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Video: The “100% Risk Free” NSEL Investment Product

The Crisis of NSEL that has brought Financial Technologies crashing 80% is all because of a product that seems to have been actively advertised as a “safe” investment. Here’s a video from May 2012 showing you how brokers pushed this product – in this instance, it’s Ventura Securities selling it to their customers. (HT @alphaideas)

In case they ever take the video down, here are the salient points in images. First, look at the juicy yields they sell:


This is basically the return of doing a buy and sell leg on a T+3 and T+25 contract on the same day, in the NSEL. Here’s the calculation:


(Click for large image. Excuse the graininess please)

And then, here’s the brilliant part of the presentation:


We will soon know whether it was 100% safe or 0% safe.

Folks, there is nothing you could have done to have foreseen this crisis, unless you knew the insider story of how the whole thing was a ponzi borrowing scheme. Some people had given their commodities as collateral, and took long term funds through this mechanism, hoping to rollover contracts like this forever. When the buyers were spooked by the government regulation, they stopped buying – and that whoosh sound is the game of cards collapsing very fast.

Make no mistake, the government did not create this problem. If the contracts were designed to actually unwind (that is, the borrower side would return the full money and not expect to roll over, which is how a market should always operate), there wouldn’t be a problem.

Everything that seems 100% risk free will work beautifully until that one day when there is 100% risk.

  • Rahul says:

    Hi Deepak,
    Should a e-series (e-gold, e-silver) investor worry about this crisis?
    Your thoughts?

  • ARP says:

    A friend of mine invested 10L in a PMS guaranteed returns scheme run by IIFL – which was promising 15%+ p.a – using similar strategies.
    I am eager to hear from him what happens to his investment.
    His relationship manager is hoping that NSEL / FT makes good on the payouts “for the sake of reputation of MCX and FT”.
    I also hear rumours that there is Congress-NCP tussle angle to it given the FT promoters close association with bigwigs of NCP.

  • Shankar says:

    And the video is gone!!! Kudosfor taking the screenshots and predicting that the video will be removed. You are a real forecaster!
    I just have one doubt in the calculation sheet. Will the price of commodities sold at T+25 always be higher than the price at T+3?

  • Vinit Bolinjkar says:

    Deepak Shennoy
    Your reporting is unfair. plz see why
    1. Brokers are as much victim of the crisis as the investors.
    2. Yields shown in the presentation is a computation of live trades executed on the exchange. READ brokers do not set the yields they were market determined.
    3. You are perpetrating more panic than coming to solutions.
    4. It is the collective action of the brokers that has caused FMC and NSEL to even talk to and openly arrive at a solution.
    5. As an analyst you have not dwelled on the issue of the the Trade Guarantee Fund. You should have been more thorough in your analysis. If the TGF was triggerred this crisis would not have emerged.
    6. You should have done yur homework on what measures brokers are taking to come to a solution rather than casitgating the community.
    7. Would like to see some real analysis and original work in your blogs rather than just regurgitating and asimilating information from news feeds. READ google does a better job.

    • I agree that brokers are as much the victim, but at some point this would have been a concern (the FMC has been behind them for a year now).
      Trade guarantee fund – have mentioned it in various posts, that we don’t know the composition of it, and why they didn’t use it. Now it’s obvious because they have said there wasn’t that much money in teh first place.
      Brokers were also to blame for not highlighting the risk that FMC was trying to get them to do one day contracts and this could be disruptive. Just because they are trying to help doesn’t exonerate them from what they did in advising clients, no? How can such a thing be less risky than a bank deposit as was mentioned int the video? And being a broker, isn’t it suspicious that such funding was getting done way above market prices for money?
      If you don’t want my kind of analysis, please don’t bother visiting my blog. I do research and data crunching based on publicly available data or news. Unless I have verifiable evidence, I don’t say this person told me X and that person told me Y, which is what goes for “original research”. So if this is not your cup of tea, tough.

  • ankur garg says:

    i think all NSEL matter is well known by mr.jignesh shah . it is cash deal in jignesh shah and their 24 borrower for 50-50% sharing .it is not possible that all borrower are defulter and all werehouse have no stock(quantity & quality) how possible ??? why govt.cannot take strong and quick action while jignesh shah is capable ??(have total worth approx 10-12000 cr.) who support them ?why fmc regular say to examine thier FIT AND PROPER status but no action ? why mcx and mcxsx till running and collect margin and mtm daily basis while thier pramoter is not liabel to pay full payment. the only way to solve this matter is jignesh shah who give payment to all investor. otherwise all broker shuld buycott their exchange and 1-2 day strik in all segment (nse bse f&o)