Terms Beginning With 'b'

Blind Trust

In a blind trust, the individual who is expected to receive the proceeds or, who is the beneficiary has no knowledge about the investments that are made and how they are managed.

In general, blind trusts are created for politicians to ensure that they do not have an undue advantage owing to their position in the government.

An account which is operated by a trustee for the gain of a third party. For example- A guardian can open and maintain the account of his dependents on terms agreed prior.

National Securities Clearing Corporation (NSCC) was established in 1976 as a subsidiary of Depository Trust & Clearing Corporation (DTCC). The Corporation performs clearance, settlement, risk managing, central counterparty services and a guarantee of accomplishment for specified transactions in the financial industry.

What is the October Effect: a myth, or a reality? October effect refers to the theory that stock prices crash in the month of October. This happens without any methodical reason or any specific factor affecting the stock prices. However, the theory has come into existence because of repeated crashes observed in October over the years. October effect is more of a psychological concept than a real-stock market concept.  There have also been price crashes observed in September. However, the reasons for these crashes have been varied. How does October Effect impact the markets? The hysteria around the October effect might make investors scared in this month. The expectations of a price decrease might lead to many investors selling their stocks in early October. If too many investors end up selling stocks, that might inadvertently lead to more panic selling among the investors. Why do investors believe in the October Effect? Often investors let emotions get the best of them. People might lose out on their money because they let their emotions guide them, which may include fear, greed, or a herd mentality. Behavioural finance suggests that investors might be motivated by factors other than their rational decision making. Some of the biggest crashes in history have happened because of the poor decision-making of the investors. People might follow a crowd and put their money in stocks which are more popular among investors, without having any other reason for doing it. At times, the media accounts about the market and a general notion, which is framed without any rational explanation, end up misguiding investors into the wrong direction. These factors may lead to investors giving in to the mass hysteria prevailing during October, which may end up fuelling the October Effect. Therefore, investors must consider all the factors before putting their money in a particular stock. Why was the concept of October Effect formed? The following historic incidents led to the phenomenon of stock prices crashing during October: Panic of 1907: This occurred in the beginning of October. It started with the bankruptcy of two small brokerage firms. Two investors failed to buy shares of a copper mining firm, which led to a run on banks associated with them. This resulted in a domino effect. The crash started with New York city, but it eventually spread to other parts of America. As money was withdrawn from the economy, financial institutions faced the brunt. It also led to the shutdown of Knickerbocker Trust, which had been refused a loan by JP Morgan. The crash was ultimately resolved when the US government gave a fiscal credit of over $30 million, which led to the consumer confidence coming back. Stock Market crash of 1929: This is also referred to as Black Tuesday and it occurred on October 29, 1929. During the 1920s, the US economy was going through various expansions and peaked during a period of high speculation. This was referred to as the Roaring Twenties. As a result of this rise in speculation, there was overvaluation of the stocks, when their prices went way beyond their actual value. However, the bubble burst with reasons attributed to low wages, a downfall of the agricultural sector, and a multiplication of debt. Black Monday: This event occurred on 19th of October, 1987. There were many factors at play, which led to the stock market crash. These included a widening of the trade deficit, incoming of computerised trading and various other geopolitical reasons. The computerised models used for trading were programmed to give a positive feedback. This led to the model generating increased buy orders when prices were increasing, and more sell orders when the prices began to fall. International tensions between countries also led to the crash and loss of confidence in the market. Other events in September: There were historical events which led to a crash in September, like the Black Friday, Black Wednesday, the WTC attacks in 2001, and the housing market crash of 2008. Black Wednesday occurred on September 16, 1992. A collapse in the Pound Sterling led to the UK to opt out of the European Exchange Rate Mechanism. All these factors occurred because of different reasons, which were specific to that particular time period and set-up. Thus, it can be argued that the fact that these events occurred in October is a coincidence. Is the October Effect real or just a coincidence? It is safe to say that October Effect is nothing more than a mere coincidence. The events discussed above happened without any methodical linkage connecting them to the month of October. There has been further evidence proving that the October Effect failed to occur in the years when the market remained strong in this month. The historical crashes mentioned above occurred because of issues which had been specific to those times. Stock exchanges and trading platforms have incorporated the necessary changes to ensure that these events do not get repeated. Regardless of these regulations, it is safe to say that some of these crashes were Black Swan events and could not have been predicted under any circumstances. Therefore, it is difficult to say whether the current market is immune to phenomena like the October Effect or any other crash.

Who are Fund Managers? Fund Managers, aka Investment Managers, Money Managers, are the institutional investors that manage money on behalf of their clients, which may include individuals and groups. Often referred to as Smart Money, they are perceived to be equipped with better resources and information. Investment management industry is huge and includes a range of asset classes and products like equity, fixed income, global, country-specific, multi-asset, commodity, money markets, IPOs, fund of funds, real estate. A firm seeks to fulfil investment goals of the clients, which may include pension funds, insurance companies, endowment funds, charity, corporations. When you go shopping for funds, you will find a range of products from different businesses. Investment Management (IM) refers to the complete management of funds, which are invested in securities. IM professionals devise an investment strategy for the fund and raise money from the public to implement the strategy. They are not just involved in buying and selling of securities but a broader range of processes, including research, strategy implementation, development of strategy, income distribution of funds, banking, performance evaluation. Investment Management is also referred to as Funds Management, Asset Management. IM companies are traditionally known as buy-side firms since these firms mostly purchase securities, whereas sell-side include institutions that are selling the research, providing research facilities. Buy-side firms include IM companies, pension funds, insurance funds, endowment funds, sovereign wealth funds, mutual funds. These institutions invest in a significant amount of funds and invest for the purpose of funds management. Sell-side firms are more into insights, research, advisory, promotion, market-making for the companies. These firms may also provide services like broking, investment banking, advisory, and deal in transactions like IPOs, capital raising, investment research, trading and settlement. IM businesses are regulated by a market regulator in most of countries. Regulators also ensure that investor interests are protected, market ethics are maintained, and necessary disclosures and regulations are honoured by the companies. Read: ASIC Issues Notice to REs of MISs to Ensure Balanced & Accurate Information In Investment Fund Advertising Fund Management companies charge fees to their clients, which is expressed as a percentage of money invested in the fund. The revenue earned by funds managers tends to fluctuate due to market movement in funds/assets under management. Sometimes IM companies also charge performance fees depending on the stated performance hurdles. Active Management: In this type of IM, the manager seeks to invest in asset classes in an index-agnostic approach by actively picking stocks based on proprietary or sourced research rather than a benchmark. Passive Management: Passive Investing vehicles have gained a lot of demand over the past two decade, largely due to lower fees. Investment Managers benchmark portfolio to an index and try to replicate the performance of the benchmark. More on passive investing approach: What Is Passive Investing? Type of Fund Managers/Funds Equity: They invest in equity or stocks, which happen to be among leading asset classes in the history of mankind. Equity funds are relatively riskier but boast better return potential as well. Investment Managers can further segregate these funds into sectors, countries, market capitalisation. Bonds: Also known as Fixed Income Funds, the money is invested in fixed income instruments like Government Bonds, Corporate Bonds, Perpetual Bonds, Asset-backed Securities, Mortgage-backed Securities etc. Good read: Fixed Income Securities – A look Into Bonds Multi-asset: In this strategy, the objective is to invest in multiple asset classes, including commodity, equity, bonds, currencies, derivatives. These funds seek to deliver risk-adjusted returns based on the prevailing investment climate. Index: Index Funds are one of the passive investing vehicles seeking to match the performance of the underlying benchmark. These funds are available at relatively lower fee expense and provide exposure to only a group of asset classes based on the benchmark index. Real Estate: Real Estate funds invest in real assets like property and land. These funds further segregated into a type of the properties under management like commercial, retail, office, residential, industrial. Must read: Australian Real Estate Investment Trusts Global: A global fund is allocated across geographies and provides exposure to industries of other nations. These funds also provide currency exposure to the investor as well as diversification. Speciality: Speciality managers can run a range of funds based on their belief, such as e-commerce fund, agriculture fund, e-vehicle fund, disruptive or innovation fund, cannabis fund, country-specific fund, ESG fund, automated vehicle fund. Hedge Funds: Hedge funds have grown extremely popular over the past decades because of their high returns, which come with similar scale of risks. These funds invest in a range of asset classes, including commodity, equity, bonds. Investment managers charge a relatively high fee. Related: Hedge Funds Now Focused on Refined Oil Products What is an investment philosophy? An investment philosophy is something you apply when constructing an investment strategy. It is your perception of market and the wide variety of asset classes available in markets. It also reflects how investor behaviour has evolved over time. Understanding a fund managers investment philosophy is paramount. Some investment philosophies: Value Investing: Value investing is perceived as picking stocks that are available at a discount to current market price. Investors prefer businesses that are underestimated by large sections of markets, thus undervalued. Watch: Kalkine Big Story - Value Investing amid Market Correction Growth Investing: Growth investors chase companies that are exhibiting better-than-average in earnings. The expectations from growing enterprises are generally higher due to stage of business, target market, product, disruptive products. Growth Stocks have delivered substantial return over the last decade and continue to be market darlings. Related: How To Identify A Growth Stock? Arbitrage Investing: In this philosophy, investors seek to benefit from the existing inefficiency of asset prices. This practice in markets also ensures that price of asset classes do not stay diverted from fair-value for a long time. Arbitrage strategies can be applied on almost every liquid asset classes that are available to trade. Market Timing: Investors seek to maximise their returns by undertaking investment decisions based on a future prediction of the asset class. Market Timing predictions can be based on Fundamental Analysis, Technical Analysis, Economic Conditions etc.

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