindia.com  In the search box type the name of the stock which u r interested in investing :-

Now select Financial, see its results Annual as well as quarterly

Firstly see Revenue, if its increasing every quarter as well as annual or its stable but not negative then its a good stock

Then see its Net Profit , if its increasing every quarter as well as annually then its a good stock

Then see its Debt as well as Reserve Capital :-

Suppose the Debt of a company was 100 crores in 2014, 90 crores in 2015, 70 crores in 2016, 50 crores in 2017

And its Reserve Capital in 2013 was 210 crores in 2014, 218 crores in 2015, 226 crores in 2016, 240 crores in 2017

Here u r seeing the Debts of this company is decreasing every financial year and the Reserve Capital is increasing every financial year. So, its a safe company to invest in. If a Company has zero debt but has good Reserve capital then its a Golden stock to invest

Now see Shareholding Pattern of that stock. Just see the percentage of stock promoters r holding & public is holding.

For example :- Suppose in 2014 Promoter Holding 66% Public or Institutions holding rest 34%, 2015 Prom Holding 70% and Pblic and inst=30%, In 2016, Promoters holding 72% and public and inst=28%, and in 2017 Promoters holding is 75% and public and inst=25%. So its a very less risky stock bcs Promoters holding has increased every year and not decreased so they hv faith in their company and If FIIs holding also increases every quarter or annually then additional good point for stock

Now see its P/E ratio and also check its Industry P/E ratio

Suppose its a Pharma stock trading at 200 rupees and its P?E ratio is just 9 and Its Industry P/E ratio is 27. What does it means ? It means that the stock has the potential to triple from here bcs its Industry P/E ratio is thrice its own P/E ratio

Next point is to check if Promoters have pledged its shares. Suppose company is posting very good results every year but most of its shares are pledged by promoters then simply avoid that stock

Now, next see its Book Value. Book Value is Total Assets of a company Divided by its total no of shares. Suppose its Book value 85 and the share is already trading at 450. For me its already a overvalued stock bcs its trading way above its book value even though its a good company risk element is high for investment. Now, Suppoe the BV of a stock 300 and its currently trading at 75 . Its a good pick or safe pick for investment bcs its BV is still 4 times its current price. But u hv to check other above mentioned factors also to invest in it. Only if its BV is high than its current price doesn’t mean that stock is good

Another way is to select turnaround story stocks. Suppose a company was posting losses every financial year, but suddenly this year it has posted profit. So the stock is ready for turnaround now

Suppose, the company had huge debts but every quarter its decreasing its debt, its also a turnaround candidate


Why traders lose money and what to do about it?

Nowadays we read about several people on social media who have become traders and made a fortune. This is maybe one of the reasons why people are entering the trading world and unfortunately in several cases these end up losing money. Why is this?

Never learned the basics

In order to enter the market quickly, some traders just open an account without even having the knowledge of certain basic concepts. This will, more often than not, end up in burning all the investment before even starting.

Forget to save

To open an account, you don’t need a huge amount of money. It is however important to have a plan in place of what to do as your account grows. Patience and well thought strategy are important so you don’t end up losing all your growth in the fury of thinking that you have now become a Warren Buffet!

Not keeping a trading history

Keeping a track record is important so you understand what methods worked and what didn’t.


Like everything in life, we are all bound to make mistakes and this is also relevant in trading. Consulting experts and having the proper training is imperative in order to build your success.


Not doing research or lack of it

Sometimes we are all tempted to trade on just the basis of hearing some news or because someone is saying to do so. It is vital that before investing we do our own research and make logic decisions rather than just invest on the basis of a rumour or media pressure.

Chasing the price

A common mistake by beginners is that to chase the price. It is very normal to hear about a particular share or asset which is increasing constantly in value. What might happen is that at that point the price has already reached an important level and there is good probability that once you invest, the price will start decreasing as other traders will start to sell to take out their profits.

Fear of failure

Some traders are afraid to lose money and therefore they end up only pursue deals that carry very minimal risk. While risk control is important, at some point or another a trader need to step out of his/her comfort zone and getting use to higher level or risk in order to reap higher rewards.


As time goes by and traders start making money, a very common risk which they face does not come from the market but is actually coming from the inside. Compalcency starts when they become too comfortable and lazy to do additional research or keep an eye on the market. This will end up badly as they will start losing money.

Cutting losses short, let winners run

Psychology plays a vital role in trading. A common mistake done by many is that whenever we have a loosing position, we cut out our losses immediately without a proper risk strategy in place. This is because we have the fear that the price will continue to decrease and hence our loss will be bigger. On the other hand when a position is making a profit some tend to leave it open as they think that profits can keep on getting bigger without putting any limits and take out profits.

Big position sizes

Traders might become greedy and when there is an investment which is doing well, they might increase the position size in order to make a higher profit in a short time span.

How can you counter these difficulties?

  1. A) Learn the basic concepts and keep on learning. Even the most experienced traders do! A strong foundation is important in order to familiarize yourself with the markets, concepts and strategies involved.

Visit our manuals section to get the first grasp on the financial markets or book one of our courses.

  1. B) Set a trading plan and stick to it. What level of profit would you be happy with? Many of the most successful traders have very specific goals. By making clear, detailed goals that feel real and motivating to you, you can potentially create your own roadmap to success.
  2. C) Do your own research. Don’t trade on the basis of what the media pundits are saying but take time to research and make logic and informed investment decisions. After all each person have their own risk tolerance levels and investment objectives.
  3. D) Share your ideas and consult with others.
  4. E) Buy into weakness, sell into strength (don’t trade the news but make logic decisions)
  5. F) Filter your investments and use screeners. This is an important step to get started
  6. G) Maintain a trading journal. In this way you know what methods worked and what did not. This will also serve as a learning experience as you develop in your trading path.
  7. H) Don’t fall victim to your emotions. You need to build up a strong character in order to avoid the psychological pitfalls of getting too complacent or greedy.
  8. I) Put stop losses and limit orders in place as part of your strategy
  9. J) Patience is important especially with your loosing trades. If you have a well thought strategy, there is a high probability that a losing trade will become a winning trade in the long run.
  10. K) Keep positions small (relative to your overall investment) so that any negative fluctuations will not have a major impact on your overall balance and you can sleep without any worries!

Does Long-Term Investment In Stocks Really Pay You Off?


Seeing lots of posts regarding success stories of Infosys, Wipro, Eicher Motors circulating these days. Does Long-Term Really Pay You Off?

Stock Markets are fascinating. Indian Stock Markets can compete with the rest of world for the success stories, scandals, intrigue and the tales of disasters.

It is said that Stock Markets are the barometer of a nation’s economic progress. It is often debated but the majority argument favors this statement.

The stock market has given returns which are higher than any other asset class.

Then there are the great stories of Infosys, Wipro, Eicher Motors giving unimaginable returns on investment.

But there are two sides to every coin.

The Story Nobody Likes To Tell

In the NIFTY index, there are 50 stocks ( NIFTY actually means NSE FIFTY ).

These stocks are based mainly on market capitalization. When a constituent loses value significantly, it is removed from the index and replaced by another stock. No one talks of these stocks which got removed.

They were the stars of the day at some point of time and are duds today. Those were the investment ideas of that time and relegated to horror stories now. I will talk about this aspect which no one talks about.

The Wealth Destroyers:

These stocks may be not in favor presently but were the flavor of the month at their prime. They were part of the NIFTY index or otherwise very highly regarded and traded. Today they are shunned and forgotten, but there are real people holding these stocks wondering how they will ever recover their money. NIFTY going up does not have a meaning for them.

1.Reliance Communication:

On Jan 08, 2008, the stock traded at a lifetime high of Rs. 844.70. Today it is at 18.

2. Suzlon Energy:

The huge fall in this stock made me look for other similar stories.

It was added to NIFTY in 2006. In 2008, it traded above Rs. 2000 and then there was a stock split. The comparison is made taking into account the effect of splitting.

The lifetime High- Jan 09, 2008 — Rs. 412.88

Today it t is at Rs 7

3. Unitech:

It was a NIFTY stock in 2008. It was valued highly and was at a high of Rs. 546.80 on January 2, 2008.

What is the current price?

Rs. 4.1

It is around 1% of the high price.

Can the investor ever expect to make good their losses?

4. DLF:

From a high of Rs. 1225 in January 2008, it trades for around Rs. 208 today. Appears better than the others listed above, but 80% loss is not something to be taken lightly.

Even if it goes up by 100%, it will be nowhere near 1225.

5. Himachal Futuristics:

In December 2000, one of my friends bought for Rs. 1560 on one day and sold for Rs. 1605 next day. A day later it was Rs. 1675. He blamed himself for not making a profit.

A few months later was shocked when he saw a price of Rs. 90 in April 2001.

Today it trades at around Rs. 26.

Do you know what was the highest price?

Rs. 2578.05 on March 08, 2000.

In 18 years, the value of the investment has come down to about 0.5%

A stock value cannot fall 100%, but it is as near as you can get.

6. Jaiprakash Associates:

It was part of NIFTY. A big conglomerate in construction, power, and cement business.

In January 2008, the high was Rs. 339.

Now it trades for Rs. 13.

Why This Story Needs To Be Told?:

It is a widely held belief that in the long run, markets give good returns.

This belief is true.

But the indices do not give the true picture.

In most of the above-cited cases, the high price was in January 2008 ( except HFCL ) when NIFTY was around 6100.

Today, NIFTY is at 11570 but these stocks are at just at a fraction of their highs. Market has gone up but they continue to be laggards.

I have listed only a few. There are hundreds of such horror stories.

The index is adjusted by removing or adding stocks. An investor is not so agile.

You can lose money even when markets are going up.

What should be done to avoid such situations?:

Hindsight is always twenty-twenty.

We need a good foresight.

No one knows that an INFOSYS will

multiply a thousand times and HFCL will reduce to a half percent value. In the year 2000, both were the future stars. What a contrast today?

Protect your portfolio, like index protects itself. And take action earlier than the index does. In a long-term portfolio, get rid of the stock, when it has fallen by about 15–20% of your purchase price.

There will be a pain at that time, but not the endless pain which the investors of Unitech, Suzlon, JP Associates are enduring year after year.

I can not suggest that you should stay invested in Blue Chips.

All these were Blue Chips in their prime.


Indian stock markets are wonderful. There are success stories, but so are the doomsday tales. All make for fascinating stories.

There are inspiring stories of Rakesh Jhunjhunuwala, but the sordid saga of Harshad Mehta also looms in the background.

Do not let the euphoria of the bull market impact you. Pay heed to the beaten down cases also. Learn your lessons from them.

A balanced view will make you a better investor and trader…..