Professional Documents
Culture Documents
Unit I
Overview of Capital Market: Market of securities, Stock Exchange and New Issue Markets - their nature,
INVESTMENT
Sacrifice is in the present and is certain. The Reward comes later and the amount of reward is
uncertain.
Investment may be Real (e.g. Land, Machinery etc.) and Financial (e.g. Common Stocks and Bonds).
INVESTMENT PROCESS
1) Setting Investment Policy
2)
3) 4)
5)
INVESTMENT ALTERNATIVES
Investment Alternatives Non-Marketable Financial Assets Bonds Mutual Fund Schemes Real Estate Financial Derivatives Equity Shares Money Market Instruments Life Insurance Policies Precious Objects
INVESTMENT ATTRIBUTES
Rate of Return
Risk
Marketability Tax Shelter Initial Tax Benefit Continuing Tax Benefit
Convenience
Leverage
Inadequate comprehension of Return and Risk Vaguely formulated Investment Policy Nave Extrapolation of the Past Cursory Decision Making
Simultaneous Switching
Misplaced Love for Cheap Stocks Over-diversification and Under-diversification
Contrary Thinking
Patience
Composure Flexibility and Openness Decisiveness
Securities Market
Equity Market
Debt Market
Derivatives Market
Money Market
Options Market
Futures Market
Mutual Funds Custodians Registrars Underwriters Bankers to an Issue Debenture Trustees Venture Capital Funds Credit Rating Agencies
INVESTMENT APPROACHES
Fundamental Approach
Psychological Approach
Academic Approach
Eclectic Approach
FUNDAMENTAL APPROACH
BUY:
SELL:
PSYCHOLOGICAL APPROACH
Stock Prices are guided by emotions rather than reason. It is based on Technical Analysis. BUY: SELL: Optimism Pessimism (Greed & Euphoria) (fear & Despair)
ACADEMIC APPROACH
ECLECTIC APPROACH
Psychology
Economic System
Investment
Intermediaries
Issuers
Regulatory Bodies
instruments
Maintains Active Trading Increased Liquidity of Financial Assets Useful in Price Recovery Process
Classification
On the Basis of Duration of Transactions Money Market (Less than One Year) Capital Market (More than One Year)
Securities
Provides Linkage between Savings of Household
and Bonds
Insider Trading
Oligopolistic Market (Not Truly Competitive) Limited Forward Trading Outdated Share Trading System Lack of a Single Market (No Inter-market Operations) Problems of Interface between Primary and Secondary Market Inadequacy of Investors Services
Approval of Shareholders
Appointment of Lead Manager and other
Intermediaries like Co-managers, advisors,
Preparation and filing of draft prospectus with SEBI Application of Listing in Stock Exchange Filing of prospectus with the Registrar of Companies Promotion of Issue
Statutory Announcement
Collection of Applications Processing of Applications Determination of the liability of underwriters Finalization of Allotment Giving of demat credit (Dispatch of Share Certificates)
and Refund Orders
Stockinvest Scheme
When public issues get heavily over-subscribe;
Book Building
A method of offering shares to investors in which the
NOTE: The Composite application form must be mailed to the company within a stipulated period (i.e. normally 30 days)
Settlement
Traditionally, it was by Physical Delivery.
Transaction Cost
Trading Cost
Brokerage Cost
Market Impact Cost (i.e. Difference between the actual
transaction price and the ideal price)
Scope
Investor s Protection Security Market Regulation
(3) The Securities Contracts (Regulation) Act, 1956 (4) The Depositories Act, 1996
Regulation of Transactions in Securities Listing of Securities on Stock Exchanges Electronic Maintenance and Transfer of Ownership of Demat Securities