October 24, 2021

What is free-float market capitalization?

Oct 19, 2021

The stock market today has a variety of investment avenues that suit the varied interests of different types of investors. Before diving head-first in stock market investments, it is imperative to understand the terminologies associated with an investment that could help you make better decisions. One such term that could guide your future investment decisions is free-float methodology in market capitalization.

Market capitalization stands for measuring the company’s outstanding shares multiplied by the price of each share. For instance, a company with 20,000 outstanding shares at Rs. 20 each will have a market capitalization of Rs. 4,00,000. In this standard calculation of market capitalization, the total number of shares, including private and public, is considered to arrive at a value. However, in free float, also known as float-adjusted capitalization, only publicly held shares are considered. Shares owned by promoters, trust and government bodies are excluded, which also means that actual market capitalization would always be higher than the free-float market capitalization value.

Free-float market capitalization is inversely proportional to market volatility. Since there are a limited number of shares, which can be bought or sold, fewer trades move the prices significantly. This is the main reason why investors prefer dealing with shares having higher free float, which, in turn, allows them to buy and sell shares without affecting the index’s overall prices.

Let’s understand through this example – ABC Ltd has 80,000 outstanding shares priced at Rs. 20 per share. Out of this, 30,000 shares are held publicly while the rest are privately owned.

  • The market capitalization of ABC Ltd:

Total outstanding shares × price of each share

80,000 × Rs. 20 = Rs. 16,00,000

  • Free-float market capitalization for ABC Ltd:

Publicly owned outstanding shares × price of each share

30,000 x Rs. 20 = Rs. 6,00,000

 Coming to the advantages of free-float methodology over total market capitalization:

  • When it comes to judging the true picture of a security, experts tend to rely on the free-float method as it considers the shares that are available for trading in the market, which represents an accurate reflection of market movements.
  • Many times, companies achieve large caps, but most of their shares remain privately locked, failing to present a true picture of their shareholding pattern. Indices in the market, which are performance trackers, are influenced by either price or market capitalization. With free float, it is possible to do broad-based indexing.
  • This technique could help investors in deciding the stocks to buy today by distinguishing companies whose shares are available in the market for trading.
  • Free-float market capitalization can also help in determining the float factor. For example, a company has 55,000 outstanding shares, out of which 16,000 are open for trading and 39,000 are closed. Each share is priced at Rs. 43. Therefore, the proportion of shares available for trading is 16,000/55,000 = 0.29. This is the float factor, which is assigned to each share price.

Investing in the stock market could be easy if you have the right tools and guidance to navigate through it. If you do not have the bandwidth to undertake thorough research and analysis, seeking expert could be a wise choice. A financial expert can curate bespoke stock investment plans based on your appetite for risk, investment horizon, and financial goals.

Reach out to one today to make smart investment decisions!

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Things You Must Consider Before Buying Guaranteed Insurance Plans

Oct 12, 2021

We begin building certain goals and dreams for ourselves and our loved ones as we go through life. However, achieving our goals can be difficult at times, as they may require a decent amount of financial support. Therefore, it is important to take the appropriate steps towards achieving our financial goals.

Opting for a guaranteed return insurance plan will be the most optimal way to get financial assistance out of the different products available.

What is a Guaranteed Return Insurance Plan?

Life insurance plans with guaranteed returns are a type of insurance policy that offers the dual benefit of insurance coverage along with guaranteed returns. With the guaranteed return plan, you can simultaneously protect your loved ones and build for your financial goals.

In this plan, you will have to pay the insurer’s premium to maintain the policy active. The premium is split into two parts. The first part is kept for insurance coverage, and the second part is kept for investments.

If you pass away before the plan reaches maturity, your loved ones will get insurance coverage. However, if the plan reaches maturity before you pass away, you will get the guaranteed returns through the plan. Different insurers offer different payout options.

Factors You Should Consider Before Buying Guaranteed Insurance Plans:

  1. The suitability of the plan:

If you’re planning to purchase a guaranteed return insurance plan, you must ensure the purchase will be suitable for you. The guaranteed return plan will help you achieve your financial goals and protect your loved ones at the same time. Therefore, if you’re looking for ways to achieve your financial goals like your child’s education, your vacation abroad or getting a new house, the guaranteed plan will be an optimal solution.

  1. Different variants of guaranteed plans:

If you’ve decided to purchase a guaranteed return insurance plan, you can look through the variants available for you. All the variants are designed to help individuals meet their unique investment and insurance objectives. When you have a decent idea about the different variants of the guaranteed plans available for you, you will be able to make an informed decision.

  1. Features of the guaranteed plan:

Your insurance plan must match your current income, risk appetite, current life stage, etc. In addition, the plan you choose must offer you the flexibility to pay the premiums as per your requirement. Therefore, you must look through the different plans available to ensure you opt for a plan that matches your suitability. Insurers also offer insurance calculators to help customers understand life insurance quotes. It can help you compare the different plans available for you. While conducting the research may be hectic, it will be beneficial once you find the most suitable plan.

  1. Your insurer’s reputation:

The insurer you choose for your insurance plan must be able to help you at a time you need the insurance coverage. Therefore, it is important to look through your insurer’s reputation online before purchasing the plan. Many insurers like Tata AIA life insurance provide information about their plans, coverage, claim process and claim settlement ratio online to help customers. This way, you can learn about whether the insurance claim you file will be settled or not.

  1. Correct circumstance for the guaranteed plan:

If you’re planning to purchase guaranteed insurance plans in India, it would be optimal if you began the investment a bit early or at a young age. Purchasing the policy at a young age gives your investment a longer horizon to be held in the market, which will help you build your financial corpus through the investment.

Conclusion

Thus, opting for a guaranteed return insurance plan can be quite helpful to achieve your financial goals and protect your loved ones simultaneously. However, if you’re planning to purchase the guaranteed return plan, you must consider certain factors before making the purchase. Following these factors will help you purchase the most optimal plan for yourself.

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