Basics ppt

1. Stock Market

● Key Exchanges: The Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE) are the two main stock exchanges in India. The BSE is one of
the oldest stock exchanges globally, while the NSE is known for its advanced
technology and large trading volume.

● Function: The stock market allows companies to raise capital by selling shares
to the public in an initial public offering (IPO). Once listed, these shares can be
bought and sold by investors in the secondary market. Investors buy shares to
gain ownership in a company and potentially earn returns through dividends and
capital gains as the stock price rises.

● Importance: For companies, it is a major way to raise long-term funds for

expansion, projects, or debt repayment. For investors, the stock market provides
opportunities to invest in a wide range of companies and industries.

2. Debt Market

● Government Securities Market: This segment deals with bonds issued by

central and state governments. These bonds are low-risk investments since they
are backed by the government. The most common types of government bonds
are Treasury Bills (short-term) and Government Bonds (long-term). Investors
typically include institutional players like banks, mutual funds, and insurance
companies.

● Corporate Bond Market: In this market, companies issue bonds to raise capital.
These bonds typically offer higher interest rates than government bonds to
compensate for the increased risk. The corporate bond market is crucial for
companies looking to secure debt financing without diluting ownership (unlike
issuing equity).

● Importance: The debt market is essential for funding long-term infrastructure

projects, government spending, and corporate expansion, offering investors
steady income through interest payments.

3. Derivatives Market

● Futures and Options: These are contracts derived from underlying assets like
stocks, indices, commodities, and currencies. A future is an agreement to buy or
 sell an asset at a future date at a predetermined price, while an option gives the
buyer the right, but not the obligation, to buy/sell an asset at a specific price
before a certain date.

● Uses: The derivatives market is mainly used for hedging and speculation.
Investors and companies use it to protect against price fluctuations (hedging).
For example, a company that exports goods may use currency futures to protect
itself from unfavorable currency exchange rate movements.

● NSE Dominance: The National Stock Exchange (NSE) is the largest exchange
for derivatives trading in India. It offers a range of products such as index futures,
stock futures, currency derivatives, and commodity futures.

● Importance: Derivatives help in risk management by allowing investors to lock in

prices and limit exposure to unpredictable movements in market prices.

4. Money Market

● Short-Term Instruments: The money market deals with short-term borrowing

and lending (typically less than one year). Common instruments include:

○ Treasury Bills (T-Bills): These are short-term securities issued by the

government to meet its immediate funding needs. They are sold at a
discount and redeemed at face value upon maturity.

○ Commercial Paper (CP): Issued by companies to meet short-term

obligations. It’s a low-risk investment for short periods, generally between
7 to 365 days.

○ Certificates of Deposit (CDs): Issued by banks for raising short-term

funds, usually for a period of 1 month to 1 year.

○ Interbank Call Money: Short-term loans between banks to manage their

liquidity requirements.

● Role of RBI: The Reserve Bank of India (RBI) closely monitors and regulates the
money market, ensuring liquidity and stability in the system. The RBI also uses
the money market to control inflation and manage the country’s monetary policy
through open market operations.

● Importance: The money market is crucial for managing liquidity in the financial
system. It allows banks and financial institutions to manage short-term funding
needs efficiently.
5. Foreign Exchange Market

● Currency Trading: The foreign exchange (forex) market allows for the buying
and selling of different currencies. It is essential for businesses and individuals
involved in international trade, investment, and travel.

● Key Participants: The forex market consists of authorized dealers (banks and
financial institutions) and other market participants, including exporters,
importers, and speculators.

● RBI's Role: The Reserve Bank of India plays a pivotal role in maintaining stability
in the currency exchange rate. The RBI intervenes in the forex market to curb
excessive volatility and maintain favorable balance-of-payments conditions.

● Importance: A stable forex market is vital for international trade and maintaining
the value of the Indian rupee. It also helps businesses manage risks related to
currency fluctuations.

6. Mutual Funds

● How Mutual Funds Work: Mutual funds collect money from multiple investors
and invest it in a diversified portfolio of assets like stocks, bonds, and money
market instruments. A professional fund manager oversees the investments and
decides how to allocate the funds based on the market’s performance and the
fund’s goals.

● Types of Mutual Funds:

○ Equity Mutual Funds: Invest primarily in stocks, offering higher potential

returns but also higher risk.

○ Debt Mutual Funds: Invest in bonds and other fixed-income securities,

offering lower risk and steady returns.

○ Hybrid Mutual Funds: Invest in both equity and debt instruments to

balance risk and return.

● Importance: Mutual funds offer individual investors the ability to diversify their
investments and participate in the stock or bond markets without needing deep
financial expertise. They provide a way for small investors to access professional
portfolio management.

7. Insurance Sector
 ● Life Insurance: Provides financial protection to the family of the insured person
in case of their death. It can also serve as an investment or savings vehicle,
depending on the policy (e.g., term insurance, endowment plans).

● General Insurance: Covers non-life risks such as property damage (e.g., home,
car insurance), health (e.g., medical insurance), and liability (e.g., business
insurance).

● Standalone Health Insurance: Focuses solely on providing medical coverage

and protection against rising healthcare costs.

● Regulator: The Insurance Regulatory and Development Authority of India

(IRDAI) supervises the insurance industry, ensuring that insurance companies
operate fairly and customers are protected.

● Importance: The insurance sector is vital for managing risk and providing
financial security to individuals and businesses. It also supports the economy by
enabling investment in long-term projects.

8. Non-Banking Financial Companies (NBFCs)

● What They Do: NBFCs offer financial services similar to banks, but they do not
have full banking licenses. They provide loans, asset financing, and wealth
management services, especially in areas where traditional banks may not have
a strong presence.

● Types of NBFCs:

○ Asset Finance Companies: Specialize in financing assets like vehicles,

equipment, or infrastructure projects.

○ Microfinance Institutions: Provide small loans to individuals or small

businesses, particularly in rural areas.

○ Housing Finance Companies: Focus on providing home loans.

● Importance: NBFCs play a crucial role in promoting financial inclusion by

reaching underserved populations in rural and semi-urban areas. They provide
credit to sectors and individuals that may not have access to traditional banking.

9. Regulatory Bodies
 ● SEBI (Securities and Exchange Board of India): Regulates the stock and
securities markets. Its primary function is to protect investor interests and ensure
fair and transparent practices by companies and market intermediaries.

● RBI (Reserve Bank of India): The central bank of India oversees the country’s
monetary policy, regulates banks, and ensures financial stability. It controls
inflation, manages foreign exchange reserves, and supervises the money
market.

● IRDAI (Insurance Regulatory and Development Authority of India):

Regulates the insurance industry, ensuring that insurance providers follow proper
practices and that policyholders' interests are safeguarded.

● PFRDA (Pension Fund Regulatory and Development Authority): Oversees

pension schemes like the National Pension System (NPS), ensuring secure and
regulated retirement savings for individuals.

Investing: Committing money to assets like stocks, bonds, or real estate with the goal
of making a profit over time. The focus is on long-term wealth building and achieving
financial goals.

Types of Investments:

● Stocks: Buying shares of a company.

● Bonds: Lending money to governments or corporations.

● ETFs (Exchange-Traded Funds): A fund that holds a basket of different

investments, traded like a stock.

● Mutual Funds: A pool of money from many investors used to buy a diversified
portfolio of stocks, bonds, etc.

● Cash Equivalents: Short-term, low-risk investments like treasury bills or money

market funds.

● Real Estate: Investing in property for rental income or capital appreciation.

● Commodities: Investing in physical goods like gold, oil, or agricultural products.