What is an Investment ?
Money is a need in today's environment and everybody has a varied income level.
Whatever is earned is partly spent and partly saved for meeting future expenses.
Instead of keeping the savings idle an individual uses the savings in order to get
return on it in the future and mitigate inflation to some extent. This is called
Investment
What is Equity ?
Equities are pieces of a company, also known as "stocks or shares". When you buy
shares of a company, you're basically purchasing an ownership interest in that company.
A company's stockholders or shareholders all have equity in the company, or own
a fractional portion of the whole company. They buy the shares because they expect
to profit when the company profits. Companies issue two basic types of shares: equity
and preference shares.
What is Equity Share ?
Shares define the portion of investment an investor has made in a particular company
at a given price. The total equity capital of a company is divided into equal units
of small denominations, each called a share. The holders of such shares are members
of the company and have voting rights
Equity share ownership in a public company offers many benefits to investors. The
following are some of its main advantages
- Capital appreciation
- Dividends
- Voting privileges
- Marketability - shares can easily be bought or sold
- Dividend tax credit and capital gains tax
- There are also a few drawbacks to owning equity shares. Although part owner
of the business, common shareholders are in a relatively weak position, as senior
creditors, bond holders and preferred shareholders all have prior claims on the
earnings and assets of a company. While interest payments are guaranteed to bond
holders, dividends are payable to shareholders at the discretion of the directors
of a company.
What is a Derivative ?
An Index is a basket of securities and the average price movement of the basket
of securities indicates the index movement, whether upwards or downwards The leading
Indices in the Indian markets are based on BSE( e.g. BSE SENSEX) and NSE Exchanges(e.g.
NSE NIFTY) . These indices are a reflection of the overall price movement in the
market.
What is a Depository ?
A depository is like a bank wherein the deposits are securities (viz. shares, debentures,
bonds, government securities, units etc.) in electronic form. In India currently
there are two depositories namely National Securities Depository Limited (NSDL)
& Central Depository services Limited (CDSL) whose services are availed of by many
members who are called Depository Participants.
What is Dematirialisation ?
Prior to the concept of electronic exchanges shares were issued to investors in
physical form. Dematerialization is the process by which physical certificates of
an investor are converted to an equivalent number of securities in electronic form
and credited to the investors account with his Depository Participant (DP).
What is the function of Securities Market ?
Securities Markets, in India they are majorly Stock Exchanges namely NSE National
Stock Exchange and BSE Bombay Stock Exchange, is a place where buyers and sellers
of securities can enter into transactions to purchase and sell shares, bonds, debentures
etc. These exchanges also perform an important role of enabling corporates, entrepreneurs
to raise resources for their companies and business ventures through public issues.
It efficiently facilitates transfer of resources from investors to others who have
a need for those (corporates). It links savings to investments by a variety of intermediaries,
through a range of financial products, called Securities.
Why do Securities Market need regulators ?
Due to the changing economy and ratio between supply and demand resulting in the
absence of conditions of perfect competition in the securities market, the role
of the Regulator is extremely important. The regulator ensures that the market participants
behave in a desired manner so that securities market continues to be a major source
of liquidity for corporate and government and the interest of investors are protected.
Who Regulates the Security Market?
It is a shared responsibility jointly taken by Department of Economic Affairs (DEA),
Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities
and Exchange Board of India (SEBI).
What is the role of SEBI ?
The Securities and Exchange Board of India (SEBI) is the regulatory authority in
India established under Section 3 of SEBI Act, 1992. It provides SEBI with statutory
powers for protecting the interests of investors in securities, promoting the development
of the securities market and regulating the securities market. Its regulatory jurisdiction
extends over organisations in the issuance of capital and transfer of securities,
in addition to all intermediaries and persons associated with securities market.
It has been obligated to perform the aforesaid functions by such measures as it
thinks fit. To be specific, it has powers as below : To regulate the business in
stock exchanges and any other securities markets To Register and regulate the working
of stock brokers, sub brokers etc Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices Taking information by undertaking
inspection, conducting inquiries and audits of the stock exchanges, intermediaries,
self regulatory organizations, mutual funds and other persons associated with the
securities market.
Who are the participants in Stock Exchanges ?
The Stock Exchanges essentially has three categories of participants, which are,
the issuers of securities, investors in securities and the intermediaries which
bring in the issuers and the investors together, such as merchant bankers, brokers
etc.
Is it necessary to transact through an Intermediary ?
It is advisable to conduct transactions through an intermediary as you need a trading
member of a stock exchange if you intend to buy or sell any security on stock exchanges,
maintain an account with a depository if you intend to hold securities in demat
form, need to deposit money with a banker to an issue if you are subscribing to
public issues. One also gets guidance while transacting through an intermediary.
We should choose a SEBI registered intermediary, as he is accountable for its activities.
What are the major Segments of Stock Exchange ?
The Stock Exchanges has two interdependent segments: the primary (new issues) market
and the secondary market. The primary market provides the channel for sale of new
securities while the secondary market deals in securities previously issued.
What is meant by Face value of a Share ?
The nominal or stated amount in (Rs .) assigned to a security by the issuer. For
shares, it is the original cost of the stock shown on the certificate. For an equity
share, the face value is usually a very small amount (Rs . 5, Rs . 10) and is a
small contributor on the price of the share, which may quote higher in the market,
at (Rs .) 100 or (Rs .) 1000 or any other price.
What is an IPO?
An Initial Public Offer (IPO) is the selling of securities to the public in the
primary market. This is when an unlisted company makes either a fresh issue of securities
or an offer for sale of its existing securities or both for the first time to the
public. This paves way for listing and trading of the issuers securities. The sale
of securities is generally through book building or through normal public issue.
What is meant by Secondary market ?
It refers to a market where securities are traded after they have initially offered
to the public in the primary market and/or listed on the Stock Exchange. Majority
of the trading is done in the secondary market.
What is the role of stock exchange in buying and selling of shares ?
Under the overall supervision of the regulatory authority, the Securities and Exchange
Board of India (SEBI), the stock exchanges in India provide a trading platform,
where buyers and sellers can meet to transact in securities. The trading platform
provided by BSE & NSE is an electronic one and there is no need for buyers and sellers
to meet at a physical location to trade. The trade is done through the computerized
trading screens or internet based trading facilities available and provided by the
trading members.
What is Dividend ?
Periodic payments to shareholders made out of the company's profits are termed as
dividends. The company decides the amount in a board meeting based on the company's
performance and surplus.
What are advantages of Depository Services?
By trading in demat segment the risk of bad deliveries is completely eliminated.
One can also save on 0.5% in stamp duty in case of transfer of electronic shares.
It also avoids the cost of courier; follow up with broker and loss of share certificates
in transit. One can also take a loan against shares held in demat form by pledging
the same with various lending institutions if required.
What is the process of opening a Demataccount ?
Opening a demat account is as simple as opening a bank account. One can open a depository
account with any DP by filling up the account opening form, which is available with
the DP. Sign the DP-client agreement that defines the rights and duties of the DP
and the person wishing to open the account. Receive your client account number (client
ID). This client id along with your DP id gives you a unique identification in the
depository system.
What is the procedure to dematerialize your share certificate ?
One needs to fill up a dematerialization request form, which is available with your
DP. The holder has to submit the share certificates along with the form; (write
"surrendered for demat" on the face of the certificate before submitting it for
demat). The credit of such shares is received in general in about 21 days from the
registrar.
What makes investment different from Saving ?
Saving is a stage on the way to investing. You cannot be an investor without being
a saver but you can be a saver without being an investor. Savings are effectively
cash or cash instruments, such as deposit account, term bonds etc. Investing is
what you do with the savings you have created if you are looking to generate a return
on your money that is greater than what is already available to you through your
savings instruments
What is safest investment ?
The Securities and Exchange Board of India (SEBI) is the regulatory authority in
India established under Section 3 of SEBI Act, 1992. It provides SEBI with statutory
powers for protecting the interests of investors in securities, promoting the development
of the securities market and regulating the securities market. Its regulatory jurisdiction
extends over organisations in the issuance of capital and transfer of securities,
in addition to all intermediaries and persons associated with securities market.
It has been obligated to perform the aforesaid functions by such measures as it
thinks fit. To be specific, it has powers as below : To regulate the business in
stock exchanges and any other securities markets To Register and regulate the working
of stock brokers, sub brokers etc Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices Taking information by undertaking
inspection, conducting inquiries and audits of the stock exchanges, intermediaries,
self regulatory organizations, mutual funds and other persons associated with the
securities market.
Should everyone Consider Stock Market /Direct Equity Options ?
The answer to this question is a definite yes. It has been seen that over the years
there has been no financial instrument which has given returns as high as the stock
markets. The only important factor to be kept in mind is that investment should
always be made with an objective in mind and we should not be too greedy while investing.
On the other hand, as inflation has fallen over the last couple of decades so have
the returns available from basic savings accounts. In fact, many instant access
accounts no longer keep pace with inflation at all. Leaving your money in such an
account now actually means it is falling in value!
What is a commodity?
A commodity is a product having commercial value that can be produced, bought, sold,
and consumed. It is normally a basic raw unprocessed state but products derived
from primary sector and structured products are also traded at commodity exchanges.
In India, the list includes precious metals, ferrous and non-ferrous metals, spices,
pulses, plantation crops, sugar, and other soft commodities.
What is a commodity market ?
Commodity market is a place where trading in commodities takes place. It is similar
to an Equity market, but instead of buying or selling shares one buys or sells commodities
What are the different types of participants in commodity markets?
Broadly, the participants can be classified as hedgers, arbitragers, and speculators.
In other words, manufacturers, traders, farmers, exporters, and investors are all
participating in this market.
What are the different types of Commodities that are traded in these Markets ?
World-over one will find that a market exits for almost all the commodities known
to us. These commodities can be broadly classified into the following: Precious
Metals: Gold, Silver, Platinum etc. Other Metals: Nickel, Aluminum, Copper etc.
Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds, etc. Soft Commodities:
Coffee, Cocoa, Sugar etc. Energy: Crude Oil, Natural Gas, Gasoline etc.
How is trading done in the commodity exchanges?
Commodity exchanges are based on the online trading system. It is an order-driven,
transparent trading platform, which is reachable to the various participants through
the internet, VSAT, and leased line modes operated by members or subbrokers spread
across the country.
What is a derivative contract?
A derivative is a product whose value is derived from the value of one or more underlying
variable or asset in a contractual manner. The underlying asset can be equity, foreign
exchange, commodity or any other asset. The price of derivative is driven by the
spot price.
How are futures prices determined?
Futures prices evolve from the interaction of bids and offers emanating from all
over the country which converge on the trading floor. The bid and offer prices are
based on the expectations of prices on the maturity date.
Is delivery mandatory in commodity futures contract trading?
The provision for delivery is made in the Byelaws of the Associations so as to ensure
that the futures prices in commodities are in conformity with the underlying. Delivery
is generally at the option of the sellers. However, provisions vary from Exchange
to Exchange. Byelaws of some Associations give both the buyer and seller the right
to demand/give delivery.
How is it possible to sell, when one doesn’t own commodity?
One doesn’t need to have the physical commodity or own a contract for the commodity
to enter into a sale contract in futures market. It is simply agreeing to sell the
physical commodity at a later date or selling short. It is possible to repurchase
the contract before the maturity, thereby dispensing with delivery of goods.
What is long/short position?
Long position is a net bought position, whereas a short position is net sold position.
What is a mutual fund?
A mutual fund is a financial instrument that collects money from several investors
like you, and invests it in various investment options like shares, bonds, etc.
This fund is managed by experts.
What are the types of mutual funds?
Depending on where your money is invested, mutual funds can be classified into three
types: Equity, Debt and Hybrid. Equity mutual funds invest in shares of companies
listed on the stock exchange. Debt mutual funds invest in bonds of reputed companies
and government bonds. Hybrid mutual funds invest in both, shares and bonds.
How does a mutual fund operate?
A mutual fund company collects money from many investors, and invests it in various
options like shares, bonds, etc. This fund is managed by professionals who understand
the market well, and try to achieve growth by making strategic investments. Investors
get units of the mutual fund according to the amount they have invested.
What are the benefits of investing in a mutual fund?
Some of the major benefits on investing in a mutual fund are:
- Diversification
- Professional management
- Convenience
- Liquidity
- Variety of schemes and types
- Tax benefits
What are the consequences of being NON Compliant?
Suspension of AMFI Certificate. In case Self Declaration not submitted to AMC before
the end of the financial year, or within 3 months from the start of next financial
year then his brokerage will be suspended thereafter till submission.
What is NFO?
NFO stands for a New Fund Offer. When a new fund is launched for investors, it is
known as a NFO. A NFO could also be the launch of additional units of a close-ended
fund.
What is a Fund of Funds?
A fund of fund is a kind of mutual fund that invests in a variety of mutual funds.
What are equity mutual funds?
Equity mutual funds collect money from several investors like you, and invest this
amount in shares of various companies. The primary objective of equity mutual funds
is to invest in shares of different companies and generate good returns.0
What are debt mutual funds?
Debt mutual funds collect money from several investors like you, and invest this
amount in bonds of reputed companies and government bonds.
What are hybrid mutual funds?
Hybrid mutual funds invest both in shares and bonds. The portion invested in shares
helps grow your wealth, while the portion invested in bonds offers stability to
your portfolio.
What is a Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP) is a convenient method of investing in mutual
funds. Under this plan, an investor contributes a fixed amount towards the mutual
fund scheme at regular intervals, and gets units at the prevailing NAV.
What are the benefits of investing in a SIP?
Investing in SIP offers two major benefits:
- You can start investing with a small amount
- You can average out your investment, as SIP involves buying units at different
points of time and at different NAV levels
What is a Systematic Withdrawal Plan (SWP)?
Under a Systematic Withdrawal Plan (SWP), an investor redeems a fixed number of
mutual fund units at regular intervals.
What are Exchange Traded Funds?
Exchange Traded Funds (ETFs) are funds that can be traded on a stock exchange, just
like shares. These funds invest in shares, indexes or commodities.
What are index funds?
Index funds are mutual funds that invest in shares of companies comprising a particular
index. These funds intend to replicate the performance of a particular index.
What is rupee cost averaging?
Rupee cost averaging is one method to save regularly and minimise the effect of
market volatility on investments. By investing through methods like SIP, you invest
a fixed amount in mutual funds at regular intervals. So, you get more units when
the NAV is low and fewer units when it is high. Eventually, your average cost per
unit is brought down.
What is NAV?
NAV stands for Net Asset Value of a mutual fund. This is basically the price of
one unit of a mutual fund.
How is NAV calculated?
NAV can be calculated as follows: Assets of the fund – Liabilities of the fund /
Number of outstanding units for that fund
How often is the NAV of a fund declared?
Mutual fund companies have to declare the NAV of their funds at least once a week.
However, most companies declare it at the end of every working day.
What are gilt funds?
A gilt fund is a kind of mutual fund that invest your money only in government securities.
These funds are considered to be safe as they bear no default risk.
What are sectoral mutual funds?
Sectoral mutual funds invest your money in shares of companies of one particular
sector. The main objective of these funds is to provide high returns from one particular
sector that has the potential to grow.
What are liquid funds?
Liquid funds are mutual funds that offer high liquidity. This means, the units of
these funds can be sold immediately, and the invested amount can be redeemed quickly.
What are capital protection funds?
Capital protection funds are mutual funds designed to protect your capital. These
funds put a major portion of the investment in bonds, and a small portion in shares.
Over time, the portion invested in bonds grows to the size of your original investment.
So even if the portion invested in shares does not do well, your capital is still
protected.
What is an open-ended mutual fund?
Open-ended funds can be bought and sold at any time; they have no fixed tenure.
What is a close-ended mutual fund?
You can buy units of close-ended mutual funds only when a mutual fund company launches
the fund. Once you buy them, you have to hold your investment for a fixed tenure.
What is redemption price?
Redemption price is the price that you receive on selling each unit of your mutual
fund investment.
Where can I get more information on mutual funds?
Most mutual fund companies have their website, where information related to all
the mutual fund schemes is available. You can also log on to the official website
of the Association of Mutual Funds in India (AMFI): www.amfiindia.com. To view information
related to regulations and guidelines for mutual funds, addresses of mutual funds,
etc. one can log on to www.sebi.gov.in and click on
the 'Mutual Funds' section.
How do I subscribe and redeem units of a mutual fund scheme on stock exchanges?
In order to extend the convenience that investors in the secondary market have,
to investors in Mutual Funds, SEBI has allowed Stock Exchanges to offer their existing
infrastructure for subscribing and redeeming units of a mutual fund scheme.
In accordance with the same, National Stock Exchange of India Ltd. offers Mutual
Fund Service System (MFSS) and Bombay Stock Exchange Ltd. offers BSE Stock Exchange
Platform for Allotment and Repurchase of Mutual Funds (BSE StAR MF) [collectively
called as Stock Exchange Platform(s) for Mutual Funds] for transacting in certain
schemes of Birla Sun Life Mutual Fund.
For further details on trading through Stock Exchange Platform(s), you may refer
to the following websites:
http://www.nseindia.com/products/content/equities/mutual_funds/mfss.htm
http://www.bseindia.com/about/BSEstarmf.asp
All transactions carried out through the Stock Exchange Platform for Mutual Funds
shall be subject to such guidelines as may be issued by NSE, BSE and also SEBI (Mutual
Funds) Regulations, 1996 and circulars / guidelines issued thereunder from time
to time, in this regard.
Can NRIs invest in Mutual Funds? Do they require any special permission from the
RBI?
Non Resident Indians and Persons of Indian Origin residing abroad (NRIs) / Foreign
Institutional Investors (FIIs) have been granted a general permission by Reserve
Bank of India Schedule 5 of the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2000 for investing in
/ redeeming units of the mutual funds subject to conditions set out in the aforesaid
regulations
What is Depository ?
A depository is an organization where the securities of an investor are held in
electronic form. A depository can be compared to a bank. To avail of the services
of a depository, an investor has to open an account with the Depository through
a depository participant, just as he opens an account with the bank. Holding shares
in the account is akin to holding money in the bank.
Why should I prefer to buy shares in the depository mode? Why should I have a demat
account?
As an investor you will enjoy many benefits if you buy and sell shares in the depository
mode. The following are some of the benefits you will enjoy: No bad deliveries.
No risk of loss, mutilation or theft of share certificates No stamp duty for transfer
of shares. Reduced paper work. Fast settlement cycles. Low interest rates on loans
granted against pledge of dematerialized securities by banks. Low margin on securities
pledged with banks. Increase in liquidity of your securities because of faster transfer
and registration of securities in your account. Instant disbursement of non-cash
benefits like bonus and rights into your account. Regular account status updates
available from MODES at any point of time.
At present, India has only two depositories: National Securities Depository Ltd
(NSDL) and Central Depository Services Ltd (CDSL). NSDL is the first depository
to have started in India, whereas CDSL followed them. However, most of the services
offered by both these depositories are similar. Today almost all the companies listed
in dematerialized form with NSDL are available with CDSL.
Who is a Depository Participant?
A Depository Participant(DP) is an agent appointed by the Depository and is authorized
to offer depository services to all investors. An investor cannot directly open
a demat account with the depository. An investor has to open his account through
a DP only. The DP in turn opens the account with the Depository. The DP in turn
takes up the responsibility of maintaining the account and updating them as per
the instructions given by the investor from time to time. The DP generates and provides
the holdings statement from time to time as required by the investor. Thus, the
DP is basically the interface between the investor and the Depository. Example:
BVC Modes is a DP of both Depositories (NSDL as well as CDSL). For the purpose of
Internet Trading, you will have to open a demat account with BVC, who is authorized
to offer you this service. We will be opening your demat account with CDSL. The
balances in your account are maintained with the depository and are available to
you through us. You can find the status of your holdings or transactions from time
to time.
Who is a Beneficiary Owner(BO)?
The person who holds a demat account is a beneficiary owner. In case of a joint
account, the account holders will be beneficiary holders of that joint account.
What is a BO Id?
The demat account number of the beneficiary holder(s) is known as the BO Id.
What is a DP Id?
A DP Id is the number of the depository participant allotted by the depository.