MODULE 1

INTRODUCTION TO INVESTMENT

INVESTMENT:

 Investment refers to the allocation of money or resources with the expectation of

generating income, profit, or an increase in value over time.
 Investors commit their funds to various assets or ventures in the hope of achieving
specific financial goals. Investments can take many forms, ranging from traditional
financial instruments to alternative assets.
 The act of investing has the goal of generating income and increasing value over time. An
investment can refer to any mechanism used for generating future income. This
includes the purchase of bonds, stocks, or real estate property, among other examples.
Additionally, purchasing a property that can be used to produce goods can be considered
an investment.
 The meaning of investment is putting your money into an asset that can grow in value
or produce income or both.
 For example, you can buy equity stock of a listed company in the hopes of receiving
regular dividends and capital appreciation in the form of the share price.

INVESTMENT AVENUES/ INVESTMENT ALTERNATIVES:7M/10M

 "Investment avenues" refers to the various options or channels available to investors

for allocating their funds in order to generate returns or achieve specific financial
objectives.
 These avenues encompass a wide range of financial instruments and assets that
individuals, institutions, or funds can consider when making investment decisions.
 The choice of investment avenues depends on factors such as risk tolerance, financial
goals, investment horizon, and the investor's overall financial strategy.
 Examples: Stocks, bonds, mutual funds, real estate, cryptocurrencies, precious
metals, savings accounts, retirement accounts, commodities, exchange-traded funds
(ETFs), peer-to-peer lending, art, and collectibles.

1
Prof. Ningambika G Meti Dept of MBA, SVIT
STOCK:

 A stock, also known as equity, is a security that represents the ownership of a fraction of
the issuing corporation.
 Units of stock are called "shares" which entitles the owner to a proportion of the
corporation's assets and profits equal to how much stock they own.
 A stock is a form of security that indicates the holder has proportionate ownership in the
issuing corporation and is sold predominantly on stock exchanges.
 Stocks are issued by companies to raise capital to grow the business or undertake new
projects.
 There are important distinctions between whether somebody buys shares directly from the
company when it issues them in the primary market or from another shareholder in
the secondary market.

BONDS

 Bonds are issued by governments and corporations when they want to raise money.

 Bonds are issued by governments and corporations when they want to raise money. By
buying a bond, you're giving the issuer a loan, and they agree to pay you back the face
value of the loan on a specific date, and to pay you periodic interest payments along the
way, usually twice a year.

 Bonds vary from stocks in several ways. Bondholders are creditors to the corporation and
are entitled to interest as well as repayment of the principal invested. Creditors are given
legal priority over other stakeholders in the event of a bankruptcy and will be made whole
first if a company is forced to sell assets.

DEBENTURES

 A debenture is a type of debt instrument that is not backed by any collateral and usually
has a term greater than 10 years.
 Debentures are backed only by the creditworthiness and reputation of the issuer.
 Both corporations and governments frequently issue debentures to raise capital or funds.
 Some debentures can convert to equity shares while others cannot.
 A debenture is a type of bond or other debt instrument that is unsecured
by collateral(Pledge). Since debentures have no collateral backing, they must rely on the
creditworthiness and reputation of the issuer for support.
 Both corporations and governments frequently issue debentures to raise capital or funds.

BANK DEPOSITS

 Bank deposits consist of money placed into banking institutions for safekeeping. These
deposits are made to deposit accounts such as savings accounts, checking accounts, and
money market accounts at financial institutions.

2
Prof. Ningambika G Meti Dept of MBA, SVIT
 For Regular fixed deposits PSBs are offering interest rates ranging from 7.40 per cent to
seven per cent

 The account holder has the right to withdraw deposited funds, as set forth in the terms and
conditions governing the account agreement.

 Bank deposits are considered either demand (the bank is required to return your funds on
demand) or time deposits (banks ask for a specified time frame for accessing your funds).

 Types of Bank Deposits

o Current Account

o Savings Account

o CD’s/Time Deposits

POST OFFICE SAVINGS

 Post Office Investments include a number of saving schemes that provide a high rate
of interest as well as tax benefits and most importantly, carry the sovereign guarantee
of Indian Government.

PROVIDENT FUND

 A provident fund is a compulsory, government-managed retirement savings scheme

used in Singapore, India, and other developing countries.
 Both the employee and employer contribute to a fund that aims to provide financial
support to the employee when they reach retirement.
 A provident fund is managed by the government, with set minimum and maximum
contribution levels.
3
Prof. Ningambika G Meti Dept of MBA, SVIT
  FY 2023-2024, 8.15% p.a.
 It helps you fund your retirement and post-retirement lifestyle. It doesn't require a
lump sum one-time investment.
 A monthly deduction from the salary is enough to build a bigger corpus all through
your. employment years - It allows you to enjoy tax concessions.

DERIVATIVES

 Derivatives are financial contracts, set between two or more parties, that derive their
value from an underlying asset, group of assets, or benchmark.
 A derivative can trade on an exchange or over-the-counter.
 Prices for derivatives derive from fluctuations in the underlying asset.
 Derivatives are usually leveraged instruments, which increases their potential risks
and rewards.
 Common derivatives include futures contracts, forwards, options, and swaps.

NON FINANCIAL INVESTMENTS:

 Non-financial investment, that is, investments in assets like buildings, machinery and
equipment, and software, are the link between the non-financial corporations' “real”
accounts (or real activity) and financial accounts (or financial activity).

 Real estate and gold are among the top non-financial assets that Indians prefer. Gold
investments come with benefits like liquidity, transparent pricing, and multiple
avenues for investment.

REAL ESTATE:

 Investors make money through rental income, appreciation, and profits generated by
business activities that depend on the property.

 The benefits of investing in real estate include passive income, stable cash flow, tax
advantages, diversification, and leverage.

 The benefits of investing in real estate are numerous. With well-chosen assets,
investors can enjoy predictable cash flow, excellent returns, tax advantages, and
diversification—and it's possible to leverage real estate to build wealth.

GOLD:

 Gold investment can be done in many forms like buying jewelry, coins, bars, gold
exchange-traded funds, Gold funds, sovereign gold bond scheme, etc.
 Though there are times when markets see a fall in the prices of gold but usually it
doesn’t last for long and always makes a strong upturn.
 Once you have made your mind to invest in gold, you should decide the way of
investing meticulously.

SILVER:

4
Prof. Ningambika G Meti Dept of MBA, SVIT
  Investing in silver means to put in money in the production, trading, or ownership of
silver. In India silver is owned in the form of silver bullions in coins and bars.
 Like most precious metals, the price of silver is driven by market forces.

PATENTS:

 A patent is an exclusive right granted for an invention, which is a product or a process

that provides, in general, a new way of doing something, or offers a new technical
solution to a problem.

 To get a patent, technical information about the invention must be disclosed to the
public in a patent application.

 A patent is an exclusive right granted for an invention, which is a product or a process

that provides, in general, a new way of doing something, or offers a new technical
solution to a problem.

5
Prof. Ningambika G Meti Dept of MBA, SVIT
INVESTMENT ALTERNATIVES:

 Investment securities

Investment securities are a category of securities—tradable financial assets such as

equities or fixed income instruments—that are purchased with the intention of holding
them for investment.

 Banks often purchase marketable securities to hold in their portfolios; these are usually
one of two main sources of revenue, along with loans.

 Investment securities held by banks as collateral can take the form of equity (ownership
stakes) in corporations or debt securities.

TYPES OF INVESTMENT SECURITIES:

1. Equity Stakes
2. Debt Securities
3. Money Market Securities

NON SECURITY

 A non-security is an alternative investment that is not traded on a public exchange as

stocks and bonds are. Assets such as art, rare coins, life insurance, gold, and diamonds all
are non-securities.
 Non-securities by definition are not liquid assets. That is, they cannot be easily bought or
sold on demand as no exchange exists for trading them.
 Non-securities, also called real assets, are investments that are not available for purchase
or sale on public exchanges.
 They may, however, be a component of an investment that trades publicly, such as an
ETF.
 Diamonds and fine art are examples of non-security investments.

EQUITY SHARES

 Equity investments represent ownership in a running company. By ownership, we mean

to share in the profits and assets of the company, but generally, there are no fixed returns.
It is considered a risky investment, but at the same time, depending upon the situation, it
is a liquid investment due to the presence of stock markets.
 There are equity shares for which there is regular trading; for those investments, liquidity
is more otherwise; liquidity is not highly attractive for stocks with less movement. Equity
shares of companies can be classified as follows:

DEBENTURES OR BONDS

 Debentures or bonds are long-term investment options with a fixed stream of cash flows
depending on the quoted interest rate. They are considered relatively less risky.
6
Prof. Ningambika G Meti Dept of MBA, SVIT
 The amount of risk involved in debentures or bonds depends on who the issuer is. For
example, if a government makes the issue, the risk is assumed to be zero. However,
investment in long-term debentures or bonds has risks in terms of interest rate risk and
price risk.
 Suppose a person requires an amount to fund his child’s education after five years. He is
investing in a debenture, with a maturity period of 8 years, annually with coupon
payment. In that case, there is a risk of reinvesting coupons at a lower interest rate from
the end of year 1 to the end of year five, and there is a price risk for an increase in the rate
of interest at the end of the fifth year, in which price of a security falls.
 In order to immunize risk, investment can be made as per the duration concept. The
following alternatives are available under debentures or bonds:

 Government securities
 Savings bonds
 Public Sector Units bonds
 Debentures of private sector companies
 Preference shares

MONEY MARKET INSTRUMENTS

Money market instruments are like debentures, but the time period is less. It is generally less
than one year. Corporate entities can utilize their idle working capital by investing in money
market instruments.

MUTUAL FUNDS

 Mutual funds are an easy and tension-free investment, and they automatically diversify
the investments. A mutual fund is an investment only in debt or equity or a mix of debts
and equity and ratio depending on the scheme.
 They provide benefits such as a professional approach, benefits of scale, and
convenience. Further investing in a mutual fund will get the advantage of
professional portfolio management services at a lower cost, which otherwise was
impossible. In the case of an open-ended mutual fund scheme, a mutual fund gives
investors assurance that a mutual fund will provide support to the secondary market.
 There is absolute transparency about investment performance to investors. On a real-time
basis, investors are informed about the performance of the investment. In mutual funds
also, we can select among the following types of portfolios:
o Equity Schemes
o Debt Schemes
o Balanced Schemes
o Sector Specific Schemes etc.

7
Prof. Ningambika G Meti Dept of MBA, SVIT
LIFE INSURANCE AND GENERAL INSURANCE
They are one of the crucial parts of good investment portfolios. Life insurance is an
investment for the security of life. The main objective of other investment avenues is to earn
a return, but the primary goal of life insurance is to secure our families against the
unfortunate events of our death. It is popular among individuals. Other kinds of general
insurance are helpful for corporate.

REAL ESTATE

Every investor has some part of their portfolio invested in real assets. Almost every
individual and corporate investor invest in residential and office buildings. Apart from these,
others include:

 Agricultural Land
 Semi-Urban Land
 Commercial Property
 Raw House
 Farm House etc

PRECIOUS OBJECTS

Precious objects include gold, silver, and other precious stones like diamonds. Some artistic
people invest in art objects like paintings, ancient coins, etc.

DERIVATIVES

Derivatives mean indirect investments in the assets. The derivatives market is growing at a
tremendous speed. The significant benefit of investing in derivatives is that it leverages the
investment, manages the risk, and helps in doing speculation. Derivatives include:

 Forwards
 Futures
 Options
 Swaps etc

NON-MARKETABLE SECURITIES

Non-marketable securities are those securities that cannot be liquidated in the financial
markets. Such securities include:

 Bank Deposits
 Post Office Deposits
 Company Deposits
 Provident Fund Deposits
8
Prof. Ningambika G Meti Dept of MBA, SVIT
 INVESTMENT ATTRIBUTES:

➢ Investment attributes refer to the characteristics or features that investors consider

when evaluating and selecting investments. These attributes help investors make
informed decisions based on their financial goals, risk tolerance, and investment
strategy.
➢ To enable the evaluation and a reasonable comparison of various investment avenues,
the investor should study the following attributes:
1. Rate of return
2. Risk
3. Marketability
4. Taxes
5. Convenience
6. Safety
7. Liquidity
8. Duration
9. Diversification

1. Return on Investment (ROI):The potential for profit or loss on an investment. Investors

assess the historical performance and expected future returns of an investment.

Return = End period value – Begining period value +Dividend x100

Beginning period value

Example: Market return of the stock indicates the price appreciation for the particular stock.
If a particular share is purchase in 2021 at Rs 50 , disposed at Rs 60 in 2022 & the dividend
yield is Rs 5. Calculate the return.

Given :

Beginning period : Rs 50, End Period : Rs 60, Dividend : Rs 5

R= (60-50)+5 x 100 = 30

50

R = Rs 30

2. Risk: The degree of uncertainty or potential for loss associated with an investment.
Different investments carry varying levels of risk, and investors consider their risk
tolerance when making investment decisions.
3. Liquidity: The ease with which an investment can be bought or sold in the market without
significantly affecting its price. More liquid investments allow for easier entry and exit.

9
Prof. Ningambika G Meti Dept of MBA, SVIT
4. Marketability: It is desirable that an investment instrument be marketable, the higher the
marketability the better it is for the investor. To gauge the marketability of other financial
instruments like provident fund (which in itself is non-marketable). Then we would
consider other factors like, can we make a substantial withdrawal without much penalty, or
can we take a loan against the accumulated balance at an interest rate not much higher than
our earning rate of interest on the provident fund account.
5. Taxes: Some of our investments would provide us with tax benefits while other would
not. This would also be kept in mind when choosing the investment avenue. Tax benefits
are mainly of 3 types:
a. Initial tax benefits. This is the tax gain at the time of making the investment,
like life insurance.
b. Continuing tax benefit. Is the tax benefit gained on the periodic return from
the investment, such as dividends.
c. Terminal tax benefit. This is the tax relief the investor gains when he
liquidates the investment. For example, a withdrawal from a provident fund
account is not taxable.
6. Convenience: Here we are talking about the ease with which an investment can be made
and managed. The degree of convenience would vary from one investment instrument to
the other.
7. Safety: Although the degree of risk varies across investment types, all investments bear
risk. Therefore, it is important to determine how much risk is involved in an investment.
The average performance of an investment normally provides a good indicator. However,
past performance is merely a guide to future performance - not a guarantee.
8. Duration: Investments typically have a longer horizon than cash and income options. The
duration of an investment-, particularly how long it may take to generate a healthy rate of
return- is a vital consideration for an investor. The investment horizon should match the
period that your funds must be invested for or how long it would take to generate a desired
return.
9. Diversification: Spreading investments across different asset classes, industries, or
geographic regions to reduce risk. Diversification can help balance a portfolio's overall
risk and return.

FEATURES OF A GOOD INVESTMENT (7M/10M):

A good investment possesses certain features that align with an investor's financial goals, risk
tolerance, and overall investment strategy.

1. Managed Risk
2. Safety
3. Return
4. Liquidity:
5. Consistency and Stability:
6. Long-Term Viability
7. Hedge against inflation

10
Prof. Ningambika G Meti Dept of MBA, SVIT
 8. Transparency:
9. Tax Efficiency:
10. Diversification:
11. Low costs and fees:

 Managed Risk: Effective risk management is crucial. A good investment considers

the associated risks and strives to balance risk and return. Diversification and
thorough risk assessments are common strategies for managing risk.
 Return: A good investment should offer the potential for attractive returns. Whether
through capital appreciation, dividends, interest, or other income, the investment
should provide the opportunity for growth over time. Risk and return go together.
Higher the risk, higher the chances of getting higher return. An investment in a
low risk - high safety investment such as investment in government securities will
obviously get the investor only low returns.
 Liquidity: Liquidity refers to the ease with which an investment can be bought or
sold in the market. A good investment provides reasonable liquidity, allowing
investors to enter and exit positions without significant impact on the asset's price.
 Low Costs and Fees: High costs and fees can erode returns over time. A good
investment minimizes unnecessary costs, ensuring that more of the returns flow to the
investor.
 Consistency and Stability: Investments that demonstrate consistency and stability in
performance are often considered good. This can be reflected in steady returns over
time and a track record of withstanding market fluctuations.
 Safety: The first and foremost concern of any ordinary investor is that his investment
should be safe. That is he should get back the principal at the end of the maturity
period of the investment. There is no absolute safety in any investment, except
probably with investment in government securities or such instruments where the
repayment of interest and principal is guaranteed by the government.
 Long-Term Viability: When talking about investment, we look for long-term options
to help our investment grow with time. If you look at a company stock and can’t see
yourself owning its stocks ten years from now, you must avoid investing in it.
 Tax Efficiency: Tax implications can significantly impact investment returns. A good
investment considers tax efficiency and seeks to minimize the tax burden on the
investor.
 Diversification: A well-diversified investment spreads risk across different asset
classes, industries, or geographic regions. Diversification helps mitigate the impact of
poor performance in any single investment.

11
Prof. Ningambika G Meti Dept of MBA, SVIT
 INVESTOR V/S SPECULATOR: (3M)

12
Prof. Ningambika G Meti Dept of MBA, SVIT
STEPS IN INVESTMENT PROCESS: (10M)

INVESTMENT POLICY:

● Framing of the Investment Policy - For systematic functioning, the government or

investor, formulates the investment policy before proceeding to invest.
● The essential ingredients of the policy are investible funds, objectives and knowledge
about investment alternatives and the market.

Investible funds :

● The entire investment procedure revolves around the availability of investible funds.
Funds may be generated through savings or from borrowings. If the funds are
borrowed, the investor has to be extra careful in the selection of investment
alternatives.
● He must make sure that the returns are higher than the interest he pays. Mutual
funds invest their stockholders' money in securities.

Objectives

● The objectives are framed on the premises of the required rate of return, need for
regular income, risk perception , safety and the need for liquidity

Knowledge

● Knowledge about investment alternatives and markets plays a key role in policy
formulation.
● Investment alternatives range from security to real estate. The risk and return
associated with investment alternatives differ from each other. Investment in equity is
high-yielding but faces more risk than fixed income securities.

13
Prof. Ningambika G Meti Dept of MBA, SVIT
 ● Tax sheltered schemes offer tax benefits to the investors. The investor should be
aware of the stock market structure and functions of the brokers.
● The modes of operations are different in the Bombay Stock Exchange (BSE),
National Stock Exchange (NSE), and Over-the-Counter Exchange of India
(OTCEI). Brokerage charges are also different. Knowledge about stock exchanges
enables an investor to trade the stock intelligently.

SECURITY ANALYSIS:

Securities to be bought are scrutinized through market, industry and company analyses after
the formulation of investment policy.

● Market analysis: The stock market mirrors the general economic scenario. The
growth in gross domestic product and inflation is reflected in stock prices. Recession
in the economy results in a bear market. Stock prices may fluctuate in the short-
run but in the long-run, they move in trends, i.e., either upwards or downwards.
The investor can fix his entry and exit points through technical analysis.
● Industry analysis: Industries that contribute to the output of major segments of the
economy vary in their growth rates' overall contribution to economic activity. Some
industries grow faster than the GDP and are expected to continue in their growth. For
example, the information technology industry has experienced a higher growth rate
than the GDP .The economic significance and the growth potential of the industry
have to be analysed.
● Company analysis: The purpose of company analysis is to help the investors make
better decisions. The company's earnings, profitability, operating efficiency, capital
structure and management have to be screened. These factors have a direct bearing on
stock prices and investors' returns. The appreciation of stock value is a function of the
performance of the company. A company with a high product market share is able to
create wealth for investors in the form of capital appreciation.

VALUATION:

Valuation helps the investor determine the return and risk expected from an investment
in common stock.

Intrinsic value

● The intrinsic value of the share is measured through the book value of the share
and price earning ratio.
● Simple discounting models also can be adopted to value the shares. Stock market
analysts have developed many advanced models to value shares. The real worth of the
share is compared with the market price, and investment decisions are then made.

14
Prof. Ningambika G Meti Dept of MBA, SVIT
Future value :

● The future value of securities can be estimated by using a simple statistical

technique like
● trend analysis. The analysis of the historical behaviour of price enables the investor to
predict the future value.

CONSTRUCTION OF PORTFOLIO:

● A portfolio is a combination of securities. It is constructed in a manner so as to

meet the investor's goals and objectives.
● The investor should decide how best to reach the goals with the securities available.
● The investor tries to attain maximum return with minimum risk. Towards this end,
he diversifies his portfolio and allocates funds among the securities.

1. Diversification: The main objective of diversification is the reduction of risk in the form
of loss of capital and income. A diversified portfolio is comparatively less risky than holding
a single portfolio. Several modes are available to diversify a portfolio.

● Debt and equity diversification Debt instruments provide assured returns with limited
capital appreciation. Common stocks provide income and capital gain but with a
flavour of uncertainty. Both debt instruments and equity are combined to complement
each other.
● Industry diversification Industries' growth and their reaction to government policies
differ from each other. Banking industry shares may provide regular returns but with
limited capital appreciation. Information technology stocks yield higher returns and
capital appreciation, but their growth potential in the post-global crisis years was
unpredictable. Thus, industry diversification is needed, and it reduces the risk.
● Company diversification Securities from different companies are purchased to
reduce the risk. Technical analysts suggest that investors buy securities based on
price movement. Fundamental analysts suggest the selection of financially sound and
investor-friendly companies.

2. Selection: Securities have to be selected based on the level of diversification, industry and
company analyses. Funds are allocated for selected securities. Selection of securities and the
allocation of funds seal the construction of portfolio.

PORTFOLIO EVALUATION:

A portfolio has to be managed efficiently. Efficient management calls for evaluation of the
portfolio. This process consists of portfolio appraisal and revision.

Appraisal:
15
Prof. Ningambika G Meti Dept of MBA, SVIT
 ● The return and risk performance of security varies from time to time. The variability
in returns of securities is measured and compared.
● Developments in the economy, industry and relevant companies from which stocks
are bought have to be appraised. The appraisal warns of the loss and steps can be
taken to avoid such losses.

Revision :

● It depends on the results of the appraisal. Low-yielding securities with high risk are
replaced
● with high-yielding securities with low risk factor. The investor periodically revises the
components of the portfolio to keep the return at a level.

FINANCIAL INSTRUMENTS:

 Financial instruments can be real or virtual documents representing a legal agreement

involving any kind of monetary value.
 Equity-based financial instruments represent ownership of an asset. Debt-based
financial instruments represent a loan made by an investor to the owner of the asset.

16
Prof. Ningambika G Meti Dept of MBA, SVIT
MONEY MARKET INSTRUMENTS:

 The money market is a market of short-term debt instruments with maturities up to

one year.
 The primary features of the money market are short maturities and high liquidity.
 It is one of the prime funding markets for Governments and corporations.

17
Prof. Ningambika G Meti Dept of MBA, SVIT
 TREASURY BILLS

 Treasury bills are the most common instruments in the money market. They are issued
by the Government of the jurisdiction and counted among the safest capital market
securities. The maturity of treasury bills ranges to one, three, six, and twelve months.
 They are issued below their par value and redeemed at the full amount. The difference
in the buying value and maturity value of the instrument is interest earned by
investors. T-bills are traded in primary as well as secondary markets.
 Investors in T-bills include banks, broker-dealers, investment managers, insurance
companies, pension funds, individual investors, companies etc.

COMMERCIAL BILLS:

 Commercial bills or papers are issued by large corporations to finance short term cash
needs of the business. Such businesses are usually high cash generators, and investors
often find them credible enough to lend money for short-term.
 Similar to T-bills, they are also issued at a discount and redeemed at par, making up
for returns. Commercial papers carry higher returns than the Treasury bills because
the probability of default remains higher relatively.
 A commercial paper is an unsecured short-term debt instrument, and the issuers of
commercial bills usually carry high credit rating, which also helps investors to price
them in secondary markets.

REPURCHASE AGREEMENTS:

 A repurchase agreement is a short-term borrowing instrument for issuers, who agree

to pay a higher value for the securities at the time of repurchase. The underlying
securities in the agreement are sold to investors and repurchased at a higher price to
compensate for the returns.
 Approved parties generally facilitate these transactions, and repurchase agreements
largely involve highly liquid Government securities, including bonds, T-bills, State
Government bonds, municipal corporation bonds.

18
Prof. Ningambika G Meti Dept of MBA, SVIT
 CERTIFICATE OF DEPOSITS

 Certificate of deposits is generally issued by financial organisations such as banks.

The amount involved in a certificate of deposits is large compared to normal bank
deposits. Their maturities could be in years, but they are also issued for months such
as one, three, or six months.
 CDs usually have a fixed maturity and fixed interest rate. The issuer could charge a
penalty for redeeming certificate of deposit before its maturity. The interest rates on
deposits could vary on invested amount, and sometimes interest rates are also
negotiable.

BANKER’S ACCEPTANCE:

 Bankers acceptance is issued by a corporation but guaranteed by a bank, which

promises to pay the future amount. A major use of the banker’s acceptance is during
international trade deals while establishing a guarantee of payment to one party.
 Investors also exchange banker’s acceptance in secondary markets and usually price
trading at discounts. The maturities of banker’s acceptance usually range from one
month to six months.

BENEFITS & FUNCTIONS OF MONEY MARKET:

The money market serves several important functions within the financial system,
contributing to the overall efficiency and stability of the economy. Here are the key
functions of the money market:

1. Liquidity Provision:
 The money market ensures liquidity by providing a platform for the buying
and selling of short-term, highly liquid financial instruments. Participants can
quickly convert their assets into cash or obtain short-term funding.
2. Short-Term Borrowing and Lending:
 Financial institutions, corporations, and governments engage in short-term
borrowing and lending in the money market to manage their short-term
financing needs. This allows for flexibility in adjusting to changing cash flow
requirements.
3. Interest Rate Determination:
 The money market plays a crucial role in determining short-term interest rates.
The rates at which money market instruments are traded provide benchM that
influence overall interest rate levels in the broader financial markets.
4. Implementation of Monetary Policy:
 Central banks use the money market to implement monetary policy. Open
market operations, where central banks buy or sell short-term securities, are
conducted in the money market to influence the money supply and interest
rates.

19
Prof. Ningambika G Meti Dept of MBA, SVIT
 5. Risk Management:
 Money market instruments are generally considered low-risk, providing a
means for participants to preserve capital while earning a modest return. This
contributes to effective risk management for investors and financial
institutions.
6. Facilitation of Government Financing:
 Governments use the money market to raise short-term funds to meet their
financing needs. Treasury bills, which have maturities of one year or less, are
commonly issued in the money market to finance government operations.
7. Diversification of Investment Portfolios:
 Investors use money market instruments to diversify their portfolios. The
stability and low risk associated with these instruments make them attractive
for those seeking a conservative investment option.
8. Market for Short-Term Financial Instruments:
 The money market serves as a marketplace for various short-term financial
instruments, including Treasury bills, commercial paper, certificates of
deposit, and repurchase agreements. This facilitates efficient trading and price
discovery.
9. Arbitrage Opportunities:
 Traders and investors in the money market take advantage of short-term price
differentials between various instruments and markets, engaging in arbitrage
to exploit these opportunities and promote market efficiency.
10. Hedging and Speculation:
 Participants in the money market use various instruments for hedging against
interest rate risk and for speculation on short-term market movements. This
helps manage risks and optimize investment strategies.
11. Facilitation of Interbank Transactions:
 Banks engage in money market transactions for short-term liquidity
management. Interbank lending and borrowing in the money market allow
banks to maintain appropriate levels of reserves and manage their liquidity
positions.
12. Contribution to Economic Stability:
 By ensuring the smooth flow of funds and supporting short-term financing
needs, the money market contributes to economic stability and the efficient
functioning of financial markets.

CAPITAL MARKET:

 Capital markets refer to the venues where funds are exchanged between suppliers and
those who seek capital for their own use.
 Suppliers in capital markets are typically banks and investors while those who seek
capital are businesses, governments, and individuals.
 Capital markets are used to sell different financial instruments, including equities and
debt securities.

20
Prof. Ningambika G Meti Dept of MBA, SVIT
  These markets are divided into two categories: primary and secondary markets.
 The best-known capital markets include the stock market and the bond markets.

These markets are divided into two different categories:

● Primary markets where new equity stock and bond issues are sold to investors.
● Secondary markets, which trade existing securities.

PRIMARY MARKET:

Public Issue

● Public issue or Initial Public Offering is the process of issuing shares to the public for
the first time.

Private Placement

● A private placement is the offering of shares to a few selected investors. These

selected investors could be mutual funds, venture capital, banks, insurance companies,
etc.

Rights Issue

● Rights Issue or Rights Offer is a way through which a listed company raises capital by
offering shares to the existing shareholders. For example, XYZ company comes out
with a 1:2 right issue. This means that XYZ shareholders can buy an extra share for
every 2 shares they have. Usually, the stocks issued in the form of the right issues are
lower priced than the prevailing market price of the share.

SECONDARY MARKET
21
Prof. Ningambika G Meti Dept of MBA, SVIT
Over the Counter market

● Over-the-counter or Off-exchange trading is a form of decentralized trading of

securities. Trading of securities takes place directly between the parties. The buyers
and sellers openly announce the prices at which they are willing to sell or buy
securities. It is less transparent than exchanges.

Dealer Market

● In the dealer market, the buyers and sellers do not gather in a commonplace
physically. The brokers and the dealers act as an intermediary between the buyers and
the sellers. A lot of dealers exist in this market. Therefore, due to competition, dealers
offer the best price to the investors.

SECURITIES MARKET:

 The market in which securities are issued, purchased by investors, and subsequently
transferred among investors is called the securities market.
 The securities market has two interdependent and inseparable segments, viz., the
primary market and secondary market.
 Stock Market (Equity Market):
 This is where shares of publicly held companies are bought and sold. Stock
exchanges like the New York Stock Exchange (NYSE) and NASDAQ are
examples of organized stock markets.
 Bond Market (Debt Market):
 In the bond market, debt securities such as bonds are bought and sold.
These represent loans made by investors to corporations, municipalities, or
governments.
 Derivatives Market:
 This market deals with financial contracts whose value derives from the
price of an underlying asset. Futures and options are common types of
derivatives.
 Commodity Market:
 Commodities like gold, oil, and agricultural products are traded in this
market. Commodity exchanges facilitate these transactions.
 Foreign Exchange Market (Forex):

22
Prof. Ningambika G Meti Dept of MBA, SVIT
  The Forex market involves the trading of currencies. It is one of the largest
and most liquid financial markets globally.

PARTICIPANTS IN SECURITIES MARKETS:

● Issuers:
○ Companies, governments, or other entities that issue securities to raise capital.
● Investors:
○ Individuals, institutions, or funds that buy and hold securities as investments.
● Intermediaries:
○ Brokers, investment banks, and other financial institutions that facilitate the
buying and selling of securities.
● Regulators:
○ Government agencies that oversee and regulate securities markets to ensure
fair and transparent trading practices.
● Exchanges:
○ Organizations that provide a platform for the trading of securities. Examples
include stock exchanges and commodity exchanges.

TRADING AND SETTLEMENT PROCESS:

1. SELECTION OF BROKER:
 One can buy and sell securities only through the brokers registered under SEBI and
who are members of the stock exchange. A broker can be a partnership firm, an
individual, or a corporate body.
 Hence, the first step of the trading procedure is the selection of a broker who will
buy/sell securities on the behalf of a speculator or investor.

23
Prof. Ningambika G Meti Dept of MBA, SVIT
  Before placing an order to the registered broker, the investor has to provide some
information, including PAN Number, Date of Birth and Address, Educational
Qualification and Occupation, Residential Status (Indian/NRI), Bank Account Details,
Depository A/c details, Name of any other brokers with whom they have registered,
and Client code number in the client registration form. After getting information
regarding all the said things, the broker opens a trading account in the name of the
investor.
2. OPENING DEMAT ACCOUNT WITH DEPOSITORY:
 An account that must be opened with the Depository Participant -DP(including stock
brokers or banks) by an Indian citizen for trading in the listed securities in electronic
form is known as Demat (Dematerialised) Account or Beneficial Owner (BO)
Account.
 The second step of the trading procedure is the opening of a Demat Account. The
Depository holds the securities in electronic form. A Depository is an organisation or
institution, which holds securities like bonds, shares, debentures, etc. At present there
are two Depositories; namely, NSDL (National Securities Depository Ltd.) and CDSL
(Central Depository Securities Ltd.).
 The Depository and the investor do not have direct contact with each other and
interact with each other through Depository Participants only.
 The Depository Participant will have to maintain the securities account balances of
the investor and intimate investor from time to time about the status of their holdings.

3. PLACING THE ORDER:

 The next step after the opening of a Demat Account is the placing of an order by the
investor.
 The investor can place the order to the broker either personally or through email,
phone, etc.
 The investor must make sure that the order placed clearly specifies the range or price
at which the securities can be sold or bought.
 For example, an order placed by Kashish is, “Buy 200 equity shares of Nestle for no
more than ₹200 per share.”

4. Match the Share and Best Price

The broker after receiving an order from the investor will have to then go online and
connect to the main stock exchange to match the share and best price available.

5. Executing Order

When the shares can be bought or sold at the price mentioned by the investor, it will be
communicated to the broker terminal, and then the order will be executed electronically.
Once the order has been executed, the broker will issue a trade confirmation slip to the
investors.

24
Prof. Ningambika G Meti Dept of MBA, SVIT
 6. Issue of Contract Note

Once the trade has been executed within 24 hours, the broker will issue a contract note. A
contract note consists of the details of the number of shares bought or sold, the date, time
of the deal, price of securities, and brokerage charges. A contract note is an essential legal
document. It helps in settling disputes claims between the investors and the brokers. A
contract note also consists of a printed unique order code number assigned to each
transaction by the Stock Exchange.

7. Delivery of Share and making Payment

In the next step, the investor has to deliver the shares sold or has to pay cash for the shares
bought. The investor has to do so immediately after receiving the contract note or before the
day when the broker shall make delivery of shares to the exchange or make payment. This is
known as Pay in Day.

8. Settlement Cycle

The payment of securities in cash or delivery of securities is done on Pay in Day, which is
before T+2 Day. It is because the settlement cycle is T+2 days on w.e.f April 2003 rolling
settlement basis. For example, if the transaction took place on Tuesday, then the payment
must be done before Thursday, i.e., T+2 days (Transaction plus two more days).

9. Delivery of Shares or Making Payment

On the T+2 Day, the Stock Exchange will then deliver the share or make payment to the other
broker. This is known as Pay out Day. Once the shares have been delivered of payment has
been made, the broker has to make payment to the investor within 24 hours of the pay out
day, as he/she has already received payment from the exchange.

10. Delivery of Shares in Demat Form

The last step of the trading procedure is making delivery or shares in Demat form by the
broker directly to the Demat Account of the investor. The investor is obligated to give details
of his Demat Account and instruct his Depository Participant (DP) for taking delivery of
securities directly in his beneficial owner account.

TRADE SETTLEMENT:

 The process of Buying or Selling Stocks online has been made smooth and seamless.
 The amount is debited from your account and you receive the shares in your DEMAT
Account. Same way, for sale transactions, shares are debited from your DEMAT
Account while the selling price is credited to your banking account.
 It is to be noted that according to a recent SEBI announcement, all F&O equities
and remaining stocks in the T+2 Settlement Cycle will switch to the T+1
Settlement Cycle starting on January 27, 2023.
 All equities will now gradually transition to a T+1 Cycle.

25
Prof. Ningambika G Meti Dept of MBA, SVIT
  In the stock market, settlement refers to the process of transferring the ownership of
securities from the seller to the buyer. There are two types of settlement - Rolling
Settlement and Account Settlement. Rolling settlement is a process where trades
are settled on T+1 day.

SETTLEMENT PROCESS IN NSE:

The National Stock Exchange of India (NSE) follows a well-defined settlement process
to ensure the smooth and efficient functioning of its trading activities. The settlement
process involves the clearing and settlement of trades executed on the exchange. Here is
an overview of the settlement process in NSE:

1. Trade Execution:

 The settlement process begins with the execution of trades on the NSE. Buyers
and sellers place orders through brokers, and when these orders match, a trade
is executed.

2. Trade Confirmation:

 Once a trade is executed, the exchange generates trade confirmations, which

provide details of the trade, including the security traded, quantity, price, and
other relevant information.

3. Trade Clearing:

 The clearing process involves the determination of obligations for each trading
member (broker) based on the net position resulting from all trades executed
by their clients. The clearing house acts as an intermediary to ensure the
settlement of trades.

4. Risk Management:

 NSE employs risk management mechanisms to ensure the financial integrity

of the market. This includes collecting margins from trading members to cover
potential losses.

5. Settlement Cycle:

 NSE follows a T+2 settlement cycle, meaning that the settlement of trades
occurs two business days after the trade date. This allows for the necessary
time to clear trades, calculate obligations, and arrange for the movement of
funds and securities.

6. Clearing Corporation:

 NSE Clearing Limited (NSE Clearing) is the clearing corporation associated

with NSE. It acts as the central counterparty (CCP) for all trades executed on

26
Prof. Ningambika G Meti Dept of MBA, SVIT
 the exchange, guaranteeing the settlement of trades and reducing counterparty
risk.

7. Trade Guarantees:

 NSE Clearing provides a trade guarantee by becoming the counterparty to

each trade. This ensures the financial performance of trades and mitigates the
risk of default by trading members.

8. Obligation Calculation:

 The clearing house calculates the net obligations of each trading member after
considering all trades (buys and sells) executed by their clients. This process
determines the funds and securities that need to be settled.

9. Securities Settlement:

 On the settlement day (T+2), the exchange facilitates the transfer of securities
from the seller's demat account to the buyer's demat account. This process is
known as securities settlement.

10. Funds Settlement:

 Simultaneously with securities settlement, funds are transferred between the

bank accounts of the buyer and the seller. This ensures the completion of the
financial aspect of the trade.

11. Pay-in and Payout:

 Trading members submit the securities and funds they owe to the clearing
corporation on the settlement day. The clearing corporation, in turn, facilitates
the pay-in of securities and payout of funds to settle the obligations.

12. Finality of Settlement:

 Once the pay-in and payout processes are completed, the settlement becomes
final. The securities and funds have been transferred, and the trade is
considered settled.

By following a well-structured settlement process, NSE ensures the integrity and efficiency
of its trading platform, providing a transparent and secure environment for market
participants. It also helps in mitigating counterparty risk and ensuring the timely settlement of
trades.

SETTLEMENT PROCESS IN BSE:

The Bombay Stock Exchange (BSE), like other major stock exchanges, follows a settlement
process to ensure the smooth and orderly functioning of its trading activities. Here is an
overview of the settlement process in BSE:

27
Prof. Ningambika G Meti Dept of MBA, SVIT
 1. Trade Execution:

 The settlement process begins with the execution of trades on the BSE. Buyers
and sellers place orders through brokers, and when these orders match, a trade
is executed.

2. Trade Confirmation:

 Once a trade is executed, the exchange generates trade confirmations, which

provide details of the trade, including the security traded, quantity, price, and
other relevant information.

3. Trade Clearing:

 The clearing process involves the determination of obligations for each trading
member (broker) based on the net position resulting from all trades executed
by their clients. The clearing house acts as an intermediary to ensure the
settlement of trades.

4. Risk Management:

 BSE employs risk management mechanisms to ensure the financial integrity of

the market. This includes collecting margins from trading members to cover
potential losses.

5. Settlement Cycle:

 BSE follows a T+2 settlement cycle, similar to other major stock exchanges.
This means that the settlement of trades occurs two business days after the
trade date. This timeline allows for the necessary time to clear trades, calculate
obligations, and arrange for the movement of funds and securities.

6. Clearing Corporation:

 BSE has its clearing and settlement subsidiary known as BSE Clearing
Corporation Limited (BSE Clearing). It serves as the central counterparty
(CCP) for all trades executed on the exchange, guaranteeing the settlement of
trades and reducing counterparty risk.

7. Trade Guarantees:

 BSE Clearing provides a trade guarantee by becoming the counterparty to

each trade. This ensures the financial performance of trades and mitigates the
risk of default by trading members.

8. Obligation Calculation:

28
Prof. Ningambika G Meti Dept of MBA, SVIT
  The clearing house calculates the net obligations of each trading member after
considering all trades (buys and sells) executed by their clients. This process
determines the funds and securities that need to be settled.

9. Securities Settlement:

 On the settlement day (T+2), the exchange facilitates the transfer of securities
from the seller's demat account to the buyer's demat account. This process is
known as securities settlement.

10. Funds Settlement:

 Simultaneously with securities settlement, funds are transferred between the

bank accounts of the buyer and the seller. This ensures the completion of the
financial aspect of the trade.

11. Pay-in and Payout:

 Trading members submit the securities and funds they owe to BSE Clearing
on the settlement day. The clearing corporation, in turn, facilitates the pay-in
of securities and payout of funds to settle the obligations.

12. Finality of Settlement:

 Once the pay-in and payout processes are completed, the settlement becomes
final. The securities and funds have been transferred, and the trade is
considered settled.

By following a well-structured settlement process, BSE ensures the integrity and efficiency
of its trading platform, providing a transparent and secure environment for market
participants. It also helps in mitigating counterparty risk and ensuring the timely settlement of
trades.

DERIVATIVES:

 Derivatives are financial contracts, set between two or more parties, that derive their
value from an underlying asset, group of assets, or benchmark.
 A derivative can trade on an exchange or over-the-counter.
 Prices for derivatives derive from fluctuations in the underlying asset.
 Derivatives are usually leveraged instruments, which increases their potential risks
and rewards.
 Common derivatives include futures contracts, forwards, options, and swaps.

29
Prof. Ningambika G Meti Dept of MBA, SVIT
FUTURES:

 Futures are financial derivatives contracts that obligate the buyer to purchase, or the
seller to sell, a specific quantity of an underlying asset at a predetermined future date
and price.
 These contracts are standardized and traded on organized exchanges, facilitating
efficient price discovery and risk management for market participants.
 A futures contract, or simply futures, is an agreement between two parties for the
purchase and delivery of an asset at an agreed-upon price at a future date. Futures are
standardized contracts that trade on an exchange.
 Traders use a futures contract to hedge their risk or speculate on the price of an
underlying asset. The parties involved are obligated to fulfill a commitment to buy or
sell the underlying asset.

30
Prof. Ningambika G Meti Dept of MBA, SVIT
FORWARDS:

 Forward contracts, or forwards, are similar to futures, but they do not trade on an
exchange. These contracts only trade over-the-counter. When a forward contract is
created, the buyer and seller may customize the terms, size, and settlement process.
As OTC products, forward contracts carry a greater degree of counterparty risk for
both parties.
 Counterparty risks are a type of credit risk in that the parties may not be able to live
up to the obligations outlined in the contract. If one party becomes insolvent, the other
party may have no recourse and could lose the value of its position.
 Once created, the parties in a forward contract can offset their position with other
counterparties, which can increase the potential for counterparty risks as more traders
become involved in the same contract.

SWAPS:

 Swaps are another common type of derivative, often used to exchange one kind of
cash flow with another.

 For example, a trader might use an interest rate swap to switch from a variable interest
rate loan to a fixed interest rate loan, or vice versa.

OPTIONS:

 An options contract is similar to a futures contract in that it is an agreement between

two parties to buy or sell an asset at a predetermined future date for a specific price.

 The key difference between options and futures is that with an option, the buyer is not
obliged to exercise their agreement to buy or sell. It is an opportunity only, not an
obligation, as futures are. As with futures, options may be used to hedge or speculate
on the price of the underlying asset.

ADVANTAGES AND DISADVANTAGES OF DERIVATIVES:

Derivatives are financial instruments whose value is derived from an underlying asset,
index, or rate. Common types of derivatives include futures contracts, options, swaps, and
forward contracts. While derivatives offer several advantages, they also come with
inherent risks and disadvantages. Here are some key advantages and disadvantages of
derivatives:

Advantages:

1. Risk Management:

 Hedging: Derivatives provide a means for businesses and investors to hedge

against price volatility in the underlying assets. This helps in reducing or

31
Prof. Ningambika G Meti Dept of MBA, SVIT
 mitigating various types of risks, such as commodity price risk, interest rate
risk, and currency risk.

2. Price Discovery:

 Derivatives markets contribute to price discovery by reflecting the collective

expectations and opinions of market participants. The pricing of derivatives
provides valuable information about market sentiment and expectations.

3. Leverage:

 Derivatives allow investors to gain exposure to the underlying asset with a

relatively small amount of capital. This leverage can amplify returns,
potentially leading to higher profits for successful trades.

4. Portfolio Diversification:

 Derivatives can be used to diversify investment portfolios. By incorporating

derivatives with different risk profiles, investors can achieve a more balanced
and diversified portfolio.

5. Efficient Capital Allocation:

 Derivatives markets facilitate the efficient allocation of capital by allowing

investors to take positions in various markets and assets without the need for
large amounts of capital upfront.

6. Enhanced Liquidity:

 Derivatives markets often exhibit high liquidity, allowing market participants

to enter or exit positions with relative ease. This liquidity contributes to price
efficiency and reduces transaction costs.

7. Customization:

 Derivatives contracts can be customized to meet specific risk management

needs. This flexibility enables participants to tailor contracts to their particular
requirements, addressing unique exposures.

Disadvantages:

1. Risk of Losses:

 The use of derivatives involves the risk of significant losses, especially when
leverage is employed. The potential for amplified losses can result in financial
distress for traders and investors.

2. Complexity:

32
Prof. Ningambika G Meti Dept of MBA, SVIT
  Derivatives can be complex financial instruments, and understanding their
mechanics and associated risks requires a certain level of financial expertise.
Misunderstanding or mismanagement of derivatives can lead to unintended
consequences.

3. Counterparty Risk:

 Derivatives transactions involve counterparty risk, the risk that the other party
may default on its obligations. This risk is mitigated to some extent through
the use of clearinghouses, but it remains a concern, especially in over-the-
counter (OTC) markets.

4. Market Manipulation:

 Derivatives markets are not immune to market manipulation. Unethical

practices, such as insider trading or spreading false information, can impact
derivative prices and undermine market integrity.

5. Regulatory Changes:

 Regulatory environments for derivatives can change, impacting the structure

and operation of derivatives markets. Changes in regulations may affect
market participants' ability to use derivatives for risk management or
speculative purposes.

6. Liquidity Risk:

 While derivatives markets are generally liquid, some contracts may experience
reduced liquidity during times of market stress. This lack of liquidity can
make it challenging for participants to exit positions or obtain desired contract
terms.

7. Overemphasis on Short-Term Gains:

 The use of derivatives for speculative purposes may lead to a short-term focus
on gains rather than long-term investment goals. This can contribute to
excessive risk-taking and market instability.

STOCK MARKET INDICATORS:

● Stock market indicators are tools or metrics used by investors and analysts to assess
the performance of the stock market or individual securities.

● These indicators can provide insights into market trends, potential investment
opportunities, and the overall health of the financial markets.

● Market indicators are quantitative in nature and seek to interpret stock or financial
index data in an attempt to forecast market moves.

33
Prof. Ningambika G Meti Dept of MBA, SVIT
 ● Market indicators are a subset of technical indicators and are typically comprised of
formulas and ratios. They aid investors' investment/trading decisions.

Understanding Market Indicators:

Most stock market indicators are created by analyzing the number of companies that have
reached new highs relative to the number that created new lows, known as market
breadth, since it shows where the overall trend is headed.

The two most common types of market indicators are:

● Market Breadth indicators compare the number of stocks moving in the same
direction as a larger trend. For example, the Advance-Decline Line looks at the
number of advancing stocks versus the number of declining stocks.

● Market Sentiment indicators compare price and volume to determine whether

investors are bullish or bearish on the overall market.

INDICES OF INDIAN STOCK EXCHANGE:

● An index is a group or basket of securities, derivatives, or other financial instruments

that represents and measures the performance of a specific market, asset class, market
sector, or investment strategy.

● Stock market indices represent a certain group of shares selected based on particular
criteria like trading frequency, share size, etc. The stock market uses the sampling
technique to represent the market direction and change through an index.

● Indices created based on the market capitalization of companies, such as BSE Midcap
and BSE Smallcap.

There are three different types of stock market indices mentioned below:

1) Benchmark Indices

2) Sectoral Indices

3) Market-Cap Based Indices

Benchmark Indices

● Nifty 50 – a collection of top 50 best-performing stocks and BSE Sensex – a

collection of top 30 best-performing stocks are indictors of the National Stock
Exchange and Bombay Stock Exchange, respectively.

● This collection of stocks are known as benchmark indices respectively because they
use the best practices to regulate the companies they pick. Hence they are known as
the best point of reference for the working of markets in general.

Sectoral Indices

34
Prof. Ningambika G Meti Dept of MBA, SVIT
 ● Both BSE and NSE have some good indicators that measure companies falling under
one specific sector. Indices like S&P BSE Healthcare and NSE Pharma are considered
good indicators of their respective changes in the pharmaceutical sector.

● Another prominent example could be S&P BSE PSU, and Nifty PSU Bank Indices are
indicators of all the listed public sector banks. However, both the exchanges don't
have to have corresponding indices for all the sectors, but this is generally a
significant cause.

● Market-Cap Based Indices

Few indices choose companies based on their market capitalization. Market

capitalization means the market value of any public traded company in the stock
exchange. Indices like S&P BSE and NSE small cap 50 are a collection of companies
that have a lower market capitalization in accordance with the rules set by the
Security Exchange Board of India (SEBI).

● Other Indices

Several other indices like S&P BSE 500, NSE 100, S&P BSE 100, among others, are
slightly larger indices and come with a more significant number of stocks listed on
them. You may have a low-risk appetite and stock listed on Sensex may have a high-
risk appetite. Investment portfolio are not tailored to meet every needs. So investor
has to be focused and invest in which they feels safe

STOCK MARKET INDEX ARE CREATED AS BELOW:

● A stock market index is created by adding similar stocks based on their market
capitalization, company size or industry. Later on, the index is computed based on the
selection of stocks.

● However, each stock will come with a different price and price change in one stock
would not be equal to the price range in another stock.

● Hence, the index value cannot be decided based on the simple sum of the prices of all
the stocks.

● Due to this, assigning weights to stocks comes into the picture. Each stock in the
index is assigned a specific weightage based on its price lying in the market or
because of its market capitalization.

VARIOUS FACTORS AFFECTING INDIAN INVESTORS:

The number of stocks, which has remained inactive, increased steadily over the past few
years, irrespective of the overall market levels. Price rigging, indifferent usage of funds,
vanishing companies, lack of transparency, the notion that equity is a cheap source of
fund and the permitted free pricing of the issuers are leading to the prevailing primary
market conditions.

35
Prof. Ningambika G Meti Dept of MBA, SVIT
 In this context, the investor has to be alert and careful in his investment. He has to
analyze several factors. They are given below:

1. Promoter’s: Promoter’s past performance with reference to the companies

promoted by them earlier.
2. Credibility: The integrity of the promoters should be found out with enquiries and
from financial magazines and newspapers. Their knowledge and experience in the
related field.
3. Efficiency of the Management: The managing director’s background and
experience in the field. The composition of the Board of Directors is to be studied to
find out whether it is broad based and professionals are included.
4. Project Details : The credibility of the appraising institution or agency. The stake of
the appraising agency in the forthcoming issue.
5. Product: Reliability of the demand and supply projections of the product.
Competition faced in the market and the marketing strategy.If the product is export
oriented, the tie-up with the foreign collaborator or agency for the purchase of
products.
6. Financial Data: Accounting policy, Revaluation of the assets, if any. Analysis of the
data related to capital, reserves, turnover, profit, dividend record and profitability
ratio.
7. Litigation:Pending litigations and their effect on the profitability of the company.
Default in the payment of dues to the banks andfinancial institutions
8. Risk Factors: A careful study of the general and specific risk factors should be
carried out.
9. Auditor’s Report: A through reading of the auditor’s report is needed especially with
reference to significant notes to accounts, qualifying reM and changes in the
accounting policy. In the case of letter of offer the investors have to look for the
recently audited working result at the end of letter of offer.
10. Statutory Clearance: Investor should find out whether all the required statutory
clearance has been obtained, if not, what is the current status. The clearances used to
have a bearing on the completion of the project.
11. Investor Service: Promptness in replying to the enquiries of allocation of shares,
refund of money, annual reports, dividends and share transfer should be assessed
with the help of past record.

KERB/CURB TRADING:

● The definition of curb trading is trading outside of general market operation hours. It
includes premarket trading and after-hours sessions.

36
Prof. Ningambika G Meti Dept of MBA, SVIT
 ● Typically, such trades are executed electronically and not on an exchange. Curb
trading – also referred to as Kerb trading – resembles the early days of stock trading
before the establishment of formal stock exchanges.

● The term was coined because buyers and sellers would flock together by the curb of a
street corner to trade stocks.

FUNCTIONS OF NSE:

The National Stock Exchange of India (NSE) is one of the leading stock exchanges in India.
It performs several key functions within the Indian financial system, contributing to the
efficient functioning of the capital markets. Here are the primary functions of the National
Stock Exchange (NSE):

1. Facilitating Stock Trading:

 The NSE provides a platform for buying and selling of various financial
instruments, including equities, bonds, and derivatives. It operates a fully
electronic and automated trading system known as the National Exchange for
Automated Trading (NEAT).

2. Listing of Securities:

 Companies can list their securities (such as stocks and bonds) on the NSE,
allowing them to raise capital by issuing these instruments to the investing
public. The process of listing involves meeting certain regulatory and
disclosure requirements.

3. Market Surveillance:

 NSE employs advanced surveillance systems to monitor market activities,

detect irregularities, and ensure compliance with regulatory standards. This
helps maintain market integrity and protects investors' interests.

4. Clearing and Settlement:

 NSE Clearing Limited (formerly known as National Securities Clearing

Corporation Limited or NSCCL) is the clearinghouse associated with NSE. It
ensures the settlement of trades, including the transfer of securities and funds
between trading members.

5. Risk Management:

 NSE implements risk management mechanisms to ensure the financial

stability of the market. This includes the collection of margins from trading
members to cover potential losses.

6. Derivatives Trading:

37
Prof. Ningambika G Meti Dept of MBA, SVIT
  NSE is a major platform for trading in derivatives, including futures and
options contracts. It offers a wide range of derivative products linked to
various underlying assets such as equities, indices, currencies, and interest
rates.

7. Investor Education:

 NSE plays a role in investor education by providing resources, seminars, and

educational materials. This is aimed at enhancing investors' understanding of
financial markets and encouraging informed investment decisions.

8. Technology and Innovation:

 NSE is known for its use of technology to facilitate seamless trading and
settlement. The exchange continuously invests in technology infrastructure
and innovation to enhance market efficiency and accessibility.

9. Index Calculation:

 NSE calculates and disseminates various market indices, including the Nifty
50, Nifty Bank, and sector-specific indices. These indices serve as benchM for
market performance and are widely used by investors and fund managers.

10. Regulatory Compliance:

 NSE operates in accordance with the regulations set by the Securities and
Exchange Board of India (SEBI) and other relevant authorities. It ensures that
market participants adhere to the prescribed standards and guidelines.

FUNCTION OF BSE:
The Bombay Stock Exchange (BSE) is one of the oldest and prominent stock exchanges in
India. It serves as a key platform for trading in various financial instruments. Here are the
primary functions of the Bombay Stock Exchange:
1. Stock Trading:
The primary function of BSE is to facilitate the buying and selling of securities,
including stocks (equities), bonds, and other financial instruments. It provides a
marketplace where investors can execute trades through brokers.
2. Listing of Securities:
BSE allows companies to list their securities on the exchange, providing them with a
platform to raise capital by issuing shares to the public. The process of listing
involves meeting regulatory requirements and ensuring transparency and disclosure.
3. Market Surveillance:
BSE employs advanced surveillance systems to monitor trading activities, detect
irregularities, and ensure compliance with regulatory standards. This helps maintain
market integrity and protect the interests of investors.
4. Clearing and Settlement:

38
Prof. Ningambika G Meti Dept of MBA, SVIT
 BSE Clearing Corporation Limited (BSE Clearing) is the clearinghouse associated
with BSE. It ensures the smooth settlement of trades by facilitating the transfer of
securities and funds between trading members.
5. Derivatives Trading:
BSE offers a platform for trading in derivatives, including futures and options
contracts. Derivatives are financial instruments whose value is derived from an
underlying asset, and they are used for hedging and speculation.
6. Indices Calculation:
BSE calculates and disseminates various market indices, including the SENSEX
(Sensitive Index). The SENSEX is a key benchmark index that reflects the
performance of the BSE's large-cap stocks. Other indices, like BSE 100 and BSE 500,
represent different market segments.
7. Investor Education:
BSE is involved in investor education initiatives, providing resources, workshops, and
educational materials to enhance investors' understanding of financial markets,
investment strategies, and risk management.

IMPORTANT QUESTIONS:

1) What do you mean by asset allocation decision? (3M)

2) Distinguish Between Financial and Physical Investment? (3M)
3) Distinguish between investment and speculation? (3M)
4) Discuss the various factors affecting Indian investors ?(10 M)
5) What is Sensex?(3 M)
6) How Does the NSE Functions? Explain the settlements procedure at NSE (10M)
7) What are The three concepts of investments?(3M)
8) Discuss the sources of Information?(3M)
9) Describe the various investment avenues available to investors in India?(10M)
10) Write a note on various investment alternatives available to a modern investor ?
(10M)
11) What is kerb trading?(3M)
12) Discuss the attributes that an investor should consider while evaluating an
investment?(7M)
13) What are the characteristics that an investor would like to have in an investment
option. (7M)
14) Briefly explain the functioning of BSE and NSE highlighting the basic difference
between them. (7M)

39
Prof. Ningambika G Meti Dept of MBA, SVIT