Badla System
THE BADLA SYSTEM
Introduction
When a bull market is gaining hold and when shares prices are expected to reach dizzying heights, the one common refrain among the small investors is the lack of alternatives for multiplying returns through leveraging one's investment. The question often arises when one has the capacity and standing to mobilize funds for investing in the market and one is looking for a systematic investment avenue. We have heard of "options", "futures", and the even more exotic "derivatives", all of which help in increasing one's returns many times over - if used correctly. The sophisticated derivatives which are in existence abroad developed from the commodity markets there. In India, sophisticated financing techniques existed in our commodity markets for centuries, long before the concept of options came into existence abroad.
With the beginning of the stock markets, many of these techniques which closely approximated options and futures came into our financial markets and the even more exotic "derivatives" thrived till they were banned in the '60s. One relic from those times still exists - the much maligned but still useful - badla financing. Badla can be useful for an active investor if he wishes to leverage on his investments thereby multiplying his returns.
The concept of Badla:
Badla, in common parlance, is the Carry-Forward system which means getting something in return. The badla system of transactions has been in practice for several decades in the Stock Exchange, Mumbai. The badla system serves an important need of the stock market. If an investor feels that the price of a particular share is expected to go up or down, without giving or taking the delivery he can participate in the possible fluctuation of the share. Financing in Badla, in effect, has two aspects to it, namely
1. Seedha badla or Vyaj badla- Here the financiers participate
2. Undha badla - Here the stock lenders participate.
What is Badla?
In
Introduction
When a bull market is gaining hold and when shares prices are expected to reach dizzying heights, the one common refrain among the small investors is the lack of alternatives for multiplying returns through leveraging one's investment. The question often arises when one has the capacity and standing to mobilize funds for investing in the market and one is looking for a systematic investment avenue. We have heard of "options", "futures", and the even more exotic "derivatives", all of which help in increasing one's returns many times over - if used correctly. The sophisticated derivatives which are in existence abroad developed from the commodity markets there. In India, sophisticated financing techniques existed in our commodity markets for centuries, long before the concept of options came into existence abroad.
With the beginning of the stock markets, many of these techniques which closely approximated options and futures came into our financial markets and the even more exotic "derivatives" thrived till they were banned in the '60s. One relic from those times still exists - the much maligned but still useful - badla financing. Badla can be useful for an active investor if he wishes to leverage on his investments thereby multiplying his returns.
The concept of Badla:
Badla, in common parlance, is the Carry-Forward system which means getting something in return. The badla system of transactions has been in practice for several decades in the Stock Exchange, Mumbai. The badla system serves an important need of the stock market. If an investor feels that the price of a particular share is expected to go up or down, without giving or taking the delivery he can participate in the possible fluctuation of the share. Financing in Badla, in effect, has two aspects to it, namely
1. Seedha badla or Vyaj badla- Here the financiers participate
2. Undha badla - Here the stock lenders participate.
What is Badla?
In