RAGHAV IYENGAR: It is an under-explained category but it is also a very popular category. Just to give you an idea, this category has seen huge flows over the past four to five months. This whole industry was around 60,000 crore as I speak to you. My last number I saw was around 110,000 crore, so it’s practically doubled in the last five or six months. What is still happening here is that, as you know, you can buy stocks for cash, you can buy stocks for futures. There is an F&O list, which is an options list, there is the price of a stock there, there is a price of a stock in the spot market. Sometimes there is a price difference, but it will converge towards the end. Typically these stock prices on the last Thursday of every month, this is what we call the settlement day, the exchanges have a settlement day, it’s a monthly settlement – these prices are going to converge. But arbitrageurs are very smart fund managers who try to take a difference and try to catch that difference. It’s very tiny, but as a percentage it’s sometimes 2, 3-4 or 5%. It is a part. Number two is of course, the level of interest rates also determines what kind of mind you are willing to look at. The third is obviously the level of interest in the market. So obviously the market is very bullish and enthusiastic because it is currently possible to get a very decent spread. There have been times in the last year to give you an example where spreads are completely crushed. I think within a month they turned negative, which is very rare, but it happened. I think if I’m not mistaken I think it was April 2020, but like I said, very rarely. So these are some of the factors that affect returns. Now, why are investors, even qualified investors, having trouble grasping this? Now there is a very robust and large market. In fact, if you remember the early days of the âBadlaâ system, this is sort of Badla’s avatar at risk management. So the chances of failure here are very much less. So in that sense, yes, it’s a much more carefully controlled system. Now what makes this product very attractive, and of course the same logic applies, is a portfolio of Rs 100, 35 part of this debt is set aside, because in order to be able to buy these futures, it you need to have some margins – those margins are largely debt securities, so some could be term deposits or government securities – so very safe, essentially, that the bank will keep as a margin for you to do, it’s just for the exchange rate. It is a well run and beautifully regulated system and it is a fact that makes Indian stock markets very deep. In fact, the F&O market is several times the size of the spot market, but it is a delicate market, you have to be careful about it. The easiest way is to get caught in an M&O business but be careful because it is borrowed money. It’s like if you pledge your house and buy equity with it, it could reduce very dangerously. Why does this category have so much money? First, as you know, interest rates have gone down. If you go to a bank or someone else, short term interest rates are hardly there because, as you know, there is a huge amount of liquidity in the system, the economy is just starting to recover, lending opportunities exist but they will continue to come, but for now, as there are, there is more money available than needed to be deployed. I want to do something short term and a lot of people tend to invest money in arbitration for three, six, nine, or 12 months. The same logic applies to the one I talked about about stock savings as these are treated as stock funds with slightly lower treatment of tax incidence, hence taxes on the most. Short-term values ââare 15%, taxes on long-term capital gains are 10%. If you look at the feedback again, it’s not much different. If you see the best performing fund, if you see the category would be like last year, it would be around 4%. Everything is in that 3.5 to 3.7% because short term rates are very concentrated around a certain level and those levels make them available in the economy. So why do people come here because let’s say hypothetically you earn 3.5% and then you pay 15% capital gains tax when you take the money out. So effectively, you pay around 0.5% tax, so you make 3% after the tax return. Now 3% after tax for a three or six month investment is fine, it’s almost 1 to 1.5% more than what you paid. Now where do these returns change? One is obviously, as I said, depending on these various factors, the arbitrage levels could go down, that level is determined at the end of each month. So, like I said, it was once 7-8% on an annualized basis, but last year it came down to less than 2%. So returns fluctuate, it’s not that once you invest it, that money is locked in forever. In this sense, it is very different from any other traditional fixed income investment. There is taxation and it is essential.