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STOCK EXCHANGE

What Is A Stock Exchange?

Stock exchanges are trading houses at which the shares of various companies are bought and sold through an intermediary or broker. This means that a stock exchange sells and buys stocks, shares, and other such securities Stock Exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating, or controlling the business of buying, selling or dealing in securities. It is an association of member brokers for the purpose of self-regulation and protecting the interests of its members.

At first, stock exchanges were completely open. Anyone who wished to buy or sell could do so at a stock exchange. However, to make stock exchange more effective, membership became limited to those in clubs and other associations. Stock market activities were low key till the 1990s. However the process of liberalization and deregulation set in place since 1991 led to explosive growth in terms of number of companies listed and capital raised from the bourses. As against 2,256 companies in 1980, there are now over 9,000 companies listed on Indian Stock Exchanges. Companies, However only a share of few companies are traded regularly. Today, online stock exchange is even more covalent. Thanks to the growth of the Internet almost anyone can sell and buy stocks online. Investors simply tell their banks or investment brokers

online what they wish to trade and when and the brokers hired by the online trading system buy or sell stocks for the client electronically. The motive of the market was to create a give and take relationship between the corporate world and the general public with vouch of transaction. The stock exchange serves, as a huge platform for the investor to invest as per their capacity in the companies, which they think, would return them with the maximum profit. Stock markets affect the entire economy and encourage investment. The Stock Exchange is generally referred to as the entrance to the capital market in the country. Stock markets reflect the economy of the country. It is a vital part of the economy of the country. In the United States, larger cities including Boston, New York, Philadelphia, Denver, Chicago, Los Angeles, and San Francisco all have stock exchanges. Major cities across the world also have exchanges of their own. The ideology of Stock Exchange is to intermediate between the companies and the investors or between the two investors. Stock Exchange are the reliable links between the buyer and the sellers, they are the run machines of the capital market.

How Does A Stock Exchange Work? The buying and selling of stocks at the exchange is done on an area which is called the floor. All over the floor are positions which are called posts. Each post has the names of the stocks traded at that specific post. If a broker wants to buy shares of a specific company they will go to the section of the post that has that stock. If the broker sees at the price of the stock is not quite what the broker is authorized to pay, a professional called the specialist may receive an order. The specialist will often act as a go-between between the seller and buyer. What the specialist does is to enter the information from the broker into a book. If the stock reaches the required price, the specialist will sell or buy the stock according to the orders given to them by the broker. The transaction is then reported to the investor. If a broker approaches a post and sees that the price of the stock is what they are authorized to pay, the broker can complete the transaction themselves. As soon as a transaction occurs, the broker makes a memorandum and reports it to the brokerage office by telephone instantly. At the post, an exchange employee jots down on a special card the details of the transaction including the stock symbol, the number of shares, and the price of the stocks. The employee then puts the card into an optical reader. The reader puts this information into a computer and transmits the information of the buy or sell of the stock to the market. This means that information about the transaction is added to the stock market and the transaction is counted on the many stock market tickers and information display devices that investors rely on all over the world. Today, markets are instantly linked by the Internet, allowing for faster exchange

PAST OF THE STOCK EXCHANGE

The historical records relating to equity market in India is meager and obscure, there is evidence to indicate that loan securities of the East India Company used to be traded towards close of the 18thcentury. By 1830s, the trading in shares of banks had begun. The trader by the name of broker emerged in 1830 when 6 persons called themselves as share brokers. This number grew gradually. Till 1850, they traded in shares of banks and securities of the East India Company in Mumbai under a sprawling Banyan Tree in front of the Town Hall, which is now in Horniman Circle Par Before 1991 there was liscen raj, quota system and etc. There was more interference of the government in every activity so; because of this the India was not growing. Till 1990 the India was one of the lowest economy country there was strictly restriction on imports and exports and on foreign company (players) to enter in India for business purpose. Till 1990, the Indian economy was growing at small rate and there has been seen an increase in the Indian debt and also that the World Bank is not supporting (because of more debt). So, India to improve there situation certain actions must be taken to overcome the situation. At that time Dr.Manmohan Singh was the finance minister to over the situation he had brought the liberalization, privatization and globalization under this liscen raj, quota system was cancelled and the market had open for all foreign players.

Foreign Investors In Indian Stock Markets.

Except few restricted industries, in all other industries in India, foreign companies are now allowed to have a majority share. For some particular industries, they are even permitted to have the full share. Now Foreign Institutional Investors (FII) can operate in the Indian stock market after getting registered with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India, subject to the conditions imposed by SEBI. Even foreign brokers are now permitted to guide the FIIs to operate in Indian stock market, once they get registered with SEBI.

STOCK EXCHANGE LOCATION IN INDIA

INDIAN STOCK MARKET.

The Indian stock Market is also the other name for Indian share market or Indian equity market. Indian Share Market started functioning from 1875. The name of the first share trading association in India was THE NATIVE SHARE AND STOCK BROKER ASSOCIATION. Which later came to be known as Bombay Stock Exchange (BSE).in 1875. This association kicked

of with 318 members. The forces of the market depend on monsoons, global fund flowing into equities in the market and the performance of various companies.

Indian Stock Market mainly consists of two stock exchanges:-

Bombay Stock Exchange (BSE)

National Stock Exchange (NSE) THERE ARE ABOUT 22 STOCK EXCHANGES IN INDIA. Some of the other Stock Exchanges in the India Are Sr No. 1 2 3 4 5 6 7 8 9 Bombay Stock Exchange The Ahmedabad Share and Stock Brokers Association The Calcutta Stock Exchange Association Meerut Stock Exchange Delhi Stock Exchange Association Limited Bangalore Stock Exchange Limited Madras Stock Exchange Limited Coimbatore Stock Exchange Cochin Stock Exchange Name of the exchanges Year of establishment 1875 1894 1908 1934 1947 1957 1957 1964 1980

10 11 12 13 14 15 16 17 18 19 20 21 22

Uttar Pradesh Stock Exchange Association 1982 Limited (at Kanpur) Pune Stock Exchange Limited 1982 Ludhiana Stock Exchange Association 1983 Limited Guwahati Stock Exchange Limited Hyderabad Stock Exchange Kanara Stock Exchange Limited 1984 1984 (at 1985

Mangalore) Magadh Stock Exchange Association (at 1986 Patna) Mangalore Stock Exchange Limited 1988 Jaipur Stock Exchange Limited 1989 Bhubaneswar Stock Exchange Association 1989 Limited Saurashtra Kutch Stock Exchange Limited 1989 (at Rajkot) Vadodara Stock Exchange Limited (at 1990 Baroda) National Stock Exchange of India Limited 1994 (NSEIL).

BSE (Bombay stock exchange)

India's oldest and first stock exchange: Mumbai (Bombay) Stock Exchange. Established in 1875. More than 6,000 stocks listed. The Mumbai (Bombay) Stock Exchange is the oldest in

Asia (established in 1875). It is older than even the Tokyo Stock Exchange which was established in 1878. Bombay Stock Exchange is the oldest stock exchange not only in India but in entire Asia. Its history is synonymous with that of the Indian Share Market history. BSE started functioning with the name, THE THE NATIVE SHARE AND STOCK BROKER ASSOCIATION. in 1875. It is located at Dalal Street, Mumbai, India which later came to be known as Bombay Stock Exchange (BSE). It got Government of India's recognition as a stock exchange in 1956 under Securities Contracts (Regulation) Act, 1956. At the time of its origin it was an Association of Persons but now it has been transformed to a corporate and demutualised entity. BSE is spread all over India and is present in 417 towns and cities. The total number of companies listed in BSE is around 3500. Bombay Stock Exchange's trading system is popularly known as BOLT (BSE's Online Trading System). It makes the trade efficient, transparent and time saving. In BSE, the trade that takes place are:

Equity or Shares Derivatives (Futures and Options) Debt Instruments

Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market. One can identify the booms and busts of the Indian stock market through SENSEX. The main index of BSE is called BSE SENSEX or simply SENSEX. It is composed of 30 financially sound company stocks which are liable to be reviewed and modified from time-to-time.

During early 1990s it was at 1000 mark, 5000 in 1999, and 8000 in September 2000 but at this time it is around . The credit behind this rapid growth of the Indian bourse goes to the New Economic Policy adopted by the government in July, 1991. This force of SENSEX reflects the splendorous performance of Indian Inc. and the consequent success story of the Indian economy The BSE SENSEX (SENSITIVE INDEX), also called the "BSE 30", is a widely used market index in India and Asia. BSE Sensex stands for Bombay Stock Exchange Sensitive Index. It is an index composed of the 30 largest and the most actively traded stocks in the market. These companies holds around one fifth of the market capitalization of the BSE. The base period of SENSEX is 1978-79. Bse Sensex (30 major) BSE sensex comprises of 30 stocks and as on today those thirty are as follows:COMPANYS NAME

ACC LTD BAJAJ AUTO BHARTI ARTL BHEL CIPLA LTD. DR.REDDY'S LABORATORIES LTD. GRASIM INDUSTRIES LTD. GUJARAT AMBUJA CEMENTS LTD.

SECTOR Cement Automobiles (2/3 wheelers) Telecom and Retail Capital Goods Pharma Pharma Diversified Cement

HDFC BANK LTD. HEROHONDA MOTORS HINDALCO IN HINDUSTAN LEVER LTD. HDFC I T C LTD ICICI BANK INFOSYS TECHNOLOGIES LTD.-ORDI LARSEN & TOUBRO LTD. MARUTI UDYOG NTPC LTD ONGC RANBAXY LABORATORIES LTD. REL COM LTD RELIANCE RELIANCE ENR SATYAM COMP

Finance Automobile (2 wheelers) Metal, Metal Products & Mining FMCG Finance FMCG Banking & Finance Information Technology Capital Goods & Construction. Automobiles Power Oil & Gas Pharma Telecom Diversified Power Information Technology

STATE BANK OF INDIA TATA MOTORS TATA STL TCS LTD WIPRO LTD.

Banking & Finance Automobiles Metal, Metal Products & Mining Information Technology Information Technology

NATIONAL STOCK EXCHANGE Origin


The National Stock Exchange of India was promoted by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities. And was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE brings an integrated stock market trading network across the nation. NSE is perhaps one of the largest stock exchanges in the world. NSE was the first exchange in the world to use the satellite communication for trading The National Stock Exchange of India Limited (NSE) is a Mumbai-based stock exchange. It is the largest stock exchange in India and the third largest in the world in terms of volume of transactions. Though a number of other exchanges exist, NSE and

the Bombay Stock Exchange are the two most significant stock exchanges in India and between them are responsible for the vast majority of share transactions. Currently, NSE has the following major segments of the capital market: Equity Futures and Options Retail Debt Market Wholesale Debt Market

National Stock Exchange (NSE) is the leading most stock exchange in India in terms of total volume traded. It is based in Mumbai but has its presence in over 1500 towns and cities. In terms of market capitalization, NSE is the second largest bourse in Sought Asia. NSE provides its customers with a fully automated screen based trading system known as NEAT system with speedy, efficient and transparent transactions. The stocks are hold in a demutualised format helping in fast, transparent and efficient preservation and transactions. The risk management system of National Stock Exchange is of highest quality and can be used as a benchmark for other bourses. NSE has set up National Security Clearing Corporation (NSCCL) to serve the purpose of clearing and settlement. NSE has introduced a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system. NSE's leading index is Nifty 50 or popularly Nifty and is composed of 50 diversified benchmark Indian company stocks. Nifty is constructed on the basis of weighted average market capitalization method.

NSEs (S&P CNX Nifty) 50 major players Sr.no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 COMPANYS NAME ABB ACC BAJAJ AUTO BHARTI AIRTEL BHEL BPCL CIPLA DABUR (I) Dr. REDDYs GAIL (I) GLAXO SMITH.P GRASIMS INDs GUJ. AMBUJA CEMENT HCL. TECHNO HDFC HDFC BANK HERO HONDA HINDALCO HIND.UNILEVER HPCL ICICI BANK INFOSYS. TECH IPCL ITC L&T SECTOR Capital And Eng. Cement Automobiles (2/3 wheelers) Telecom and Retail Capital Goods Oil & Gas Pharma FMCG Pharma Oil & Gas Pharma Diversified Cement Information Technology Finance Finance Automobile (2 wheelers) Metal, Metal Products Mining FMCG Oil & Gas Banking & Finance Information Technology Oil & Gas FMCG CapitalGoods&Construction.

&

26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

MARUTI UDYOG M&M MTNL NATIONAL ALU ONGC PUN. NAT. BANK RANBAXY LAB RELIANCE COMM. RELIANCE ENERGY RELIANCE IND. RELIANCE PET. SAIL SATYAM. COMP SBI SIEMENS STERL. INDs SUN. PHARMA SUZLON ENRGY TATACONSULTANCY SERVICES

Automobiles Automobiles Telecom Metals Oil & Gas Banking Pharma Telecom Power Diversified Oil & Gas Steel Information Technology Banking & Finance Capital and Eng. Metal Pharma Power Information Technology

Capital market

Capital market

Primary market

Secondary market

Primary market: The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities, government as well as corporates , to raise resources to meet their requirement of investment. They may issue the securities at face value or at discount /premium and these securities may take a verity of forms such as equity, debt etc. they may issue the securities in domestic market or international market.

DIFFERENT KINDS OF PRIMARY ISSUES

PRIMARY ISSUES

IPO (INITIAL PUBLIC OFFER)

FPO (FOLLOW ON PUBLIC

Right issue

PREFERENTIAL ISSUE

IPO (INITIAL PUBLIC OFFER): An IPO is an abbreviation for initial public offer it is the process of selling shares that were so far privately held to new investors for the first time IPO. It is the process for an unlisted company (called issuer) to go public and offer shares to general public investors. The main purpose of an IPO is to raise capital for the company. The IPOs are very effective at raising capital.

FPO (FOLLOW ON PUBLIC OFFERING): This type of issue takes place when a already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document.

RIGHT ISSUE
This type of issue takes place when a listed company which proposed to issue fresh securities to existing shareholders. The rights are normally offered in a particular ratio to the number of securities held prior to the issue.

PREFERENTIAL ISSUE
Preferential Issue is the issue of shares or of convertible securities by listed companies to a select group of persons under section 81 of the Companies act, 1956, which is neither a right issue nor a public issue. This is faster way for a company to raise equity capital. The issuer company has to comply with the companies act and the requirements contained in the chapter pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, disclosures in notice etc.

Secondary market
Secondary Market is a financial market, which refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Alternatively, secondary market can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange.Majority of the trading is done in the secondary market. For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management

of the company, Secondary equity markets serve as a monitoring and control conduit by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions. As in the secondary equity market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary equity market be highly liquid and transparent. Before electronic means of communications, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly.

Secondary Markets Dealing Products

Secondary Market

Right Shares

Bonus Shares

Equity Shares

Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held. These shares get traded in the secondary market.

Bonus Shares: Retained earnings of the company are kept as reserves in various reserve accounts. These are the shareholders funds and are used for purposes of capital expenditure or current expenditure of the company. When they reach a level of accumulation, they are distributed as bonus shares to the present equity shareholders in a current ratio to their existing holdings. In short, shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. These shares get traded in the secondary market.

Equity Shares: The shares, which are issued in the initial public offer after, get listing of the company in the exchange they are traded in the secondary market.

Online trading
SEBI committee on Internet- Based Securities Trading and Services has favored the use of Internet as an Order Routing System (ORS) for communicating clients order to the

exchange through broker. ORS enables investors to place orders with his broker and have control over the information and quotes and to hit the quote on the online basis. The order originates from the PCs of the investors are routed through the Internet to the trading terminals of the designated broker with whom they are connected and further to the exchange for trade execution. As soon as the order match and the transaction are completed the investor gets confirmation about them on their PCs through the same internet route. Online trading has emerged as one of the lucrative way of trading in this present technological world. What makes trading stocks on the Internet different from the time before we had all the online stock trading tools? Online stock trading has made it easier for anyone to research the stock market, find the stocks that meet their criteria and with a click of the mouse, invest in that stock. You now have access to as much information as the professional brokerages. This is the reason why so many professionally run hedge funds are actually now being operated from homes. Online stock investing has leveled the playing field. With an Internet connection and the right tools you can now make professional trading decisions. You no longer need to rely on the money managers.

Benefits of Online Stock Trading:

Access stock filter tables where you can plug in parameters and be presented with your own HOT stocks

Access company reports Online charting services. Many are free. Free online stock investing information, articles and investing forums.

QUESTIONS TO THINK BEFORE ONLINE TRADING: Is it safe to trade stocks over the Internet? Security is the number one concern of all the major brokers that offer online trading. Therefore, they use sophisticated encryption devices and also have implemented what are called "secured servers".

How much money is required to get started? You can open an account with some brokers for as little as $250. Many of them also offer new customer signups and will give you from $75 to $100 just for becoming their customer. If you are interested but concerned about some aspect of trading, then you should start slowly.

There seem to be so many brokers, how do I choose the one for me? There are probably over 150 brokers on the Internet. Brokers charge anywhere from $7 per trade to $29.95 per trade. There is a wide variety of pricing. Higher prices generally bring more services.

What do you have to do to get started in Online Stock Trading? You have to decide which broker to choose, which stocks will be a good investment as well as learn the terminology for the stock market. After you have an account for online trading, you need to be able to create, track and manage your portfolio

WHY SEBI WAS FORMED


The up-beat mood of the market was suddenly lost with Harshad Mehta scam. It came to public knowledge that Mr. Mehta, also known as the big-bull of Indian stock market diverted huge funds from banks through fraudulent means. He played with 270 million shares of about 90 companies. Millions of small-scale investors became victims to the fraud as the Sensex fell flat shedding 570 points. To prevent such frauds, the Government formed The Securities and Exchange Board of India, through an Act in 1992. SEBI is the statutory body that controls and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers investment advisors etc. SEBI oblige several rigid measures to protect the interest of investors. Now with the inception of online trading and daily settlements the chances for a fraud is nil, says top officials of SEBI.

The Securities and Exchange Board of India (SEBI) regulates the functioning of capital market and protects the interests of the investors. It is situated in Mumbai. Some functions of SEBI are as follows: Regulation of working in stock exchanges and other securities markets. Registration and regulation of the operation of collective investment plans, including mutual funds. Inhibition of fallacious and unfair business practices in the securities markets. Controlling accomplishment of shares and takeover of companies. Many foreign institutional investors (FII) are investing in Indian stock markets on a very large scale. The liberal economic policies pursued by successive Governments attracted foreign institutional investors to a large scale. Experts now believe the sensex can soar past 14000 marks before 2010.India, after United States hosts the largest number of listed companies

BULL
The common term related to the stock exchange is yet another thing you need to know before investing. The terms such as bull, bear, pig etc. are the commonly used ones in the stock market. For example, the bull represents the investors that always expect the stocks to rise in their value and the bear represents the group that expects the opposite. This means that the bulls in

the market have a positive attitude whereas the bears are always negative. Knowing these terms would be a great help for you when you go out to trade. After this, you want to know about the stock brokers. Do you want a full-service broker or a discount broker? Do you want an online stock broker or a traditional one? Analyze your trading strategy and decide finally, take some trading tips from the successful traders known to you.

BEAR A bear market means "a prolonged period in which investment prices fall, accompanied by widespread pessimism." So, bulls good, bears bad. A bear market tends to be accompanied by widespread pessimism. Investors anticipating further losses are motivated to sell, with negative sentiment feeding on itself in a vicious circle. The most famous bear market in history was the Great Depression of the 1930s. Prices fluctuate constantly on the open market; a bear market is not a simple decline, but a substantial drop in the prices of a range of issues over a defined period of time. By one common definition, a bear market is marked by a price decline of 20% or more in a key stock market index from a recent peak over at least a two-month period. However, no consensual definition of a bear market exists to clearly differentiate a primary market trend from a secondary market trend.

Market Conditions in Both Cases


While referring to markets is either bull or bear is very general, there are certain types of specific markets conditions that exist in both markets. For example, a bullish market is often accompanied by a sudden increase demand for securities and smaller supplies of the same securities. This is because more investors are willing to buy securities while fewer wish to sell. This, of course, only pushes prices higher. The very opposite is true in a bearish market. The investor's behavior is another condition prevalent in both markets. In bullish markets, there's a sudden increase interest in the stock market. More people are hopeful about possible profits on the stock market and most people are optimistic about economic conditions. In a bearish market, investors are not very confident and therefore invest less.

How to Predict Bear and Bull Markets? The easiest way to predict both types of markets is to
realize that what goes up must come down. That is, if the market is rising, then you know that at some point it will start to fall again. Similarly, if the market is currently falling, you can be certain that eventually it will pick up again. There are no precise ways to predict either bull or bear markets, although general social economic situations can help you to determine what will happen. A country which wages a war will experience bullish market

conditions as government contracts create more jobs and boost investor confidence if their expectation is to win. Sudden international crises push the market downward and create bearish conditions. News is very often a good indicator of where investors are headed. The reports will inform about loss of investor confidence as well as sudden economic downturns that may affect the market

Types of shares

Shares in the company may be similar i.e. they may carry the same rights and liabilities and confer on their holders the same rights, liabilities and duties. There are two types of shares under Indian Company Law:1. Equity shares means that part of the share capital of the company which are not preference shares. 2. Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share. a. It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the holders of the equity shares can be paid dividend. b. It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital.

Types of Preference Shares 1. Cumulative or Non-cumulative: A non-cumulative or simple preference shares gives right to fixed percentage dividend of profit of each year. In case no dividend thereon is declared in any year because of absence of profit, the holders of preference shares get nothing nor can they claim unpaid dividend in the subsequent year or years in respect of that year. Cumulative preference shares however give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution . In this case dividends which are not paid in any year are accumulated and are paid out when the profits are available.

. 2. Redeemable and Non- Redeemable: Redeemable Preference shares are preference shares which have to be repaid by the company after the term of which for which the preference shares have been issued. Irredeemable Preference shares means preference shares need not repaid by the company except on winding up of the company. However, under the Indian Companies Act, a company cannot issue irredeemable preference shares. In fact, a company limited by shares cannot issue preference shares which are redeemable after more than 10 years from the date of issue. In other words the maximum tenure of preference shares is 10 years. If a company is unable to redeem any preference shares within the specified period, it may, with consent of the Company

Law Board, issue further redeemable preference shares equal to redeem the old preference shares including dividend thereon

3. Participating Preference Share or non-participating preference shares: Participating Preference shares are entitled to a preferential dividend at a fixed rate with the right to participate further in the profits either along with or after payment of certain rate of dividend on equity shares. A non-participating share is one which does not such right to participate in the profits of the company after the dividend and capital has been paid to the preference shareholders.

GLOSSARY:

Opening Price
Opening price of a particular script is the price at which the first transaction has taken place at the opening of the market. Generally opening price is not given much consideration as compared to closing price because opening price doesnt reflect the true picture of the behaviors of the particular script. Opening

price could be manipulated since it is in upon the investor who first hit the bolt for that particular share. Suppose if the value of a particular share is 80 Rs and the one who hits the bolt first sells it at 60 Rs as soon as the market opens, here with a loss of 20Rs he had shown a vague picture to the market and has successfully manipulated the price of that particular share on that particular day.

Closing Price
Closing price is the price at which a particular script has been closed. Closing price is computed on the basis of weighted average of all the trade in the last 10 min of the continuous session. Suppose we have 500 transactions in a particular script in the last ten minutes and if we compute the average price of those 500 transaction, that average price is called as the closing price of that particular script. Generally many people are of the illusion that closing price is the price at which the last trade has taken place, but in reality it is the weighted average

Squaring-Up-Position
Squaring up position is a well-know manner of trading. Squaring up position is equalizing the buy and sell of the particular script within the same working day of the stock exchange. It is selling the equal number of shares, which were purchased earlier or vice-versa. Suppose- A person purchases 50 shares of Infosys at the beginning of the market and on the very same day he is selling those shares and carrying the difference in profit and loss.

Short Selling
Short selling is also Know as Naked Selling. Short selling is the position where the client or the investor sells the share without purchasing them. Suppose at opening of the market 100 shares of Reliance are sold without purchasing 100 shares of Reliance it is said as short selling the shares. In simple words you could say it as selling the shares before purchasing them and acquiring the position of short sell.

Delivery Based Trading


When an investor buys a particular share from the market during the trading hours and desire to hold it for a period of time, may be days or week or years, since he believe that the price of the particular share would rise within a particular period of time he thus takes the delivery of the share. Generally the broker charges are more in case of the delivery. Here the brokerage is charged when you are buying a particular share as well as when you are selling that particular share.

ADRs (American Depository Receipts)

ADRs are the American Depository Receipts; these are the receipts or certificates issued by a US bank, representing title to a specified number of shares of a non-US company. This US bank acts as depository. ADR is the evidence of the ownership of underlying shares. ADRs are freely traded in the USA, without actual delivery of underlying non-US shares. In case of ADRs the US bank plays the role of stock exchange. The registration of these ADRs with SEC is not compulsory. In India, no company has issued ADRs until end 1997. In simple words, The Indian companies instead of borrowing equity from the local people or banks by issuing shares, borrow equity from US bank and get listed in the US exchanges (NASDAQ and DOWJONES) and the people there who invest in these ADRs, they dont get the actual delivery of these Indian scripts but instead they get the depository receipts or certificates by the US depository bank, which is similar to the actual delivery. Some of the examples of the Indian ADRs are: Infosys ADR. Wipro ADR. Reliance ADR. Satyam ADR.

GDRs (Global Depository Receipts)

GDR is a new financial instrument. It made its appearance in 1991 and became an instant success. It all started when companies in countries like South Korea and Malaysia began attracting investors from Europe and USA. In spite of the investor interest, these companies faced difficulties, a novel way was found. It works this way: A bank in Europe acquires the shares of such a company and then issues its own receipts or Certificates to the investors. This bank is called a depository and such certificates are called Global Depository Receipts, in short, GDRs. A GDR is a dollar denominated instrument, tradable on a stock exchange in Europe (Luxemburg and London stock exchange) as well as in US exchanges. GDRs do not appear in the books of the issuing company, the issuing company collects the equity in foreign currency against GDRs. It is an instrument governed by the international law and not by the domestic law. Some of the examples are: Reliance was the first Indian company to issue GDRs in May 1992 to raise US $100 million. The bookings were about five times the size of the issue and Reliance retained US $150 million. Arvind Mills issued GDRs worth US $125 million in February 1994. The issue price for GDR was US $9.78. One GDR represented one share of Arvind Mills. Etc.

Compulsory Rolling Settlement (Crs) Segment (T+2)


Under the rolling settlement environment all trade executed on trade day are settled after X days. In T+X, T stands for the trade day, whereas X stands for the number of days. Earlier the trading cycle varied from 14 days for specified securities to 30 days for others and settlement took another fortnight. Often this cycle was

not adhered to Indian settlement was often euphemistically described as T+ any thing. Many things could happen between entering into a trade and its performance providing incentives. In order to reduce large open positions, the trading cycle was reduced over a period of time to a week initially. SEBI had introduced T+5 rolling settlement in equity market from July 2001 and subsequently shortened the settlement cycle to T+3 from April 2002. After having gained experience of T+3 rolling settlement, and in order to achieve higher level of efficiency and get the desired efficacy, the stock exchange view Compulsory Rolling Settlement as the best international practice and decided to CRS trade in all equity listed on the Exchange. From April 1, 2003 the T+2 settlement was introducing upgrading the old T+3 version. According to T+2 trade between the buyer and seller is settled on the trade day, but actually for the exchange the trade gets settled on the second working day immediately after the trade day.

Mutual Funds
A mutual fund is a body corporate registered with SEBI (securities exchange board of India) that pools money from individuals/corporate investors and invests the same in a variety of different financial instruments or securities such as equity shares, government securities, bonds, debentures etc. mutual funds can thus be considered as financial intermediaries in the investment

business that collect funds from the public and invest on behalf of the investors. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net asset value: total fund assets divided by shares outstanding. In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly. Each unit of any scheme represents the proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the fund from time to time.

NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. Respective Asset Management Companies (AMC) manages mutual fund schemes. Different business groups/ financial institutions/ banks have sponsored these AMCs, either alone or in collaboration with reputed international firms. Several international funds like Alliance and Templeton are also operating independently in India. Many more international Mutual Fund giants are expected to come into Indian markets in the near future. Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. For instance XYZ Information Technology Fund, a scheme launched by a mutual fund, lays down that its investment objective is to achieve growth through investment in equities of Information Technology (IT) companies. Thus, all people interested in

investing their money in IT stocks would contribute their money to the scheme, which in turn will deploy them in equities of IT companies. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect funds from the public. An investor can invest his money in one or more schemes of Mutual Fund according to his choice and becomes the unit holder of the scheme. Qualified professional men, who use this money to create a portfolio, which includes stock and shares, bonds, gilt, money-market instruments or combination of all, manage each Mutual Fund. Thus Mutual Fund will diversify your portfolio over a variety of investment vehicles. Mutual Fund offers an investor to invest even a small amount of money. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis.

The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives.

Types of Mutual Funds


All mutual funds would be either closed-end or open-end, and either load or no-load. These classifications are general. For example all open-end funds operate the same way; or in case of a load fund a deduction is made from investors subscription or redemption and net amount used to determine his number of shares purchased or sold.

a) Funds Types by Nature of Investments


Mutual Fund may invest in equities, bonds or other fixed incomes securities, or short-term money market securities. So we have Equity, Bond and Money Market Funds. All of them invest in financial assets. But there are funds that invest in physical assets. For example Gold or other Precious Metals Funds, or Real Estate Funds.

b) Fund Types by Investment Objective


Investors and hence the mutual funds pursue different objectives while investing. Thus, Growth Funds invest for medium to longterm capital appreciation. Income Funds invest to generate regular income, and less for capital appreciation. Value Funds invest in equities that are considered under-valued today, whose value will be unlocked in the future.

c) Fund Types by Risk Profile


The nature of a funds portfolio and its investment objective imply different levels of risk undertaken. Funds are therefore often grouped in order of risk. Thus, Equity Funds have a greater risk of capital loss than a Debt Fund that seeks to protect the capital while looking for income. Money Market Funds are exposed to less risk than even Bond Funds, since they invest in short term fixed income securities, as compared to longer-term portfolios of Bond Funds. Fund managers often try to alter the risk profile of funds by suitably changing the investment objective. For Example, a fund house may structure an Equity Income Fund investing in shares that do not fluctuate much in value and offer steady dividends-say Power Sector companies, or a Real Estate Income Fund that invest only in income-producing assets. Balanced Funds seek to produce a lower risk portfolio by mixing Equity investments with Debt investments.

1. Money Market Funds


Often considered to be at the lowest rung in the order of risk level, Money Market Funds invest in securities of a short term by nature,

which generally means securities less than one-year maturity. The typical, short-term, interest-bearing instrument, these funds include Treasury Bills issued by Governments, Certificate of Deposit issued by banks and Commercial Paper issued by the companies. In India Money Market Mutual Fund also invest in the inter-bank call money market. The major strength of Money Market Funds is the liquidity and safety of principal that the investors can normally expect from short-term investment.

2. Gilt Funds
Gilts are government securities with medium to long term maturities, typically of over one year (under one-year instrument being money market securities). In India, we have now seen emergence of government securities or Gilt Funds that invest in government paper called dated securities (unlike Treasury Bills that mature in less than one year). Since the insurer is the Government/s of India/States, these funds have little risk of default and hence offer better production of principal. However, investors have to recognize the potential changes in values of debt securities held by the funds that are caused by changes in the market price of debt securities quoted on the stock exchange just like equities.

3. Debt Funds
Next in the order of risk level, we have the general category Debt Funds. Debt Funds invest in debt instruments issued not only by governments, but also by private companies, banks and financial

institutions and other entities like infrastructure companies. By investing in debt, these funds target low risk and stable income for the investor as their key objectives. However, as compared to the money market funds, they do have a higher price fluctuation risk, since they invest in longer term securities. Similarly, as compared to Gilt Funds, general debt funds do have a higher risk of default by their borrowers. Other types in Debt Funds: Diversified Debt Funds Focused Debt Funds High Yield Debt Funds (Junk Bond Funds in U.S.A.) Assured Return Funds - An Indian Variant Fixed Term Plan Series Another Indian Variant

4. Equity Funds
As investors move from Debt Fund category to Equity Funds, they face increased risk level. However, there is a large variety of Equity Funds and all of them are not equally risk prone. Investors and their advisors need to sort out and select the right Equity Fund that suits their risk appetite. Equity Funds invest a major portion of their corpus in equity shares issued by the companies, acquired directly in IPO or through the secondary market. Equity Funds would be exposed to equity price fluctuations risk at the market level, at the industry level or sector level and at the company specified level. Equity Funds NAV i.e. net asset values fluctuate with all these price

movements. These price movements are caused by all the kinds of external factors like political and economical as well. The issuers of equity shares offer no guaranteed repayment as in case of debt instruments. Hence, Equity Funds are generally considered at higher end of risk spectrum among all funds available in the market. But these funds have greater scope to grow and high returns are also there if you want to take the risk. Equity Funds adopt different investment strategies resulting in different levels of risk. Hence, they are generally separated into different types in terms of their investments styles. Following are the some of major types of Equity Funds, arranged in descending order or risk.

a) Aggressive Growth Funds


There are many types of stocks/ shares available in the market; Blue Chips that are recognised market leaders, less researched stocks that are considered to have future growth potential, and even some speculative stocks of somewhat unknown or unproven issuers. Fund managers seek out and invest in different types of stocks in line with their own perception of potential returns and appetite for risk. As the name suggests, aggressive growth funds target maximum capital appreciation, invest in less researched or speculative shares and may adopt speculative investments strategies to attain their objective of high returns for the investors. Consequently, they tend to be more volatile and riskier than other funds.

b) Growth Funds Growth Funds invest in companies whose earnings are expected to rise at an above average rate. These companies may be operating in sectors like technology considered having a growth potential, but not entirely unproven and speculative. The primary objective of Growth Funds is capital appreciation over a three year to five year span. Growth Funds are therefore less volatile than funds that target aggressive growth.

5. Sector Funds
Sector Funds portfolios consists of investments in only one industry or sector of the market such as Information Technology, Pharmaceuticals, or Fast Moving Consumer Products that have recently been launched in India. Since sector funds do not diversify into multiple sectors, they carry a higher level of sector and company specific risk than Diversified Equity Funds.

6. Diversified Equity Funds


A fund that seeks to invest only in equities, except for a very small portion in liquid money market securities, but is not focused on any one or few sectors or shares, may be termed a diversified equity fund. While exposed to all equity price risks, Diversified Equity Funds seeks to reduce the sector or stock specific risk through diversification. They have mainly market risk exposure. Such general purpose but diversified funds are clearly at the lower risk level than growth funds.

7. Hybrid Funds-Quasi Equity/Quasi Debt


Many mutual funds mix the different types of securities in their portfolios. Thus, most

Funds, equity or debt, always have some money market securities in their portfolios as these securities offer the much-needed liquidity. However, money market holdings will constitute a lower proportion in the overall portfolios of debt or equity funds. There are funds that, however, seek to hold a relatively balanced holding of debt and equity securities in their portfolios. Such funds are termed as Hybrid Funds as they have a dual equity/ bond focus. Some of the funds in this category are as follows:

a) Balanced Funds
A balanced fund is one that has a portfolio comprising debt instruments, convertible securities, preference shares and equity shares. Their assets are generally held in more or less equal proportions between debt/ money market securities and equities. By investing in a mix of this nature, balanced fund seek to attain the objectives of income, moderate capital appreciation and preservation of capital, and are ideal for investors with a conservative approach and long term orientation.

b) Growth-&-Income Funds
Unlike the income-focused or growth-focused funds, these funds seek to strike a balance between capital appreciation and income for the investor. The portfolios are mix between companies with good dividend paying records and those with potential for capital appreciation. These funds would be less risky than pure growth funds, though more risky than income funds.

8.

Commodity Funds
While all of the debt/equity/money market funds invest in financial assets, the mutual fund vehicle is suited for investment in physical assets also. Commodity funds specialise in investing in different commodities directly or through shares of the commodity companies or through commodity futures contracts. Specialised funds may invest in a single commodity or a commodity group such as edible oil or grains, while diversified commodity funds will spread their assets over many commodities.

9.

Real Estate Funds


Specialised Real Estate would invest in Real Estate directly, or may fund real estate developers, or lend to them, or buy shares of housing finance companies or may even buy their securitised assets. The funds may have a growth orientation or seek to give investors regular income. There has been recently an initiative to offer such income fund by the HDFC.

A most common example of commodity fund is so-called Precious Metals Funds. Gold Funds invest in gold, gold futures or shares of gold mines. Other precious metal funds such as Platinum or Silver are also available in the countries. They may take exposure to more than one metal to get some benefit of diversification. In India, a Gold Fund may hold potential, given large public holding an interest in gold. However, commodity funds have not yet developed.