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NSE Introduces S&P and Dow Jones Derivatives – Should You Invest?


The National Stock Exchange (NSE) would be launching derivatives based on S&P and Dow Jones indices from 29 Aug, 2011.


The National Stock Exchange (NSE) would be offering derivatives based on the S&P 500 and Dow Jones Industrial Average (DJIA) equity indices. These would be launched on Monday, 29 Aug, 2011.

Derivative contracts based on global indices are being launched in India for the first time.


Details of the derivatives

  • Futures contracts for S&P 500 and DJIA
  • Options for S&P 500
  • The derivative contracts would be in Indian rupees
  • Trading would be limited to Indian residents only – FIIs and NRIs can not participate (related reading: Definition of Residential Statuses: Resident, RNOR, NRI, PIO)
  • There would be 3 monthly expiry derivative contracts for 3 consecutive months, and 3 quarterly expiry contracts with a March / June / September / December cycle
  • The contracts will expire on the third Friday of the expiry month
  • NSE would be waiving off the transaction charges on these derivatives till 29 February, 2012


Benefits of the S&P and Dow Jones derivatives

  • You would be able to invest (or speculate – depending on how you look at it) directly in top US equity indices – right here in India
  • Trading would be in Indian rupees, so there is no foreign exchange risk
  • Trading would be during Indian trading hours
  • Opportunity for you to diversify based on geography
  • There is no upper limit on investment since these derivative contracts are denominated in Indian rupees


Should you participate / trade in these derivatives?

I normally discourage small investors from participating in any kind of derivatives – it is best to invest in equities through MFs for best long term results.

Having said that, these S&P and Dow Jones derivatives might be right for you if:

  • You are not a very small investor
  • Your investments are concentrated in India (equities, real estate, etc)
  • You are looking for diversification

However, keep in mind that India is among the fastest growing countries in the world, and that is not expected to change for a long time. So, Indian equities are best placed to provide you superior long term returns!


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