Circuit is a system under which unbridled one-sided movement in any index or stock is stopped in a single trading session. For example, if a stock has a 5 percent circuit and yesterday that stock closed at Rs 100, then today it can be traded only in the range of Rs 95-105.
How is the circuit decided?
To decide the circuit, the history of price fluctuations, average daily trading and fundamental strength of the stock is taken into account. There are four levels of circuit – 2, 5, 10, 20 percent. Different circuits are decided for different stocks based on their history.
How does the circuit work?
Circuits are of two types – upper circuit and lower circuit. After the upper circuit is set, a stock can be sold but not bought. Similarly, when a circuit is applied, one can buy it, but cannot sell it.
Are all shares put under circuit?
Apart from the shares involved in futures trading, all other shares are put under circuit. Shares involved in futures trading can rise or fall any amount in a single day. Trading does not stop in these.
What is the rule for circuit in Sensex and Nifty?
Both types of circuits are applied in indices in three stages. In the first stage, 10% circuit is applied, in the second stage, 15% circuit is applied and in the third stage, 20% circuit is applied. Once a circuit is applied in any one index (Sensex or Nifty), trading in the other index is also automatically stopped. When a circuit is applied, trading in both spot and futures markets is stopped simultaneously.
If there is a 10% fall in the market before 1 pm, trading stops for one hour. If this fall occurs at or after 1 pm but before 2.30 pm, then the trading is halted for half an hour. And if the 10 per cent fall occurs at or after 2.30 pm, then there is no halt on the trading, i.e. it continues till 3.30 pm.
If the market falls by 15% before 1 pm, trading is halted for 2 hours. If the fall is at or after 1 pm but before 2 pm, trading is halted for an hour and if the fall of 15% is at or after 2 pm, trading is halted for the entire day. If the market falls by 20%, trading is halted for the rest of the day.
What is value averaging?
Value averaging is an investment strategy that works like rupee cost averaging in the form of a regular monthly contribution. In value averaging, the investor sets a growth rate or target amount for his portfolio every month. After this, the next month’s contribution is adjusted according to the comparative profit or loss on the actual asset. The main goal of value averaging is to buy more shares when prices fall and collect fewer shares when prices rise. Exactly the same happens in rupee cost averaging. In this process, you buy shares at a lower price to minimise the cost incurred while buying the shares. Over a period of years, value averaging helps generate good returns.
Disadvantages
The biggest potential disadvantage of value averaging is that as an investor’s asset base grows, it becomes increasingly difficult to maintain the ability to meet the shortfall. One option is to invest a portion of your assets in a fixed income fund. This option allows you to add and withdraw money from your equity holdings to reach your monthly return target. This allows you to raise fresh funding as a portion of your fixed income holdings, and allocate more to equity holdings as needed.
It is almost impossible to predict the market’s top and bottom. However, different fund levels may help investors.
Rupee Waste Averaging
Most investors are familiar with the concept of Rupee Waste Averaging or Systematic Investment Plan (SIP) of mutual funds. Under this, you invest a fixed amount at regular intervals. Value averaging is considered a more mature concept in the investment circles. Here, the investor is expected to adjust the amount according to the market direction (market up or down) to reach the fixed value of the fund.
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