In your interest.
Online Personal Finance Magazine
No beating about the bush.
The advisory firm asks people to share their username and password of demat account so that it can trade on behalf of them and give a 20% assured return. Is the market regulator keeping an eye on such entities?
The Securities Exchange Board of India (SEBI) which bars even mutual funds from assuring returns seems clueless about promises and claims of investment advisors such as VPS Advisors. A marketing email from an advisory company known as VPS Advisory, promises 20% returns.
The company claims it has a technique of making 20% profit consistently. The marketing mailer, full of grammatical mistakes, even mentioned that it never makes a loss. It said, “Overall at any worst case we make profit and come out.” For this, you will need to open a trading and demat account through them or give your demat account, along with the username and password! Also, in order for them to manage your account, you are required to keep a minimum capital of Rs50,000 in either your trading account or Rs50,000 worth of equity in your demat account. It is not too hard to figure out the ramifications of allowing someone else control your trading and demat account especially when they know your username and password.
VPS Advisory also gives the answer about how it can manage to provide 20% assured return. It says, “because of group of people trading with us with huge money flow keeps us in profitable situation.” This claim even may make market gurus, like Warren Buffet, blush. ‘People with huge money’, however, is no guarantee that they would share their profit with someone like you.
The advisory targets savers who do not have money but want to make more money. Their email states: “This service is basically for those who have less capital to invest but want to make more money. Or for small investors who are looking for consistent return.”
“20% return service is perfect for small investors, fixed salaried people (who have limited salary and unlimited expenses) and EMIs, loans, for government employees, etc,” VPS Advisory mail adds.
It is pertinent to note that the company claims to be ‘pioneered’ by the graduates of the Indian Institutes of Management (IIM) and Indian Institutes of Technology (IIT).
The company has even posted screenshot of several costumers’ trading and demat account. The notion of leaving others to control your personal trading account is simply appalling. Here, you can see it by accessing this link: http://www.vpsadvisory.com/p/20return_9178.html.
This is not the first time we wrote about such firms big on ‘guarantees’ with promises of lavish and ‘assured’ returns. We had first exposed about the Stockguru scam, which promised investors 120% returns, way back in 2010 (), but regulators did nothing then. Fast forward to present and what has the regulator learnt? Instead, the Stock Guru duped investors to the extent of Rs1,500 crore! Back then, Stockguru was offering Rs22,000 on an investment of Rs10,000 in one year, and called itself investment advisors. Unfortunately, the lack of financial literacy and regulation meant investors fell for it. And lost money. The entire saga as exposed by Moneylife can be read here:
Very often there would be similar operators who would solicit stock market tips on mobile phones and claim more than 90% accuracy. For instance, a website CallOptionPutOption provides such trading tips ranging from stock options to Nifty Futures tips and Nifty Options tips. It claims over 200% profit per month. For this ‘plan’, capital of Rs10,000 is required and tips are provided with one target price and one stop-loss. Subscription to this scheme ranges from Rs3,000 to Rs30,000, depending on the plan you choose. There are many more that we had covered way back in 2011, and our piece can be accessed here:
Three years later, the scene hasn’t changed much. Is SEBI listening?
We had reported several similar companies and they can be accessed below:
Now MLM selling assured returns for kits on share trading! -- A write up on BSB Trading,
which promised dubious double your money in a matter of months.
The Financial Conduct Authority of the UK has banned the sale of a set of ‘risky’ investments to all but the super rich. When will Indian regulators act?
Ponzi and collective investment schemes (CIS) thrive all over the world because of powerful political backers. But a post-2008 shift in regulatory focus from caveat emptor (buyer beware) to vetting and restricting the sale of potentially harmful or toxic products is now turning the heat on these dubious schemes as well. The Financial Conduct Authority of the UK has banned the sale of a set of ‘risky’ investments to all but the super rich—people with an annual income of over £100,000 or investible funds of £250,000—from January 2014. The UK regulator classifies these as sophisticated investors who ought to understand the risks involved.
Interestingly, the CIS targeted by the regulator are investment in overseas property, fine wines and traded-life settlements. Investors in the UK had invested over £4 billion in such unregulated schemes and their losses run into millions of pounds. Interestingly, it turns out that UK investors were still being sold teak farms and bamboo plantations.
Unfortunately, the Indian situation is worse. Lakhs of people throughout India lost over Rs10,000 crore to plantation scams in the mid-1990s. Since then, there has been a string of high-profile failures, such as Citi Limouzine, SpeakAsia and Stock Guru, which raised Rs1,000 crore in a matter of months. Yet, our regulators and politicians refuse to initiate tough action. Dodgy companies, such as QNet and MMM India, are still luring the educated, but financially gullible, youngsters. More criminal is the refusal to rein in chain-marketing schemes, such as Saradha, MPS Greenery and Rose Valley, which have wreaked financial havoc among the low-income group in West Bengal and nearby states leading to 18 suicides so far. All these companies have enjoyed the patronage of powerful regional politicians.
Last week, former Union secretary EAS Sarma wrote to the ministry of corporate affairs (MCA) exhorting it to work with the financial regulator to evolve a way of tracking shell companies which are used to launder black money through a complex web of entities. He pointed out that every major scam in India uses a network of shell companies to evade detection. But this, too, has gone on for decades. The most famous of these were the shell companies of the Reliance group, exposed by the Indian Express in the mid-1980s—a decade before India embarked on its economic liberalisation programme. Using layers of shell companies to launder money through overseas tax havens and back into the Indian stock market has increased exponentially since then.
Consequently, we have no clear regulation, or legislation, to protect people from harmful and unregulated products. Only a few large CIS manage to attract the attention of the market regulator.
Isn’t it time to report options turnover based on the premium and not on the notional contract?
Futures and Options (F&O) segment in the stock exchange attracts huge volume of transactions. The turnover reported by the National Stock Exchange (NSE) on a daily basis is so high that it sounds too good to be true on any given day. Did you know that NSE reported a turnover of more than 2 lakh crore in its F&O segment on 20 June 2013? While it was one of the highest in recent times because of upheaval in the market yesterday, the fact is that the turnover did not happen for this amount in NSE in the F&O segment. Most of this turnover volume reported is notional. Let us look at the data to understand this.
As per NSE website, on 20 June 2013, the F&O segment of NSE reported following turnover:
The trade statistics clearly reflects that majority of the turnover was Index Option segment. In fact more than 80% of the transactions happened in the options segment including index and stock options. But this number has been reported as notional by the NSE. Now the question is—why is the word notional here? This needs to be understood as follows. Suppose you buy a single lot of call option on the Nifty with a strike price of 6,000 and pay a premium of Rs6 per lot size, the amount paid by you will be Rs300 only as the lot size of the NIFTY is 50, so the amount works out to be (Rs6 x lot size—fifty). So for a trader the amount is equal to premium* lot size*number of lots.
But the exchange will treat this transaction differently and report differently as far as turnover reporting is concerned. The turnover in this case will be treated as (Strike price plus premium) * lot size. This means that in the previous case the transaction value will be 6,006*50 i.e. Rs3,00,300. So for a Rs300 position that was taken by a trader, the turnover reported was more than 1,000 times. While it may not be thousand times always, it is indeed substantially higher than the position taken by trader in options transactions.
This method of recording turnover can be related to the Rs200 crore reported in case of Wing Commander CR Mohan Raj, who is fighting his case against Motilal Oswal Securities Ltd . The high turnover reported shows that that the investor needs to be filthy rich to transact for this kind of volume while the case is different practically. This is based on my assumption that Mr Raj took position in options transaction.
While it is true that the payoff position of an investor in the options contract depends on the difference in the spot and strike price and strike and spot price in respective cases of call option and put option at the time of expiry, it does not make sense to report this turnover. This can make sense to the exchange only if it levies charges from brokers based on the turnover. Inflated turnover means more revenue which is not the case now as NSE and SEBI (Securities and Exchange Board of India) both charge turnover fee based on the premium in options. Isn’t it time to report option’s turnover based on the premium and not on the notional contract?
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)