INTRODUCTION AND HISTORY OF SHARES

What is share?

In finance a share is a unit of account for various financial instruments including

stocks, mutual funds, limited partnerships, and REIT's. In British English, the usage of

the word share alone to refer solely to stocks is so common that it almost replaces the

word stock itself.

In simple Words, a share or stock is a document issued by a company, which

entitles its holder to be one of the owners of the company. A share is issued by a

company or can be purchased from the stock market.

By owning a share you can earn a portion and selling shares you get capital gain.

So, your return is the dividend plus the capital gain. However, you also run a risk of

making a capital loss if you have sold the share at a price below your buying price.

A company's stock price reflects what investors think about the stock, not

necessarily what the company is "worth." For example, companies that are growing

quickly often trade at a higher price than the company might currently be "worth." Stock

prices are also affected by all forms of company and market news. Publicly traded

companies are required to report quarterly on their financial status and earnings. Market

forces and general investor opinions can also affect share price.

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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:-

Equity shares means that part of the share capital of the company which are not

preference shares.

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.

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.

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.

What are active Shares?

Shares in which there are frequent and day-to-day dealings, as distinguished from

partly active shares in which dealings are not so frequent. Most shares of leading

companies would be active, particularly those which are sensitive to economic and
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political events and are, therefore, subject to sudden price movements. Some market

analysts would define active shares as those which are bought and sold at least three

times a week. Easy to buy or sell.

How does one trade in shares?

Every transaction in the stock exchange is carried out through licensed members

called brokers.

To trade in shares, you have to approach a broker However, since most stock

exchange brokers deal in very high volumes, they generally do not entertain small

investors. These brokers have a network of sub-brokers who provide them with orders.

The general investors should identify a sub-broker for regular trading in shares and

place his order for purchase and sale through the sub-broker. The sub/broker will transmit

the order to his broker who will then execute it.

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

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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. A company can issue the preference shares which

from the very beginning are redeemable on a fixed date or after certain period of time not

exceeding 10 years provided it comprises of following conditions :-

a) It must be authorized by the articles of association to make such an issue.

b) The shares will be only redeemable if they are fully paid up.

c) The shares may be redeemed out of profits of the company which otherwise

would be available for dividends or out of proceeds of new issue of shares made for the

purpose of redeem shares.

or out of shares premium account before the shares are redeemed.

e) When shares are redeemed out of profits a sum equal to nominal amount of

shares redeemed is to be transferred out of profits to the capital redemption reserve

account. This amount should then be utilized for the purpose of redemption of

redeemable preference shares. This reserve can be used to issue of fully paid bonus

shares to the members of the company.

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.

Capital refers to the amount invested in the company so that it can carry on its

activities. In a company capital refers to "share capital". The capital clause in

Memorandum of Association must state the amount of capital with which company is

registered giving details of number of shares and the type of shares of the company. A

company cannot issue share capital in excess of the limit specified in the Capital clause

without altering the capital clause of the MA.

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STOCK OPTIONS

A stock option is a specific type of option with a stock as the underlying instrument (the

security that the value of the option is based on). Thus it is a contract to buy (known as a

"call" contract) or sell (known as a "put" contract) shares of stock, at a predetermined or

calculable (from a formula in the contract) price. It is having the Rights to purchase a

corporation's stock at a specified price. Infact there are two definitions of stock options.

1. The right to purchase or sell a stock at a specified price within a stated period. Options

are a popular investment medium, offering an opportunity to hedge positions in other

securities, to speculate on stocks with relatively little investment, and to capitalize on

changes in the market value of options contracts themselves through a variety of options

strategies.

2. A widely used form of employee incentive and compensation. In some Companies,

Stock options constitute part of remuneration.

Employee stock options are stock options for the company's own stock that are often

offered to upper-level employees as part of the executive compensation package. An

employee stock option is identical to a call option on the company's stock, with some

extra restrictions.

Performance Stock Options are Options that vest if pre-determined performance

measures are achieved. The performance goal (revenue growth, stock-price increases…)

must be reached for the options to be exercisable or for the vesting to be accelerated.
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Buy-back of Shares

Buy back of its own shares by a company is nothing but reduction of share capital. After

the recent amendments in the Companies Act, 1956 buy back of its own shares by a

company is allowed without sanction of the Court. It is nothing but a process which

enables a company to go back to the holders of its shares and offer to purchase from them

the shares that they hold.

There are three main reasons why a company would opt for buy back:-

1) To improve shareholder value, since with fewer shares earning per share of the

remaining shares will increase.

2) As a defense mechanism against hostile take-overs since there are fewer shares

available for the hostile acquirer to acquire.

3) Public Signaling of the Management’s Policy.

A company may purchase its own shares or other specified securities out of:-

i) Its free reserves; or

ii) The securities premium account; or

iii) The proceeds of any shares or other specified securities:

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 No buy-back of any kind of shares or other specified securities can be made out of

the earlier proceeds of an earlier issue of the same kind of shares or same kind of other

specified securities.

No company can purchase its own shares or other specified securities unless:-

 The buy-back is authorized by its articles;

 A special resolution has been passed in general meeting of the company

authorizing the buy-back;

 The buy-back is of less than twenty five per cent of the total paid-up capital and

free reserves of the company:

 The buy-back of equity shares in any financial year shall not exceed twenty five

per cent of its total paid-up equity capital in that financial year.

 The ratio of the debt owned by the company is not more than twice the capital and

its free reserves after such buy-back. However, the Central Government may

prescribe a higher ratio of the debt than that specified under this clause for a class

or classes of companies.

 All the shares or other specified securities for buy-back are fully paid-up;

 The buy-back of the shares or other specified securities listed on any recognized

stock exchange is in accordance with the regulations made by the Securities and

Exchange Board of India in this behalf;

specified in clause is in accordance with the guidelines as may be prescribed.

 The notice of the meeting at which special resolution is proposed to be passed

shall be accompanied by an explanatory statement stating

ONLINE STOCK TRADING

Online Stock Trading is a recent way of buying and selling stocks. Now you can

buy and sell any stock over the Internet for a low price and you don’t need to call up a

broker. You can buy any stock and sell any stock and it doesn’t take much to get started.

All you need is a brokerage account. A broker that I use is Scottrade

http://www.scottrade.com/ and you can start an account with them for $500 and their

commissions are only $7, so they are not expensive at all.

Once you have setup a brokerage account you then need to choose an investment

method and then research different companies and then buy stock in the ones that you

feel will go up because they are good sound companies. So as you can see there are

several benefits to online stock trading but let’s recap.

With online stock trading all you need is $500 to open a brokerage account, the

brokerage commissions are low at Scottrade they’re only $7 and you can buy and sell

your stocks from your home computer anytime that the stock market is open.

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 Well now that you know that you can do online stock trading with a minimal

investment you should get started today and then start learning about the stock market

and choose the stocks you want to invest in.

Demat Account:

Demat refers to a dematerialized account.

Though the company is under obligation to offer the securities in both physical

and demat mode, you have the choice to receive the securities in either mode. If you wish

to have securities in demat mode, you need to indicate the name of the depository and

also of the depository participant with whom you have depository account in your

application.

It is, however desirable that you hold securities in demat form as physical

securities carry the risk of being fake, forged or stolen. Just as you have to open an

account with a bank if you want to save your money, make cheque payments etc,

Nowadays, you need to open a demat account if you want to buy or sell stocks.

So it is just like a bank account where actual money is replaced by shares. You

have to approach the DPs (remember, they are like bank branches), to open your demat

account. Let's say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro,

200 of HLL and 100 of ACC. All these will show in your demat account. So you don't

have to possess any physical certificates showing that you own these shares. They are all

held electronically in your account. As you buy and sell the shares, they are adjusted in
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your account. Just like a bank passbook or statement, the DP will provide you with

periodic statements of holdings and transactions.

Is a demat account a must? Nowadays, practically all trades have to be settled in

dematerialized form. Although the market regulator, the Securities and Exchange Board

of India (SEBI), has allowed trades of up to 500 shares to be settled in physical form,

nobody wants physical shares any more.

So a demat account is a must for trading and investing. Most banks are also DP

participants, as are many brokers. You can choose your very own DP. To get a list, visit

the NSDL and CDSL websites and see who the registered DPs are.

A broker is separate from a DP. A broker is a member of the stock exchange, who

buys and sells shares on his behalf and on behalf of his clients. A DP will just give you an

account to hold those shares. You do not have to take the same DP that your broker takes.

You can choose your own.

DIFFERENT KIND OF INVESTMENTS

These days, you can't retire without using the returns from investments. You can't

count on your social security checks to cover your expenses when you retire. It's barely

enough for people who are receiving it now to have food, shelter and utilities. That

doesn't account for any care you may need or in the even that you need to take advantage

of such funds much earlier in life. It is important to have your own financial plan. There

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are many kinds of investments you can make that will make your life much easier down

the road.

The following are brief descriptions for beginning investors to familiarize

themselves with different kinds of Investment options:

401K Plans

The easiest and most popular kind of investment is a 401K plan. This is due to the

fact that most jobs offer this savings program where the money can be automatically

deducted from your payroll check and you never realize it is missing.

Life Insurance

Life Insurance policies are another kind of investment that is fairly popular. It is a

way to ensure income for your family when you die. It allows you a sense of security and

provides a valuable tax deduction.

Stocks

Stocks are a unique kind of investment because they allow you to take partial

ownership in a company. Because of this, the returns are potentially bigger and they have

a history of being a wise way to invest your money.

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Bonds

A bond is basically a promise note from the government or a private company.

You agree to give them a set amount of money as a loan and they keep it for a set number

of years with a predetermined amount of interest. This is typically a safe bet and one that

is a good investment for a first time investor because there is little risk of losing your

money.

Mutual Funds

Mutual funds are a kind of investment that are based on the gains and losses of a

shareholder. Basically one person manages the money of several or many investors and

invests in a list of various stocks to lessen the effect of any losses that may occur.

Money Market Funds

A good short-term investment is a Money Market Fund. With this kind of

investment you can earn interest as an independent shareholder.

Annuities

If you are interested in tax-deferred income, then annuities may be the right kind

of investment for you. This is an agreement between you and the insurer. It works to

produce income for you and protect your earning potential.

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Brokered Certificates of Deposit (CDs)

CDs are a kind of investment where you deposit money for a set amount of time.

The good thing about CDs is that you can take the money out at any time without paying

a penalty fee. We all know life isn't predictable, so this is a nice feature to have in your

option.

Real Estate

Real Estate is a tangible kind of investment. It includes your land and anything

permanently attached to your piece of property. This may include your home, rental

properties, your company or empty pieces of land. Real estate is typically a smart and can

make you a lot of money over time.

What is Technical Analysis? How is it different from Fundamental Analysis?

Technical Analysis is a method of evaluating future security prices and market

directions based on statistical analysis of variables such as trading volume, price changes,

etc., to identify patterns.

A stock market term - The attempt to look for numerical trends in a random

function. The stock market used to be filled with technical analysts deciding what to buy

and sell, until it was decided that their success rate is no better than chance. Now

technical stock analysis is virtually non-existent. The Readers Submitted Examples page

has more on this topic.

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 Research and examination of the market and securities as it relates to their supply

and demand in the marketplace. The technician uses charts and computer programs to

identify and project price trends. The analysis includes studying price movements and

trading volumes to determine patterns such as Head and Shoulder Formations and W

Formations. Other indicators include support and resistance levels, and moving averages.

In contrast to fundamental analysis, technical analysis does not consider a corporation's

financial data.

Technical analysts study trading histories to identify price trends in particular

stocks, mutual funds, commodities, or options in specific market sectors or in the overall

financial markets. They use their findings to predict probable, often short-term, trading

patterns in the investments that they study. The speed (and advocates would say the

accuracy) with which the analysts do their work depends on the development of

increasingly sophisticated computer programs.

Technical Analysis supposes markets have memory. If so, past prices, or the

current price momentum, can give an idea of the future price evolution. Technical

Analysis is a tool to detect if a trend (and thus the investor's behavior) will persist or

break. It gives some results but can be deceptive as it relies mostly on graphic signals that

are often intertwined, unclear or belated. It might become a source of representiveness

heuristic (spotting patterns where there are none)

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 Technical analysis has become increasingly popular over the past several years, as

more and more people believe that the historical performance of a stock is a strong

indication of future performance. The use of past performance should come as no

surprise. People using fundamental analysis have always looked at the past performance

of companies by comparing fiscal data from previous quarters and years to determine

future growth. The difference lies in the technical analyst's belief that securities move

according to very predictable trends and patterns. These trends continue until something

happens to change the trend, and until this change occurs, price levels are predictable.

There are many instances of investors successfully trading a security using only

their knowledge of the security's chart, without even understanding what the company

does. However, although technical analysis is a terrific tool, most agree it is much more

effective when used in combination with fundamental analysis.

Fundamental Analysis

Fundamental analysis looks at a share’s market price in light of the company’s

underlying business proposition and financial situation. It involves making both

quantitative and qualitative judgments about a company. Fundamental analysis can be

contrasted with 'technical analysis’, which seeks to make judgments about the

performance of a share based solely on its historic price behavior and without reference

to the underlying business, the sector it's in, or the economy as a whole. This is done by

tracking and charting the companies’ stock price, volume of shares traded day to day,

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both on the company itself and also on its competitors. In this way investors hope to build

up a picture of future price movements.

TRADING VS INVESTING

Many people confuse trading with investing. They are not the same. The biggest

difference between them is the length of time you hold onto the assets. An investor is

more interested in the long-term appreciation of his assets, counting on that historical rise

in market equity.

He’s not generally concerned about short-term fluctuations in prices, because he’ll

ride them out over the long haul.

An investor relies mostly on Fundamental Analysis, which is the analytical

method of predicting long-term prospects of a particular asset. Most investors adopt a

“buy and hold” approach to assets, which simply means they buy shares of some

company and hold onto them for a long time. This approach can be dangerous, even

devastating, in an extremely volatile market such as today’s BSE or NSE Indexs Show.

Let’s consider someone who bought shares of XYZ Company at their peak value

of around Rs.650 per share at the beginning of the year 2000. Two years later, those

shares are worth Rs.100 each. If that investor had spent Rs. 65,000/-, his net loss would

be Rs.55000/- ! I don’t know about you, but losing Fifty Five Thousand Rupees would be

a relatively big loss for me.

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 Many investors suffer such losses regularly, hoping that in five or ten or fifteen

years the market will rebound, and they’ll recoup their losses and achieve an overall gain.

What most investors need to remember is this: investing is not about weathering storms

with your “beloved” company – it’s about making money.

Traders, on the other hand, are attempting to profit on just those short-term price

fluctuations. The amount of time an active trader holds onto an asset is very short: in

many cases minutes, or Sometimes seconds. If you can catch just two index points on an

average day, you can make a comfortable living as a Trader.

To help make their decisions, Traders rely on Technical Analysis, a form of

marketing analysis that attempts to predict short-term price fluctuations.

STOCK MARKET TIPS

The stock markets are at all time highs and just like the last time around when the

market was at its previous high every one thinks that nothing can go wrong and there is

just one way where the market can go which is UP. Nothing could be farther from the

truth and this will be clear from the way the market behaves in the next few months. Here

are a few tips that would hopefully save you from losing a lot of cash in the current

frenzy.

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 The number one tip at this point would be to sell if you have stocks and not to buy

them if you have cash. The golden principle in the markets is “Buy when everyone else

sells and sell when everyone else buys”.

Chances are that the Promoter of the company have started buying into the stock

and have spread rumors like acquisition or a big export order to fool investors and sell out

to them at a later date.

Another tip that would serve useful is to value a stock based on its future growth

and not its past performance. For instance many investors say that I will not buy stocks of

X company because it has doubled in the last year. Well it may have doubled in the last

year but that should not be the thing you should be telling yourself. Rather you should

ask yourself why has this doubled in the last year and can it do so again? There should be

a solid answer to your question like the launch of a new product or reduction in the prices

of raw material. And indeed if the answer is in the positive then by all means go ahead

and buy that stock regardless of what has happened in the last year.

Another tip would be to remember what you are buying. Quite simply investors

often forget that when buying a stock they are simply buying ownership in the

companies. Most of you would know that nothing spectacular would happen in the

company that you work for they are not going to double their revenues and certainly not

double your salary every month. Then why expect anything different from the companies

that you are investing in. Give time to your investments; don’t reduce it to a gamble.

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Only when you invest in fundamentally sound companies and then give the investments

sufficient time to grow will you see some healthy returns on your investments. Ideally a

minimum horizon of one year is a good time.

The Importance of a Trading Plan

Why do you need a Trading Plan?

 During trading hours, emotions will turn smart people into idiots. Therefore, you

have to avoid having to make decisions during those hours. For every action you

take during trading hours, the reason should not be greed or fear. The reason

should be because it is in the plan. With a good plan, your task becomes one of

patience and discipline.

 Consistent results require consistent actions - consistent actions can only be

achieved through a detailed plan.

What should be in your trading plan?

 Your strategy to enter and exit trades.

 You have to describe the conditions that have to be met before you enter a trade.

You also have to describe the conditions under which you will close a position.

These conditions may include technical analysis, fundamental analysis, or a

combination of both. They may also include market conditions, public sentiment,

etc...

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  Your Money management rules to keep losses small - the goal of money

management is to ensure your survival by avoiding risks that could take you out of

business.

Your money management rules should include the following:

Maximum amount at risk for each trade.

Maximum amount at risk for all your opened positions.

Maximum daily and weekly amount lost before you stop trading

 Your daily routine - after the market closes, before it opens, etc...

 Activities you carry out during the weekend.

 I also like to include reminders that I read every day

I will follow a trading plan to guide my trading - therefore my job will be one of patience

and discipline.

I will always keep my trading plan simple.

I will take actions according to my trading plan, not because of greed, fear, or

hope.

I will not deceive myself when I deviate from my trading plan. Instead I will admit

the error and correct it.

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I will have a winning attitude.

Take responsibility for all your actions – don’t blame the market or world events.

Trade to trade well and for the love of trading, not to trade often and not for the

money.

Don’t be influenced by the opinions of others.

Never think that taking money from the market is easy.

Don’t try to guess the future – trading is a game of probabilities.

Use your head and stay calm – don’t get excited or depressed.

Handle trading as a serious intellectual pursuit.

Don’t count how much money you have made or lost while you are in a trade -

focus on trading well.

A trading plan will not guarantee you success in the stock market but not having one will

pretty much guarantee failure.

WHAT EXACTLY ARE INVESTMENTS?

Investing!! What's that?

Judging by the fact that you've taken the trouble to navigate to this page my guess

is that you don't need much convincing about the wisdom of investing. However, I hope

that your quest for knowledge/information about the art/science of investing ends here.

Read on. Knowledge is power. It is common knowledge that money has to be invested

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wisely. If you are a novice at investing, terms such as stocks, bonds, futures, options,

Open interest, yield, P/E ratio may sound Greek and Latin. Relax.

It takes years to understand the art of investing. You're not alone in the quest to

crack the jargon. To start with, take your investment decisions with as many facts as you

can assimilate. But, understand that you can never know everything. Learning to live with

the anxiety of the unknown is part of investing. Being enthusiastic about getting started is

the first step, though daunting at the first instance.

That's why my investment course begins with a dose of encouragement: With

enough time and a little discipline, you are all but guaranteed to make the right moves in

the market. Patience and the willingness to invest your savings across a portfolio of

securities tailored to suit your age and risk profile will propel your revenues and cushion

you against any major losses. Investing is not about putting all your money into the "Next

big thing," hoping to make a killing. Investing isn't gambling or speculation; it's about

taking reasonable risks to reap steady rewards.

Investing is a method of purchasing assets in order to gain profit in the form of

reasonably predictable income (dividends, interest, or rentals) and appreciation over the

long term.

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Why should you invest?

Simply put, you should invest so that your money grows and shields you against

rising inflation. The rate of return on investments should be greater than the rate of

inflation, leaving you with a nice surplus over a period of time.

Whether your money is invested in stocks, bonds, mutual funds or certificates of

deposit (CD), the end result is to create wealth for retirement, marriage, college fees,

vacations, better standard of living or to just pass on the money to the next generation or

maybe have some fun in your life and do things you had always dreamed of doing with a

little extra cash in your pocket. Also, it's exciting to review your investment returns and

to see how they are accumulating at a faster rate than your salary.

When to Invest?

The sooner the better. By investing into the market right away you allow your

investments more time to grow, whereby the concept of compounding interest swells

your income by accumulating your earnings and dividends. Considering the

unpredictability of the markets, research and history indicates these three golden rules for

all investors

 Invest early

 Invest regularly

 Invest for long term and not short term

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 While it’s tempting to wait for the “best time” to invest, especially in a rising market,

remember that the risk of waiting may be much greater than the potential rewards of

participating. Trust in the power of compounding. Compounding is growth via

reinvestment of returns earned on your savings. Compounding has a snowballing effect

because you earn income not only on the original investment but also on the reinvestment

of dividend/interest accumulated over the years.

The power of compounding is one of the most compelling reasons for investing as

soon as possible. The earlier you start investing and continue to do so consistently the

more money you will make. The longer you leave your money invested and the higher

the interest rates, the faster your money will grow. That's why stocks are the best long-

term investment tool. The general upward momentum of the economy mitigates the stock

market volatility and the risk of losses. That’s the reasoning behind investing for long

term rather than short term.

How much to invest?

There is no statutory amount that an investor needs to invest in order to generate

adequate returns from his savings. The amount that you invest will eventually depend on

factors such as:

 Your risk profile

 Your Time horizon

 Savings made
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 Remember that no amount is too small to make a beginning. Whatever amount of

money you can spare to begin with is good enough. You can keep increasing the amount

you invest over a period of time as you keep growing in confidence and understanding of

the investment options available and So instead of just dreaming about those wads of

money do something concrete about it and start investing soon as you can with whatever

amount of money you can spare.

PRIMARY & SECONDARY MARKET

There are two ways for investors to get shares from the primary and secondary

markets. In primary markets, securities are bought by way of public issue directly from

the company. In Secondary market share are traded between two investors.

PRIMARY MARKET

Market for new issues of securities, as distinguished from the Secondary Market,

where previously issued securities are bought and sold. A market is primary if the

proceeds of sales go to the issuer of the securities sold.

This is part of the financial market where enterprises issue their new shares and

bonds. It is characterized by being the only moment when the enterprise receives money

in exchange for selling its financial assets.

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SECONDARY MARKET

The market where securities are traded after they are initially offered in the

primary market. Most trading is done in the secondary market.

An organized market for used securities. Examples are the New York Stock

Exchange (NYSE), Bombay Stock Exchange (BSE), National Stock Exchange NSE,

bond markets, over-the-counter markets, residential mortgage loans, governmental

guaranteed loans etc.

Stocks

A corporation is generally entitled to create as many shares as it pleases. Each

share is a small piece of ownership. The more shares you own, the more of the company

you own, and the more control you have over the company's operations. Companies

sometimes issue different classes of shares, which have different privileges associated

with them.

So a corporation creates some shares, and sells them to an investor for an agreed

upon price, the corporation now has money. In return, the investor has a degree of

ownership in the corporation, and can exercise some control over it. The corporation can

continue to issue new shares, as long as it can persuade people to buy them. If the

company makes a profit, it may decide to plow the money back into the business or use

some of it to pay dividends on the shares.

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WHO IS A STOCK BROKER?

A stock broker is a person or a firm that trades on its clients behalf, you tell them

what you want to invest in and they will issue the buy or sell order. Some stock brokers

also give out financial advice that you a charged for.

Three different types of stock brokers are…..

 Full Service Broker - A full-service broker can provide a bunch of services such

as investment research advice, tax planning and retirement planning.

 Discount Broker – A discount broker let’s you buy and sell stocks at a low rate

but doesn’t provide any investment advice.

 Direct-Access Broker- A direct access broker lets you trade directly with the

electronic communication networks (ECN’s) so you can trade faster. Active

traders such as day traders tend to use Direct Access Brokers.

HOW STOCK MARKET WORKS?

In order to understand what stocks are and how stock markets work, we need to

dive into history--specifically, the history of what has come to be known as the

corporation, or sometimes the limited liability company (LLC). Corporations in one form

or another have been around ever since one guy convinced a few others to pool their

resources for mutual benefit.

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 The first corporate charters were created in Britain as early as the sixteenth

century, but these were generally what we might think of today as a public corporation

owned by the government, like the postal service.

Privately owned corporations came into being gradually during the early 19th century in

the United States, United Kingdom and Western Europe as the governments of those

countries started allowing anyone to create corporations.

In order for a corporation to do business, it needs to get money from somewhere.

Typically, one or more people contribute an initial investment to get the company off the

ground. These entrepreneurs may commit some of their own money, but if they don't

have enough, they will need to persuade other people, such as venture capital investors or

banks, to invest in their business.

They can do this in two ways: by issuing bonds, which are basically a way of

selling debt (or taking out a loan, depending on your perspective), or by issuing stock,

that is, shares in the ownership of the company.

Long ago stock owners realized that it would be convenient if there were a central

place they could go to trade stock with one another, and the public stock exchange was

born. Eventually, today's stock markets grew out of these public places.

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Public Markets

How each stock market works is dependent on its internal organization and

government regulation. The NYSE (New York Stock Exchange) is a non-profit

corporation, while the NASDAQ (National Association of Securities Dealers Automated

Quotation) and the TSE (Toronto Stock Exchange) are for-profit businesses, earning

money by providing trading services.

Most companies that go public have been around for at least a little while. Going

public gives the company an opportunity for a potentially huge capital infusion, since

millions of investors can now easily purchase shares. It also exposes the corporation to

stricter regulatory control by government regulators.

When a corporation decides to go public, after filing the necessary paperwork with

the government and with the exchange it has chosen, it makes an initial public offering

(IPO). The company will decide how many shares to issue on the public market and the

price it wants to sell them for. When all the shares in the IPO are sold, the company can

use the proceeds to invest in the business.

What is a Bull Market?

There are two classic market types used to characterize the general direction of the

market. Bull markets are when the market is generally rising, typically the result of a

strong economy. A bull market is typified by generally rising stock prices, high economic

growth, and strong investor confidence in the economy. Bear markets are the opposite. A
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bear market is typified by falling stock prices, bad economic news, and low investor

confidence in the economy.

A bull market is a financial market where prices of instruments (e.g., stocks) are,

on average, trending higher. The bull market tends to be associated with rising investor

confidence and expectations of further capital gains.

A market in which prices are rising. A market participant who believes prices will

move higher is called a "bull". A news item is considered bullish if it is expected to result

in higher prices. An advancing trend in stock prices that usually occurs for a time period

of months or years. Bull markets are generally characterized by high trading volume.

Simply put, bull markets are movements in the stock market in which prices are rising

and the consensus is that prices will continue moving upward. During this time,

economic production is high, jobs are plentiful and inflation is low. Bear markets are the

opposite--stock prices are falling, and the view is that they will continue falling. The

economy will slow down, coupled with a rise in unemployment and inflation.

A key to successful investing during a bull market is to take advantage of the

rising prices. For most, this means buying securities early, watching them rise in value

and then selling them when they reach a high. However, as simple as it sounds, this

practice involves timing the market. Since no one knows exactly when the market will

begin its climb or reach its peak, virtually no one can time the market perfectly. Investors

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often attempt to buy securities as they demonstrate a strong and steady rise and sell them

as the market begins a strong move downward.

Portfolios with larger percentages of stocks can work well when the market is

moving upward. Investors who believe in watching the market will buy and sell

accordingly to change their portfolios. Speculators and risk-takers can fare relatively well

in bull markets. They believe they can make profits from rising prices, so they buy

stocks, options, futures and currencies they believe will gain value. Growth is what most

bull investors seek.

What is a Bear Market?

The opposite of a bull market is a bear market when prices are falling in a

financial market for a prolonged period of time. A bear market tends to be accompanied

by widespread pessimism. A bear market is slang for when stock prices have decreased

for an extended period of time. If an investor is "bearish" they are referred to as a bear

because they believe a particular company, industry, sector, or market in general is going

to go down.

What are Dividends and when they're issued?

If you've ever owned stocks or held certain other types of investments, you might

already be familiar with the concept of dividends. Even those people who have made

investments that paid dividends may still be a little confused as to exactly what dividends

are, however… after all, just because a person has received a dividend payment doesn't
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mean that they fully appreciate where the payment is coming from and what its purpose

is. If you have ever found yourself wondering exactly what dividends are and why

they're issued, then the information below might just be what you've been looking for.

Defining the Dividend

Dividends are payments made by companies to their stockholders in order to share

a portion of the profits from a particular quarter or year. The amount that any particular

stockholder receives is dependent upon how many shares of stock they own and how

much the total amount being divided up among the stockholders amounts to. This means

that after a particularly profitable quarter a company might set aside a lump sum to be

divided up amongst all of their stockholders, though each individual share might be worth

only a very small amount potentially fractions of a cent, depending upon the total number

of shares issued and the total amount being divided. Individuals who own large amounts

of stock receive much more from the dividends than those who own only a little, but the

total per-share amount is usually the same.

When Dividends Are Paid

How often dividends are paid can vary from one company to the next, but in

general they are paid whenever the company reports a profit. Since most companies are

required to report their profits or losses quarterly, this means that most of them have the

potential to pay dividends up to four times each year. Some companies pay dividends

more often than this, however, and others may pay only once per year. The more time
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there is between dividend payments can indicate financial and profit problems within a

company, but if the company simply chooses to pay all of their dividends at once it may

also lead to higher per-share payments on those dividends.

Why Dividends Are Paid

Dividends are paid by companies as a method of sharing their profitable times

with the stockholders that have faith in the company, as well as a way of luring other

investors into purchasing stock in the company that is paying the dividends. The more a

particular company pays in dividend payments, the more likely it is to sell additional

common stock… after all, if the company is well-known for high dividend payments then

more people will want to get in on the action. This can actually lead to increases in stock

price and additional profit for the company which can result in even more dividend

payments.

Getting the Most Out of Your Dividends

In order to get the most out of the dividends that you receive on your investments,

it is generally recommended that you reinvest the dividends into the companies that pay

them. While this may seem as though you're simply giving them their money back, you're

receiving additional shares of the company's stock in exchange for the dividend. This will

increase future dividend payments (since they're based upon how much stock that you

own), and can set you up to make a lot more money than the actual dividend payment

was for since increases in stock prices will affect the newly-purchased stock as well.
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The following different terms are used to denote different aspects of share capital:-

 Nominal, authorised or registered capital means the sum mentioned in the capital

clause of Memorandum of Association. It is the maximum amount which the

company raises by issuing the shares and on which the registration fee is paid.

This limit is cannot be exceeded unless the Memorandum of Association is

altered.

 Issued capital means that part of the authorised capital which has been offered for

subscription to members and includes shares allotted to members for

consideration in kind also.

 Subscribed capital means that part of the issued capital at nominal or face value

which has been subscribed or taken up by purchaser of shares in the company and

which has been allotted.

 Called-up capital means the total amount of called up capital on the shares issued

and subscribed by the shareholders on capital account. I.e. if the face value of a

share is Rs. 10/- but the company requires only Rs. 2/- at present, it may call only

Rs. 2/- now and the balance Rs.8/- at a later date. Rs. 2/- is the called up share

capital and Rs. 8/- is the uncalled share capital.

 Paid-up capital means the total amount of called up share capital which is actually

paid to the company by the members.

In India, there is the concept of par value of shares. Par value of shares means the face

value of the shares. A share under the Companies act, can either of Rs10 or Rs100 or any
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other value which may be the fixed by the Memorandum of Association of the company.

When the shares are issued at the price which is higher than the par value say, for

example Par value is Rs10 and it is issued at Rs15 then Rs5 is the premium amount i.e.,

Rs10 is the par value of the shares and Rs5 is the premium. Similarily when a share is

issued at an amount lower than the par value, say Rs8, in that case Rs2 is discount on

shares and Rs10 will be par value.

Variation of shareholders rights

The rights, duties and liabilities of all shareholders are clearly defined at the time

of issue of the shares. Once the rights of shareholders are fixed, they cannot be altered

unless the provisions of the Companies Act for this purpose are complied with. The rights

attached to the shares of any class can be varied only with the consent in writing of

shareholders holding not less than 75 % of the issued shares of that class or with the

sanction of special resolution passed at a separate meeting of the holders of issued shares

of that class. However, the following conditions also must be complied with:-

The variations of rights are allowed by the Memorandum or Articles of

Association of the Company.

In absence of such provision in the Memorandum or Articles of company, such

variation must not be prohibited by the terms of issue of shares of that class.

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Voting Rights of the Members

Every member of a public company limited by shares holding equity shares will

have votes in proportion to his share in paid up equity capital of the company. Generally,

preference shareholders do not have any voting rights. However, they can vote on matters

directly relating to the rights attached to the preference share capital. Any resolution for

winding up of the company or for the reduction or repayment of the share capital shall be

deemed to affect directly the rights attached to preference shares. Where the preference

shares are cumulative (in respect of dividend) and the dividend thereon has remained

unpaid for an aggregate period of two years before date of any meeting of the company,

the preference shareholders will have right to vote on any resolution. In case of non-

cumulative preference shares, preference shareholders have right to vote on every

resolution if dividend due on their capital remains unpaid, either in respect of period of

not less than two years ending with the expiry of the financial year immediately

preceding the commencement of the meeting or in respect of aggregate period of not less

than three years comprised in six years ending with the expiry of concerned financial

year.

Every equity shareholder has a right to vote at a general meeting. No company can

prohibit any member from exercising his voting right any ground including the ground

that he has not held his shares for a minimum period before he becomes eligible to vote.

However, a member’s voting rights can be revoked if that member does not make

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payment of calls or other sums due against him or where the company has exercised the

right of lien on his shares.

Share certificate

A share certificate is a document issued by the company stating that the person

named therein is the registered holder of specified number of shares of a certain class and

they are paid up to the amount specified in the share certificate. The share certificate must

bear the common seal of the company and also must be stamped under the relevant stamp

act. One or more directors must sign it .It should state the name as well as occupation of

the holder and number of shares, their distinctive number and the amount paid up.

Every company making allotment of shares must deliver the share certificate of all

shareholders within three months of allotment. In case of transfer of shares, the share

certificate must be ready for delivery within two months after the shares are lodged with

the company for transfer. If default is made in complying with the above provisions, the

company and every officer of company who is in default is liable to punishment by way

of fine which may extent to Rs500 for every day of default. The allotted must give notice

to the company reminding of its obligation and even then, if default is not made good

within 10 days of the notice, the allotted may apply to the Company Law Board for

direction to the company to issue such share certificate in accordance with the Act.

Application for this purpose must be made with the concerned regional bench of the

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Company Law Board by way of petition. The petition should be accompanied by the

following documents:-

 Copy of the letter of allotment issued by the company

 Documentary evidence for the allotment of the shares or debentures for transfer

 Copy of the notice served on the company requiring to make good the default

 Any other correspondence

 Affidavit verifying the petition

 Bank draft evidencing payment of application fee

Memorandum of appearance with the Board copy of resolution of the board for the

executive Vakalat Nama as the case may be Companies act does not prescribe any form

for share certificate.

A Shareholder must keep his share certificate in safe custody or in case of shares

which are traded in demat mode, with the depository. The company may renew or issue a

duplicate certificate if such certificate is proved to have been lost or destroyed or having

being defaced or mutilated or torn or is surrendered to the company. However, if the

company, with the intention to defraud issues duplicate certificate, the company shall be

punishable with the fine up to Rs10000 and every officer of the company who is in

default with imprisonment up to 6 months or fine up to Rs10000 or both.

Once a share certificate is issued by the company, the name of the person in whose

favor it has been issued becomes the registered shareholder. Nobody can then deny the
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fact of his being the registered shareholder of the company. Similarly, if the certificate

states that on each of shares a certain amount has been paid up, nobody can deny the fact

that such amount has been paid up

Conversion of Shares into Stocks

Conversion of fully paid shares into stock may likewise be affected by the

ordinary resolution of the company in the general meeting. Notice of the conversion must

be given to the Registrar within 30 days of the conversion; the stock may be converted

into fully paid shares following the same procedure.

Variation of Shareholders Rights

The rights, duties and liabilities of all shareholders are clearly defined at the time

of issue of the shares. Once the rights of shareholders are fixed, they cannot be altered

unless the provisions of the Companies Act for this purpose are complied with.

The rights attached to the shares of any class can be varied only with the consent

in writing of shareholders holding not less than 75 % of the issued shares of that class or

with the sanction of special resolution passed at a separate meeting of the holders of

issued shares of that class.

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The following conditions also must be complied with:-

a. The variation of rights is allowed by the Memorandum or Articles of Association

of the Company.

b. In absence of such provision in the Memorandum or Articles of company, such

variation must not be prohibited by the terms of issue of shares of that class.

Rights of Dissenting Shareholders

The rights of the shareholders who did not consent to or vote for variation of their

rights are protected by the Companies Act. If the rights of any class of the shareholders

are varied, the holders of not less than 10 per cent of the shares of that class, being

persons who did not consent to or vote in favor of resolution for variation of their rights

can apply to the court to have the variation cancelled. Where such application is made to

the court, such variation will not be given effect unless and until it is confirmed by the

court.

Voting Rights of the Members:

Every member of a public company limited by shares holding equity shares will

have votes in proportion to his share in paid up equity capital of the company.

Generally, preference shareholders do not have any voting rights. However, they

can vote on matters directly relating to the rights attached to the preference share capital.

Any resolution for winding up of the company or for the reduction or repayment of the
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share capital shall be deemed to affect directly the rights attached to preference shares.

Where the preference shares are cumulative (in respect of dividend) and the dividend

thereon has remained unpaid for an aggregate period of two years before date of any

meeting of the company, the preference shareholders will have right to vote on any

resolution.

In case of non-cumulative preference shares, preference shareholders have right to

vote on every resolution if dividend due on their capital remains unpaid, either in respect

of period of not less than two years ending with the expiry of the financial year

immediately preceding the commencement of the meeting or in respect of aggregate

period of not less than three years comprised in six years ending with the expiry of

concerned financial year.

Every equity shareholder has a right to vote at a general meeting. No company can

prohibit any member from exercising his voting right any ground including the ground

that he has not held his shares for a minimum period before he becomes eligible to vote.

However, a member’s voting rights can be revoked if that member does not make

payment of calls or other sums due against him or where the company has exercised the

right of lien on his shares.

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Quick Facts on Stocks and Shares

Owning a stock or a share means you are a partial owner of the company, and you

get voting rights in certain company issues.

Over the long run, stocks have historically averaged about 10% annual returns

However, stocks offer no. Guarantee of any returns and can lose value, even in the long

run. Investments in stocks can generate returns through dividends, even if the price.

Investment objectives

Just as companies have different characteristics, so do investors. Some people buy

shares because they want a regular income. Some people buy shares because they want to

see their capital appreciate significantly. Some investors are extremely cautious; others

prefer taking risks. Before investing in shares, it is advisable to think about your own

investment profile. Investors seeking regular dividends that rise steadily every year will

be attracted to income stocks.

Investors who are less in need of income but are keen on capital gain may be more

attracted to growth stocks; Investors who are buying shares for a specific purpose, such

as their child’s education, may be extremely risk-averse. They will look for the most

solid, reliable stocks in the market, such as large oil or utility shares; Other investors may

be buying shares with surplus cash and they may be more prepared to take risks with their

money.

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 Over time, most shares will generate reasonable returns but different investors

have different timeframes and the longer shares are held, the more opportunity they have

to perform. Most investors in shares are looking for a combination of income and capital

gain. This can best be achieved through what is known as a diversified portfolio. Instead

of buying one or two shares, investors buy a range of shares, each with different

characteristics. These will include some large companies, some small; some from

relatively safe sectors, some from higher growth areas.

If the right choice is made, this selection of shares can deliver capital growth,

dividend income and a balance of risk and reward.

WHAT IS A PREMIUM ISSUE?

Generally, most shares have a face value (i.e. the value as in a balance sheet) of

Rs.10 though not always offered to the public at this price. Companies can offer a share

with a face value of Rs.10 to the public at a higher price.

The difference between the offer price and the face value is called the premium. As

per the SEBI guidelines, new companies can offer shares to the public at a premium

provided:

 The promoter company has a 3 years consistent record of profitable working.

 The promoter takes up at least 50 per cent of the shares in the issue.

 All parties applying to the issue should be offered the same instrument at the same

terms, especially regarding the premium.

hand, existing companies can make a premium issue without the above

restrictions.

A company’s aim is to raise money and simultaneously serve the equity capital. As

far as accounting is concerned, premium is credited to reserves and surplus and it does

not increase the equity. Therefore, a company which raises Rs.100 crores by way of

shares at says Rs.90 premium per share increases its equity by only Rs.10 crores, which is

easier to service with an investment of Rs.100 crores.

Thus the companies seek to make premium issues. As well shall see later, a premium

issue can increase the book value without decreasing the EPS. In a buoyant stock market

when good shares trade at very high prices, companies realize that it’s easy to command a

high premium.

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NEED FOR STUDY:-

This study measures the efficiency of services offered to the investors, who invest

in share market. The main purpose of the study is to know about the awareness level of

investors towards share markets. This study is made in order to measure the demographic

factors and qualification of investors. This project is mainly analysis the sectors in which

investors prefer most.

This study measures the type of risk faced by investors in share market. This

project is carried out the attractive reasons for investing in share markets. This study

analysis the awareness level of the investors towards share market.

OBJECTIVES OF THE STUDY:-

Primary Objectives

To study the investors perception and attitude towards share market.

Secondary Objectives

To understand the profile of the investors.

To analyze the investment pattern of the investor towards share market.

To analyze the factors influencing the investor in share market.

To analyze investors risk preferences towards share market.

To analyze the awareness among the investors.

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Scope of the study:-

Stocks are extremely sensitive to the different ups and downs of the market over

the short-term. Since market conditions are changed with respect to any change in

inflation or interest rates, this may have an impact on the value of the stocks you

hold.

A planning of three to five years ahead of the time you will need the money is

recommended. Reasonable judgment is required in order to make a good

prediction on when exactly you will need the money so that you can plan ahead

the reallocation of assets.

The transference of assets from stocks to another asset class can be done in

phases.

The reliance on high returns on your stock investment may have a reverse effect

on your money. This can happen due to the dynamics of the market.

The market can go against you and ruin the success of your financial goal.

To be a successful investor you need two main things - the knowledge and the

right trading platform.

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Limitations of Share Market:-

Stock prices are more informative when the information has less social value.

Speculators with limited resources making costly (private) information production

decisions must decide to produce information about some firms and not others.

We show that producing and trading on private information is most profitable in

the stocks of firms with poor corporate governance -- precisely because it will not

be acted upon -- and less profitable at firms with better corporate governance.

We test our model using the probability of informed trading (PIN) and the

probability of forced CEO turnover in a simultaneous-equation system.

The empirical results support the model predictions. Stock prices are efficient, but

there is a limit to the disciplining role they can fulfill.

The area of the study is limited to the investors of the Chennai city only.

Validity and Reliability of the data depends on the truthfulness of the responds

from the public.

Time at the disposal of the researcher is limited.

The size of the sample compared to the population is very and hence it may not

represent the whole population.

A structured questionnaire was the basis for collecting the data, so it has the usual

deficiencies attached to this technique of data collection.

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