LIQUIDITY INCOME CAPITAL GAIN OR GROWTH SECURITY OF PRINCIPLE
HEDGING INFLATION.
TAX ADVANTAGE.
INVEST EARLY INVEST REGULARLY INVEST FOR LONG TERM.
Obtain written Documents explaining the investment. Read and
understand such documents. Verify the Legitimacy of Investment.
Find out the cost and benefits associated with the investment.
Assess the Risk Return profile of the Investment. Know the
Liquidity and safety aspects of the Investment. Ascertain if it is
appropriate for your specific goals. Compare these detail with
other Investment Opportunities Available. Deal only through an
Authorized Intermediary. Seek all clarification about the
intermediary and the Investment.
RISK OF BUSINESS FAILURE MARKET RISK PRICE LEVEL RISK INTEREST
RATE RISK FINANCIAL RISK POLITICAL RISK EXPECTED RATE OF RETURN
RISK
Reducing overall Risk by Business trend analysis. Reducing
overall Risk by Diversification.
NEWSPAPERS MAGZINES AND OTHER PUBLICATIONS BROKERAGE FIRMS
INVESTMENT SERVICES CORPORATION REPORTS THE INCOME STATEMENT
PHYSICAL ASSETS FINANCIAL ASSETS
SCRA 1956 includes:SHARES BONDS SCRIPS STOCKS AND OTHER
MARKETABLE INSTRUMENTS.
Department of Economic affairs. Department of Companys Affairs.
Reserve Bank of India. SEBI.
Issuers of securities. Intermediaries Investors
PRIMARY MARKET
SECONDARY MARKET
INITIAL PUBLIC OFFERINGS. FURTHER ISSUE. RIGHTS ISSUE.
PREFERENTIAL ISSUE. ISSUES
PUBLIC RIGHTS
PREFERENTIAL
IPO
FPO
SHARES
BONDS
EQUITY SHARES RIGHTS SHARES BONUS SHARES PREFERANCE SHARES
CUMULATIVE PREFERANCE SHARES CUMMULATIVE CONVERTIBLE PREFERANCE
SHARES
ZERO COUPAN BONDS. CONVERTIBLE BONDS. TREASURY BILLS.
BLUE CHIP SHARES. GROWTH SHARES. INCOME SHARES. CYCLICAL SHARES.
SPECULATIVE SHARES
GOVT. SECURITIES. GOVT. RELIEF BONDS. GOVT. AGENCY SECURITIES.
PSU BONDS. DEBENTURES OF PRIVATE SECTOR CO'S. PREFERENCE
SCHEMES.
Average Return on equities in India?If we take the Nifty Index
returns for the past 15 years , Indian Stock market has returned on
an Average 16% in term of increase in share price or capital
appreciation annually. Besides that on Average stocks have paid
1.5% dividend annually.
Investme Return nt options yield Equity shares Low
Capital Risk appreciati liquidity on High High
Marketabi Tax lity shelter Fairly high Sec 80 L benefit Nil
Convenie nce High
Non High convertible debentures
Negligible
Low
Average
High
Equity schemes Debt schemes Bank deposits Public
Low
High
High
High
Sec 80 L benefits No tax on dividends Sec 80 L benefit Sec
88
Very high
High
Low
Low
High
Very high
Moderate
Nil
Negligible
High
Very high
Nil
High
Nil
Average
Very high
Savings & Investing through Savings Institutions
INTRODUCTION Savings represent the portion of that is not spent
on
consumption & comes from earned income. Savings can be
invested directly in the form of stocks
,bonds & real estate. Also indirectly via financial
institutions which invests the money in mortgages , loans or
securities on the investors behalf. Direct investment involves
greater rates of return along with high volume of risk & is
preferred by clients who are willing to assume more risk. Small
savers wanting a fixes rate of return on a cost of low risk chooses
mainly the indirect investments.
Savings InstitutionsSavings institutions are financial
intermediaries that raise funds mainly through deposits and use the
funds to provide loans, home mortgages, and to invest in
securities. SAVING INSTITUTIONS
Depository InstitutionsCommercial banks Savings & loan
associations Credit unions Mutual savings banks
Non Depository InstitutionsMoney market mutual funds Cash
management A/C Life insurance co's s Private pension funds
Depository InstitutionsThese institutions issue a secondary or
indirect security for an individuals money i.e. called a DEPOSIT
A/c. These deposits are highly liquid & can be withdrawn at any
time at the depositors option. They are safe because most deposits
are insured by an agency.
Commercial Banks These are the institutions that perform a wide
variety of
financial services, differentiating them from more specialized
savings banks. Also called departments stores of financial
institutions. The traditional commercial bank is a brick and mortar
institution with tellers, safe deposit boxes, vaults and ATMs. CITY
bank, J.P. Morgan Chase.
Functions: They provide services such as accepting deposits,
giving business loans
and auto loans, mortgage lending, and basic investment products
like savings accounts and certificates of deposit. They act as
trustee, make available strongboxes for safekeeping valuables. They
also offer discount brokerage services & also administer the
nationwide credit card system. They also establish & service
checking accounts including clearing checks for the general public.
They also do activities like underwriting acting as an intermediary
between an issuer of securities and the investing public,
facilitating mergers and other corporate reorganizations, and also
acting as a broker for institutional clients.
Savings & Loan AssociationThese are the financial
institutions that specializes in accepting savings deposits &
making primarily residential mortgage loans. Also known as Building
& Loan association or Thrift, Cooperative banks (new England)
& Homestead association (Louisiana). By law, they must have at
least 65% of their lending in mortgages and other consumer loans
making them particularly vulnerable to housing downturns such as
the U.S. has experienced since 2007. As home financing institutions
they give primary attention to single family residences.
Characteristics : It is generally a locally owned and privately
managed home
financing institution. It receives individuals' savings and uses
these funds to make long-term amortized loans to home purchasers.
It makes loans for the construction, purchase, repair, or
refinancing of houses. It is state or federally chartered. The
management of the association is determined by those that held
deposits and in some instances had loans based on the amount of
deposit with the association.
Functions : They accept savings deposits & make mortgage
loans along
with consumer & customer loans. They provide trustees
services, credit cards & checking A/cs and also clear checks.
To encourage savings and investment by common people and to give
them access to a financial intermediary that provide loans for the
purchase of large ticket items, usually homes.
Credit Unions They are voluntary co-operative associations
designed to make
loans to members for any reasonable purpose. It means that the
members who have the a/cs in credit union are the owners of it. In
India they are in operation since year 1907. According to world
council presently India has 20 million credit unions. They dont
deal with outsiders & usually consists of the employees of some
enterprise. They specializes in making consumer loans to their
members using the same members savings deposits to finance the
loan. Indian Head Credit Union, Indian River Federal Credit
Union.
Characteristics: Only a member of a Credit Union can deposit
money or
borrow money from it. Board of Directors are elected by and from
the membership itself through one person one vote system. They
provide superior member service and are being committed to helping
the members in improving their financial health. They are
considered to be non profit. Credit unions typically pay higher
interest rates on deposits and charge lower interest on loans than
banks. They see themselves as on higher moral ground than banks
i.e. they feel that they are community-oriented and serve people
not profit They have higher customer satisfaction rate with the
quality of service.
Functions: Provide unsecured personal loans, business loans
and
mortgages. Providing superior member service and helping members
to improve their financial health. Providing services intended to
support community development or sustainable international
development on a local level. Credit unions offer many of the same
financial services as banks using a different terminology; common
services include: share accounts (saving A/cs), share draft
accounts (checking A/c), credit cards, share term certificates
(CDs), and online banking. Provide a broader range of loan and
savings products at a much cheaper cost to their members.
Mutual Savings BankIt is a financial institution chartered by a
central or regional government, without capital stock, that is
owned by its members who subscribe to a common fund & from this
fund claims, loans, etc. are paid. Profits after these deductions
are shared between the members. Mutual savings banks were designed
to stimulate savings by individuals.
Characteristics: The members own the business.
They have no stockholders. Profits beyond the upkeep of the bank
belongs to the depositors of the
mutual savings bank. Mutual savings banks prioritize security
& as a result is conservative in their investments.
Functions: To protect deposits, make limited, secure
investments, and provide depositors with interest. To provide a
safe place for individual members to save and to invest those
savings in mortgages, loans, stocks, bonds and other securities and
to share in any profits or losses that result.
Non Depository Institutions They are financial intermediaries
that do not accept
deposits but do pool the payments of many people in the form of
premiums or contributions and either invest it or provide credit to
others. These institutions receive the public's money because they
offer other services than just the payment of interest. They spread
the financial risk of individuals over a large group, or provide
investment services for greater returns or for a future income.
Money Market Mutual Funds It is an open-end mutual fund which
invests only in money
markets. The main goal is the preservation of principal,
accompanied by modest dividends. The funds net asset value remains
a constant $1 per share to simplify A/cing but the interest does
fluctuate. The biggest risk involved in investing in money market
funds is the risk that inflation will outpace the funds returns,
thereby eroding the purchasing power of the investors money.
Characteristics: These funds invest in short term (one day to
one year) debt
obligations such as treasury bills, CDs & commercial paper.
They are very liquid investments. They are used by financial
institutions to store money that is not currently invested. The
risk is extremely low. Money market accounts earn a higher rate
than do other savings accounts. Pay a higher interest rate than the
savings accounts offered by other institution. They have higher
minimum deposit requirements than do other savings accounts.
Functions: Money market accounts functions much like other
bank
deposits. The depositor is paid interest on the deposit, while
the banking institution loans the money out to borrowers, charging
them interest rates higher than that paid to the depositor. They
provide check-writing privileges and a designated number of
withdrawals per month with no fee or penalty.
Cash Management A/CThese are the combination of monthly
statement for checking , credit cards, mutual funds & brokerage
statements all into one for reducing the monthly paperwork for the
consumers.
Life Insurance Companies Life Insurance companies protect their
customers from the
financial distress that can be caused by unforeseen events, such
as accidents or premature death. They pool the small premiums of
the insured to pay the larger claims to those who have losses. The
premium payments are regular while the losses are irregular, both
in timing and amount. An insurance company can profit because it
can accurately estimate the payment of claims over a large group by
using statistics and it can invest its surplus for greater returns
which helps to lower premiums to be competitive.
STOCK EXCHANGESIt is an organization that provides buying and
selling facilities for traders and investors in stocks and other
securities. In India there are 21 stock exchanges in total. 2
National Stock Exchanges namely BSE and NSE where actual trading
takes place. 19 Regional Stock Exchanges where in the present
scenario trading is equal to nil.
It is the oldest stock exchange in Asia established in the year
1875 As of December , 2011, it is 6th largest in Asia and 14th
largest in the world. There are over 5112 listed Indian Companies
and over 8196 scrips on BSE. The Bombay Stock Exchange developed
the BSE SENSEX in 1986, giving the BSE a means to measure overall
performance of the exchange. In 2000 the BSE used this index to
open its derivatives market, trading SENSEX futures contracts. The
development of SENSEX options along with equity derivatives
followed in 2001 and 2002, expanding the BSE's trading platform.
Historically an open outcry floor trading exchange, the Bombay
Stock Exchange switched to an electronic trading system in 1995.
This automated, screen-based trading platform called BSE On-line
trading (BOLT) currently has a capacity of 8 million orders per
day. The BSE has also introduced the world's first centralized
exchangebased internet trading system, BSEWEBx.co.in to enable
investors anywhere in the world to trade on the BSE platform.
NSE was incorporated in the year 1992 but started capital market
operations in 1994. It was promoted by leading Financial
Institutions at the behest of the Government Of India. It is the
16th largest stock exchange in the world by market capitalisation
and largest in India by daily turnover and number of trades, for
both equities and derivative trading. The NSE's key index is the
S&P CNX Nifty known as the NSE NIFTY (National Stock Exchange
Fifty), an index of fifty major stocks weighted by market
capitalisation. It is the first national, anonymous, electronic
limit order book (LOB) exchange to trade securities in India. It is
also the first exchange to propose an investor grievance cell and
an investor protection fund . It is the first exchange that, in
1996, proposed exchange traded derivatives, particularly on an
equity index, in India. After four years of policy and regulatory
debate and formulation, the NSE was permitted to start trading
equity derivatives. It is the first and the only exchange to trade
GOLD ETFs (exchange traded funds) in India.
To start trading in stock market an individual needs a bank
account , trading account and demat account. Demat account is
opened with the bank or the broker to save your shares
electronically rather than possessing physical certificates.
FORMALITIES FOR OPENING A DEMAT ACCOUNT AND A TRADING ACCOUNT are:
Photocopy of Pan Card Address Proof A prescribed account opening
form Photo ID Proof Bank Account Proof.
There is no space for emotions. There is always a border.
Diversify your investments so as to reduce risk. Stop Losses and
Book Profits. Try to analyze the market and the share before
investing. Try to invest for long term not short term
INTRADAY TRADING
Buy and Sell the shares on the same day. Comparitively less
brokerage charges
DELIVERY BASED TRADING
Buy and Sell the shares on some other day. Comparitively more
brokerage charges.
Brokers always charge brokerage and various taxes on every
buying and selling transaction, rates of which are as follows:
Brokerage on the delivery transactions: .50% on transaction amount.
Brokerage on the intraday transactions: .05% on the transaction
amount. STT: 0.1% on the delivery trading. .025% on the intraday
trading (only on selling side) Service Tax: 10.30% of the brokerage
amount. Stamp Duty: 0.1% on the delivery trading. 0.01% on the
intraday trading. Exchange Charges: 0.035% of the transaction
amount for both types of trading.
A Derivative is a product whose value is derived from the value
of an underlying asset The underlying asset can be an equity ,
forex , commodity or any other asset. The primary objective of an
investor to use the derivative is to maximize his returns and
minimize the risk which is also called as Hedging. In Indian stock
exchange only two products of derivatives are available: Futures
Options Call option Put option
In futures trading , there is usually a contract which is
essentially an agreement between two parties to buy or sell an
underlying asset at a certain time in future at a certain price. A
future contract has a STANDARDISED DATE AND MONTH OF DELIVERY ,
QUANTITY AND PRICE. While trading in a futures contract one has to
pay the MARGIN MONEY first which may be around 20% or less than
this. In futures trading, a futures contract may be offset prior to
maturity by entering into equal and opposite transaction. In India
the expiration date for all contracts in futures trading is the
last Thursday of the respective month. Three series of futures
contracts are one month , two month and three month expiry
cycles.
Options are basically contracts , which give to the buyer a
facility which is similar to buy or sell certain asset (underlying)
but the buyer of an option has the LIMITED RISK AND UNLIMITED
PROFIT. CALL OPTION It gives buyer the right to buy the underlying
asset at the strike price specified in the option. The profit or
loss that the buyer makes on the option depends on the spot price
of the underlying . Higher the spot price more is the profit.
Maximum loss is the premium paid for buying the option. PUT OPTION
It gives the buyer the right to sell the underlying asset at the
strike price specified in the option. Profit and Loss depends on
the spot price on the expiration date. Lower the spot price more is
the profit. Maximum loss is the premium paid for buying the
option.
CALLS
Chart
OI 28,000
Chng in OI -
Volume -
IV -
LTP -
Net Chng -
Bid Qty 300
Bid Price 2,663.50
Ask Price 2,675.80
Ask Qty 450
Strike Price 2700.00
100
-
-
-
-
-
5,000
2,535.00
2,588.00
5,000
2800.00
-
-
-
-
-
-
5,000
2,435.00
2,488.00
5,000
2900.00
16,000
-
-
-
-
-
5,000
2,341.70
2,386.10
1,000
3000.00
50
-
-
-
-
-
6,000
2,237.50
2,290.60
6,000
3100.00
50
-
-
-
-
-
6,000
2,137.50
2,190.60
6,000
3200.00
45,900
-
-
-
-
-
150
2,060.65
2,074.30
200
3300.00
50
-
-
-
-
-
6,000
1,937.95
1,968.00
50
3400.00
23,050
-
6
166.21
1,878.90
3.90
1,000
1,843.00
1,869.80
250
3500.00
-
-
-
-
-
-
1,000
1,746.50
1,790.65
5,000
3600.00
-
-
-
-
-
-
1,000
1,646.50
1,690.65
5,000
3700.00
1,100
-
-
-
-
-
300
1,560.30
1,571.00
500
3800.00
-
-
-
-
-
-
1,000
1,446.50
1,490.65
5,000
3900.00
304,800
-100
12
110.68
1,375.10
-18.90
100
1,366.55
1,373.40
450
4000.00
2,950
-
-
-
-
-
5,000
1,249.65
1,290.65
11,000
4100.00
63,000
-
-
-
-
-
100
1,158.40
1,184.30
50
4200.00
44,750
-
-
-
-
-
50
1,055.95
1,070.00
400
4300.00
14,150
-
-
-
-
-
200
953.20
983.25
50
4400.00
199,450
-50
41
63.14
875.00
-23.80
100
870.00
874.00
500
4500.00
71,250
-150
23
-
768.00
-27.00
150
765.60
773.00
150
4600.00
PUTS
Bid Qty 1,900 4,950 5,000 1,000 2,750
Bid Price 0.20 0.25 0.10 0.10 0.35
Ask Price 0.45 2.80 0.50 0.60 0.50 0.20 0.85 0.50
Ask Qty 500 5,000 1,400 50 50 200 5,000 58,000
Net Chng -0.05 -
LTP 0.25 0.50
IV 138.16 110.37
Volume 1 60
Chng in OI -
OI 3,100 34,850 50 50 3,200 1,100 401,850
Chart
1,000 5,000 600
0.20 0.25 0.25
0.45 0.45 0.45
1,000 1,400 900
-
-
-
-
-
71,800 71,950 115,900
1,000
0.25
0.55
900
-
-
-
-
-
176,750
15,000
0.50
0.55
16,150
-0.05
0.55
79.02
230
-500
1,136,550
400
0.55
0.60
8,000
-0.05
0.55
72.96
100
-
236,300
20,000
0.55
0.60
4,150
-0.05
0.60
67.63
737
4,100
1,076,450
5,000
0.55
0.65
10,000
-
-
-
-
-
325,000
5,000
0.55
0.65
10,600
-
-
-
-
-
949,000
3,450
0.60
0.65
15,450
-0.10
0.65
50.68
471
-13,250
1,347,550
A MUTUAL FUND is a pool of the savings of a number of investors
who share a common financial goal.The money thus collected is then
invested in the capital market instruments such as shares ,
debentures and other securities.The profit earned through these
investments is shared by its investors in proportion to their
investment . THUS A MUTUAL FUND IS SUITABLE INVESTMENT FOR AN
INDIVIDUAL AS IT OFFERS AN OPPORTUNITY TO INVEST IN A DIVERSIFIED
PROFESSIONALLY MANAGED BASKET OF SECURITIES AT A RELATIVELY LOW
COST.INVESTORS POOL THEIR MONEY WITH
RETURNS WHICH IS PASSED BACK TO
ASSET MANAGEMANT COMPANY WHICH INVEST IN
SECURITIES AND OTHER INSTRUMENTS THAT GENERATES
Commodity trading in India is regulated by FORWARDS MARKET
COMMISSION headquartered at Mumbai.It is a statutory body set up in
1953 under Forwards Contracts (Regulation) Act ,1952. COMMODITY
DERIVAITVES: Commodity Futures is a derivative instrument in which
, the underlying asset is a particular commodity. For every
commodity futures contract , there is an expiry date and a fixed
quantity (LOT SIZE) Currently only futures trading is permitted in
India. OBJECTIVES AND BENEFITS OF COMMODITY FUTURES: HEDGING :
Price risk management by risk mitigation. SPECUATION : Take
advantage of favourable price movements. LIQUIDITY : Ease of entry
and exit of markets.
MCX is a commodity exchange which was established in 2003 and is
based in Mumbai. With a growing share of 72% , MCX continues to be
Indias no. 1 commodity exchange. Opens at 10 A.M. and closes at
11.55P.M.(Mon Fri) and 10 A.M. to 2.00 P.M. (Sat). Commodities
which are traded in MCX: METAL BULLION FIBER ENERGY SPICES
PLANTATIONS PULSES PETROCHEMICALS OILS AND OIL SEEDS
NCDEX was incorporated on April 23, 2003 under The Companies
Act, 1956 It has commended its operations on Dec 15, 2003. It is
located in Mumbai and offers facilities In more than 550 centres in
India. COMMODITIES WHICH ARE TRADED IN NCDEX: Agri-based
commodities Bullion Ferrous Metal Energy Products Polymers
