Gone are the days when you needed a broker to help you buy and sell stocks, shares and make stock market investments. Through online investment you can buy and sell shares with just a few clicks of the mouse. The economic and capital market in India cannot exist without a stock exchange; there are two main stock exchanges where transactions take place; the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). While all the major transactions take place here, there are over 20 different stock exchanges located across the country.
Online trading in India has changed the meaning of trading in the country. With no requirement for a broker, trading has become easier, faster and far more convenient than earlier days. Some of the major financial products and services offered through online trading are mutual funds, equities, general insurance, life insurance, share trading, portfolio management, commodities trading and financial planning. In online trading, the investor has to pay less brokerage as compare to offline trading. There is no need for any paperwork through online investing and the need for a middle man is eliminated. All the stock accounts are stored in a Demat account where they can be viewed.
BSE online trading was established in 1995 and is the first exchange to be set up in Asia. It has the largest number of listed companies in the world and currently has 4937 companies listed on the Exchange with over 7,700 traded instruments.
The only thing that an investor requires for online trading through BSE is an online trading account. The trading can then be done within the trading hours from any location in the world. In fact, BSE has replaced the open cry system with automated trading. Open cry system is a common method of communication between the investors at a stock exchange where they shout and use hand gestures to communicate and transfer information about buy and sell orders. It usually takes place on the ‘pit’ area of the trading floor and involves a lot of face to face interaction. However, with the use of electronic trading systems trading is easier, faster and cheaper; and is less prone to manipulation by market makers and brokers/dealers.
The BSE provides an efficient and transparent market for trading in debt instruments, equity and derivatives. This is performed through a system known as BOLT – BSE’s Online Trading System.
In the stock exchange, a key index is used to keep track of the important or the most traded stocks in the exchange. The indice used at the BSE while trading is the SENSEX and is displayed in all major portals, newspapers and magazines. It is India’s first stock market index that enjoys an iconic stature and is tracked worldwide. It is conducted on a free-float methodology and is sensitive to market sentiments and realities.
There are also indices such as BSE small cap, BSE mid cap and BSE500 to take care of medium and small companies. Furthermore, India index services and Products Limited has indices such as CNX Nifty Junior, S&P CNX Nifty, CNX 100, S&P CNX 500 and CNX Mid cap. The BSE offers 22 indices to suit a multiplicity of needs, inclusive of 12 sectorial indices. For example, the BSE PSU Index tracks the performance of the listed PSY companies and also helps the Central Government to monitor its wealth on the bourses.
The BSE has become a completely ‘corporatised and demutualized stock exchange’ through the use of online exchanges. With partners such as Deutsche Borse (DB) and Singapore Stock Exchange (SGX) it has a global competitive force. BSE has strategic relationships in almost every part of the world- Europe (DB)), Hong Kong (ETF) and Asia (SGX), prominent public sector undertakings such as State Bank of India, Bank of India, Life Insurance Corporation of India and Central Bank of India.
Benefits of BSE trading system in India for share brokers or newbies
There are a number of attractive services to empower investors and facilitate smooth transactions. Some of these include:
1) Investor Services: A range of services are offered to investors. Being the first exchange in the country to provide an amount of INR 1 million towards the investor protection fund, the BSE had launched a nationwide investor awareness program; ‘Safe Investing in the Stock Market’ under which there were 264 programmes which were conducted in over 359 cities in India.
2) BSE has an Online trading BOLT system: the online-Trading system (BOLT) facilitates on-line screen based trading in securities. Currently it operates 25,000 Trader Workstations which are located across 359 cities in the country.
3) The BSE has the world’s first centralized exchange-based Internet trading system – BSEWEBX.com. This system helps the investors anywhere in the world to trade on the BSE platform.
4) The BSE has an online Surveillance system (BOSS) which monitors on a REAL-TIME basis the price movements, the volume positions and members’ positions as well as real time measurement of default risk, generation of cross market alerts and market reconstruction.
5) The BSE has a training institute – known as the Bombay Stock Exchange Training Institute (popularly known as the acronym BTI).The BTI imparts capital market training and certification; in collaboration with a number of reputed management institutes and universities. There are over 40 courses to choose from on different aspects of the capital market and the financial Bombay Stock Exchange market.
Setting up your personal budget requires a hands-on approach. The following guidelines will help you plan a working budget to undertake this journey.
1. Gather all your financial details. That will include all of your bank accounts, credit cards and insurances papers – anything to do with your personal finances. These details will be needed to start your budget.
2. List all sources of income. This includes salary, rental income and regular dividends and interest.
3. Categorise your expenses starting with your commitments – list each item under headings such as:
Home: mortgage or rent.
Association and professional fees.
Insurance: health, motor vehicle, home, contents and life
Day care and child care
Loans: car loan, student loan, bank fees and interest
Land tax or rates.
Other payments required as a commitment: motor vehicle licensing.
Investment – yes commit to your future and pay yourself!
4. List necessities – again list each item under headings:
Food, groceries, gas (petrol), home maintenance, security.
School lunches, household supplies, car maintenance, internet service, dry cleaning, monthly parking.
5. Other expenses. Personal everyday expenses covering: lunch at work, snacks, coffee, drinks, newspapers, magazines, batteries, postage. Family and personal allowances: parties, entertainment, weekend outings, movies, concerts, other entertainment and events, home improvements and decorating, magazine and other subscriptions, dining out and fast food. Also include: clothing, hobbies, personal recreation, books, CD’s, manicures, hair care, alterations, shoe repair, personal and family gifts, gardening, film processing, video rentals, sports and gym, donations, computer software and other related items.
6. Once you have all your expenses listed add the total expenses and deduct these from your income. You will need to convert everything to monthly or weekly. This means that bills that are paid once a year must be divided by 12 to get the monthly figure. Convert quarterly payments to an annual figure then convert this to monthly. It is important that you include bills that are paid other than monthly to ensure that the money is available when the bill is due. Place the money in an interest bearing account.
7. Do you need to tweak your budget? When you deducted the expenses from your income was there any money left or did you find your expenses were more than your income? If your situation is the latter you will need to do some tweaking. The commitments cannot change. As for necessities you may be able to cut down on food expenses and find cheaper providers of utilities or try to save costs by being conscious of switching off lights etc. But it is the other expenses category that has the most capacity for tweaking as many of them are not needed and can be reduced or cut out. Review your budget regularly to make sure it is still working for you.
The time to start a personal budget is now and these guidelines are designed to make sure that your budget is truly a working budget — one that works for you!
The loan modification process involves a standard method of modifying loans into new affordable monthly payment terms. This is called the Waterfall Method and it is mandated for use under the Treasury Department’s loan workout plan. This plan is called HAMP – for Home Affordable Modification Program. When your lender reviews your application, part of the process will be to determine if your loan and financial circumstances will fit within this method of modification.
The loan modification process begins with a borrower contacting their lender and requesting consideration for HAMP. It is important to specifically ask for this plan because lenders are required to review each and every homeowner who asks for help under this plan. While your file is being reviewed for eligibility, the lender is not allowed to move your home forward to foreclosure sale. So this gives you some time and a second chance to save your home with a loan workout.
Once you complete your loan modification application and send it in along with your income documentation, your entire package will be reviewed for eligibility and acceptability. Here is the basic loan modification process:
Homeowners request consideration for HAMP
Borrower completes the application package and provides proof of income
Lender reviews the information provided by homeowner for eligibility
Waterfall Method of Modification is attempted and acceptability is determined
If the loan can be modified using the standard terms, then the homeowner may be approved for a loan modification
Homeowner enters 3 month trial modification period, after which mod is made permanent
How exactly does the Waterfall Method of modification work? This standard formula uses several criteria to determine which loans and borrowers will be eligible. Remember that the homeowner is providing their financial information – monthly income, monthly expenses, cash in the bank, etc. – on their application form and this is the information that is used when determining if the homeowner will qualify. The lender will use standard methods of reducing the current mortgage in order to meet a new target mortgage payment. This new payment will equal 31% of the borrowers reported gross monthly income and it includes principal, interest, taxes, insurance and any HOA dues.
The first Waterfall method step to reach the target payment is to reduce the interest rate, and the rate can go down as low as 2%. If more changes are needed to reach the goal, then the loan term may be extended to 40 years. The final step is to forgive or defer some principal balance to reach the new desired target payment. This is called a Waterfall Method because they lender must follow these steps in order, as they are needed. However, if the borrowers income is too low or too high, or if the loan balance is so high that a large principal reduction would be needed, the loan modification may be denied.
Homeowners who hope to be approved need to understand how the loan modification process works and most importantly how they should complete their financial statement so that it will be acceptable. If you know ahead of time how much income you need to prove to qualify, then you will be able to make the necessary adjustments and submit an acceptable application. If you knew that just by cutting a couple of hundred dollars a month in expenses, you would fit the guidelines, then you would certainly do that, right? This is confusing for borrowers, but you can use a loan mod software program that will actually show you just how much income you need and where you may need to fine tune your figures to fit into the standard HAMP guidelines.
I’ve had many to inquire of why budgeting is so important for the entrepreneur? I’ve especially seen these inquiries from solopreneurs or small businesses of one or two people. Let me just say first that having a budget is one of the key components to a successful business no matter the size. How do you know where you’re going, if you don’t have a plan for getting there? How do you know how well your business is progressing or not, if you don’t have something to measure your performance against? Simply put, a budget is a financial plan and helps you to manage the future income and expenses of your business. It reflects the goals & objectives of your business combined with how you believe your resources will be used. However, it doesn’t stop there, a budget serves as the roadmap for your business. It aids in providing a compass for making important business decisions in a more efficient manner to ensure that your business is heading in the right direction. A budget also empowers you to think more about the future and anticipate what could possibly happen in your business, which in turn makes for effective management.
Here are other reasons why I believe budgeting is important to the success of any business:
1.) Provides insight into your business and sheds light on if your business is financially on the right path.
2.) Creates a performance measurement mechanism in which you are able to understand what your business is doing compared to what you thought or planned.
3.) A budget shows that you are a serious entrepreneur which makes your business attractive to potential investors and is a critical component in getting funding from a bank.
4.) Acts as a management tool for running your business on a daily basis.
5.) You are able to make adjustments early once you realize that your business may not be reaching its planned goals.
6.) Due to a budget being a forward thinking document, it serves as a planning tool for future growth.
7.) Produces discipline in that as an entrepreneur you are more aware of your expenditures and more careful to manage costs in order to ensure that you reach your established goals.
Before understanding the key concepts of budgeting, it is important to understand the meaning of budget. A budget is used to make a documentation of the translation of plans into money. So, the amount of money that needs to be spent in the planned strategies of the company would lie under the budget of that company. These planned strategies include the expenditure that a company incurs and also the income that the company predicts to make. So, in other words, a budget helps one to make an estimation of the amount of money that would be required for the company to handle the projects undertaken by it. It must also be understood that a budget is not made permanently. There are conditions under which a company can make changes in the budget and go as per as the needs of the market. As for example, if a company sees that the use of computers is not as had been planned in the budgeting; it would either replace it with something or not make any investment at all in the field. This is where the utility of controlling comes into the picture. Other than this a budget is also significant from other perspectives. If one talks about the resource allocation, budget has an equally important role to play in it. The reason for the same is that let’s say that a company has budgeted that it can afford a certain amount of power supply for a certain project that is conducted in a village. Under the conditions, the amount of human resource that would be required to carry out the project can be determined from the budget itself. Normally a budget is of three types. They have been mentioned as follows:
Survival Budget: This form of budgeting is important in the boundary conditions. It estimates the minimum resources so as to complete a particular project. So, if a company has a look at the survival project, there is one obvious analysis that can be done. This is that under the most optimistic of the situations, the resources allocated would be sufficient. There would be very little margin of error under the conditions.
Guaranteed Budget: This budget is formulated when there is a guarantee of a particular amount of income at the time of formulation of budget. So, when a budget is made from this perspective, this income is taken into consideration. If somehow, the debtors are not able to provide the income that the company used as guarantee before making the budget, it would have to switch over to the survival budget formation.
Optimal Budget: The third form of budget is the optimal budget. This budget is used under the conditions when there is extra money in the company accounts or else the company feels that it could raise extra money from the market. So, if the position of the company is good then this form of budgeting can be applied. As for example if we consider a very famous company in the infrastructure sector, Emaar, we would find that the company has the ability to raise a lot of extra capital from the market. So, Emaar can hope to use it in utilizing the money to plan a few more interesting projects like it had made the longest mall in the world and the tallest tower in the world. Both these projects were outcomes of an optimal budget made by the company.
Owing to the circumstances under which a budget is fruitful, the organizations should be highly selective in handing over the responsibilities of making the budget. There are a few pre-requisites of making a budget. They are as follows:
The concerned employee should have a clear understanding of the company’s values, strategies, and plans that lie in the near future.
The employees must know the importance of cost-efficiency and cost-effectiveness.
Also, the concerned employee must have knowledge about the resources that would be used to generate and raise funds.
The above pre-requisites are essential for the company if they have the motive of using budgeting in the planning, controlling and resource allocation purposes.
So, it is generally recommended that a company has a budgeting team that has an optimal size so as to prevent any discrepancy with the formation of the budget. Under all situations where the concerned members of the finance department have difficulties in planning the budget, they would have to consult the board of members for the same. For a situation like this to arise, the planning in the company must certainly have been wrong. So, we can see that the new planning would depend solely on the fact that budget allows the same to happen. Under all other conditions, the estimated plan would have to change. (Budgeting, 2010)
Role of Budgeting in Planning
Here we are taking the telecommunication giant, DU into account to understand the role played by budgeting in the planning process. It was only about a couple of years ago that the company introduced its new plan. This new plan was about introducing the pay-by-the second plan amongst the services of the company. This was done as per as the optimal budget plan of the company. DU had formulated a budget where it got the option of introducing a new facility with the extra money that it hand in hand. As the company analysis shows that DU was climbing the ladders of success even then, so this was certainly a major step in the making. Moreover, the funds that had been allocated in the budget were enough for the fact that the company could start this service any time it wanted. So, it chose the time when the nearest rival company Etisalat had screwed up its plans after introducing the Blackberry services. As an optimal budget is that which allows the time for starting a new investment, this was just the time and DU made the most of the opportunity. Today this plan is among the most revenue-fetching plans that the company had ever introduced in its services. So, budget played an extremely important role in the planning of this success of the firm. Had the company planned to use the extra money as a surplus or retained or reserve, it would never have been able to introduce this service. So, one can see the importance of making the right budget at the right time can help in planning for great successes in a company. There are other examples also where one can see the planning being aided by preparation of budget. The tourism department of Abu Dhabi was guaranteed of the fact that it would have a considerable amount of income from the flourishing tourism in the country due to the onset of some of the most peculiar activities in the country. Under the situation, the department used the guaranteed budget to enhance the cultural activities of the country. A number of museums have been renovated because of a planned budgeting under the guaranteed budget plan. The department had planned that with the money they would have from the already existing resources in tourism, it would evoke a cultural feeling in the country and its natives, It has been able to do it successfully as per as the statistics of the museums of the region are concerned. So, once again we see that budgeting has helped in planning of such an important landmark in the country.
As in general one can say that budgeting is about aiding a company to make plans for the future. It is that process where a company can be assured of the fact that it would have enough money so as to carry out the requisite projects. We are all acquainted with the fact that the world is about competition as of today. Every company needs to plan new projects so as to show its core competency. Under the conditions, no company can automatically start investing on its research and development. It has to come through a substantial degree of planning which could only be possible after the budget of the company allows it to do so. In all other situations it would finally have to terminate the services with an excess of demand or supply.
There are also other instances where a company can use the principles of budgeting in order to carry out its planning. This can be seen in the case of training. Every planning of training has to be supported by budget. This is one of the foremost criteria of training. There are a number of instances in the country where the Government is implementing programs like Emiritzation. If the budget of the company does not support such plans they would certainly not be executed. The loss can be huge under the conditions. The first case would be a monetary loss as an incomplete training would actually be of no used as it would be insufficient to fulfill the company’s criteria. If some small companies do place employees with an incomplete bit of training, it would make the company even smaller!
So, we can see how budgeting governs this chain of planning which of not executed in a suitable manner could bring about adverse results. (The Importance of Budgeting, 2010)
Role of Budgeting in Controlling
As in the case of planning, budgeting also has a special role to play in controlling of an organization. We have seen that a plan would simply lay the conditions of taking on a particular activity. What follows is its controlling in the implementation phase. Let’s say that a company wishes to promote its products or services in the trade fare of Dubai. This is one of the places where controlling comes into play with respect to budgeting. Dubai Trade Fare is one of those occasions when a number of companies use the best of means to promote their products. With an adequate amount of control, the companies would never be able to compete in the pool of so many. So, a budgeting has to be done to choose the HR and marketing department which would be responsible to control the scenario.
Without a proper budgeting in this respect, the company would make inefficient decisions and after a while, there would be no control over the promotional measures of the company.
There are also a number of chances where a company goes with leisure expenses. It does increase the value of the company for a particular period of time but after a while there has to be an end to it. Now, with a planned budget under the conditions, the companies would be able to restrict themselves from over-spending as the budget would not suit their expenditure. This requires the company to make a survival budget. As we can see a survival budget would certainly take care of the budgeting requirements of the company. If the employees are aware of the fact that they would not be able to complete their respective projects with the type of expenditure they are doing, they would certainly shift to other economic reasons. This way a company can also control the activities of the employees. Once a planned budget is produced the whereabouts of the employees can also be checked as they would be on a hire. The amount of time given to them in the budget would be fixed. If they are unable to finish their respective works in this stipulated time they would see the effect on their salaries or wages. So, this way, the company’s activities, employees, time and money can all be under control with the introduction of budget in the company’s financial plan. The company would certainly become more efficient if it works in a controlled manner. So, this would be for the mutual benefit of both the employees and the company as well. (Controlling a Budget, 2010)
Role of Budgeting in Resource Allocation
A company’s success is highly dependent on the resource allocation. This has to be done optimally so as to complete a certain project. The law of economics suggests that a company has the least resources and has to make the most of it. So, only an appropriate resource allocation would help this happen. This would be in terms of human resource, raw materials, equipments, money, time and all other attributes that take for making a project successful. Here again, the budgeting of the company plays an important role to play. The reason for the same is that in all the sectors that have been talked about here, only a planned budget could decide the maximum a company can afford. Let’s say that ADNOC has the plan of staring a new subsidiary. Under the conditions, it would have to make a budget where the company could allocate the amount of human resources in order to make this happen. Not only this, there are a series of activities that would have to be done in the process. Much of the time, there would be two processes going on and at times even one. So, a planned budget would estimate the amount of money that the company can afford throughout the process. Based on this, the processes would have to be allocated in a manner where the company can make the best use of the human resource available. If ADNOC has 200,000 AED for the purpose, and there are 10 slots, rather than allocating 20,000 AED per slot, the company would have to see the priorities of each slot. If a particular slot requires double the number of processes than the others, the resources would have to be allocated accordingly for the same. Now this can only be possible with an appropriate amount of budgeting. If the budget of the company does not allow double resource allocation for a particular slot because of other activities, then the company would have to come up with other alternatives. Had there been an inability of a budget, the company would allocate double resources and finally land up with none available for a process that has little requirement. So, we can see that even the process of resource allocation requires budgeting to a large degree.
Talking about the company Emaar, as per as the organizational size of the company, there has to be a proper budgeting done. The reason for the same is that every department requires an adequate amount of human resource and funds. If the company’s budget for a particular project is 200 million AED, the company would also have this budget divided into different departments. Every department would have to use only the allocated funds to support its human resource and all other requisites prior to conducting the project. If the construction department spends so much that the company is not able to use any funds for its advertisement, in this world of competition, even a company like Emaar would have to bow down to others in the league. There are so many options that people have for residents that promotion under forced conditions could change every profitability ratio of Emaar. So, here again we see the hierarchy that could be affected because of the inappropriate use of resources that would result from the non-availability of a budget that could suit the purpose. (The Basic Budgeting Problem, 2010)
So, one can see that a budgeting process has a number of utilities in the projects of a company. This could be from the perspective of planning, controlling or resource allocation. Every company has the desire to be at the top. Finance has a special role to play in the same. Te steps of laying down an appropriate budget are as follows:
Firstly, the concerned person should lay down all the places of investment with respect to a particular project.
Next, make an estimation of the unit cost of every product that would be manufactured in the process.
Next, analyze the resources that would be sufficient to provide for the unit costs found.
Next make a proper budget format so that it is clear to all the departments and they the amount of allocation for them in all the respects.
It is also advisable to make notes so as to be able to explain the budget better.
Next, it is required to take a feedback on the budget so as to see whether it is applicable to all the departments or not. If not, then it would have to be re-planned.
Finally, make the final documentation so as to be able to help in planning, controlling and resource allocation as has been suggested earlier.
With all the above processes followed, a company can afford to perform all the financial activities in its respective projects. It must be remembered that only a systematic design of budget as has been concluded could be used for the mentioned cause.