Market Fundamentals

Stock, Share & Securities

What is stock

A stock is a financial instrument that represents an ownership in one or more

companies.

Definition

A stock is a broad word for the ownership certificates of any company. A stock,
commonly known as equity, is a security that indicates ownership of a fraction of
the issuing corporation. Shares on the other hand, are stock units that enable the
owner to own a proportion of the corporation's assets and profits depending on
how much stock they buy.

Company & Share Capital

What is Company

"Company means a company founded under this Act or any prior Company Law,"
the Company Act 2013's Section 2 (20) specifies.

In general, a company is a legal person that has a separate legal existence,

perpetual succession, a common seal, and limited liability.

In simple words, a 'company' is a voluntary group of individuals who have come

together to carry out business and share the profits.

Explanation

A company is basically an artificial person, commonly known as corporate

personhood, in that it is a different entity from the people who own, manage, and
support its functioning. Companies are often established to make a profit from
their operations, while some may be formed as nonprofit organizations. Each
country has its own corporation and corporate structure hierarchy, while there are
various similarities.

A corporation has many of the same legal rights and obligations as an individual,
such as the power to enter into contracts, sue (or be sued), borrow money, pay
taxes, own assets, and hire personnel.

Types of Indian Companies under the 2013 Companies Act

Companies are differentiated based on different criteria below

Companies classified by size

Public Limited Company

A public limited company is one in which the general public can own corporation's
shares. It simply refers to a company that has the ability to generate funding from
the public i.e. stocks are publicly traded. There is no set minimum number of
stockholders that a public limited company must have; however, it can have as
many shareholders as it requires. A public company must instead have seven or
more members. The company can appoint as many as fifteen directors, with a
minimum number of directors being two.

The publication of a company's entire and true cash flow is mandated by law so
that investors can evaluate the real value of its stock (shares). Public limited
companies have limited liability. Shareholders of a public limited company are only
entitled to lose the money they invested in owning the shares.

Ownership and management of a public limited company are separate since

shareholders do not have the right to engage in day-to-day management. The
Board of Directors makes all significant corporate decisions.

Private Company

A private company is one that is fully owned by a limited number of people or

organizations (at least 2), has its own legal identity, and is not permitted to have its
shares sold publicly on public exchanges.

Companies that are private limited have more than two and less than 200
members. There must be no more than two and maximum of fifteen directors in a
private limited corporation. Opposite to Public Limited Companies, a Private
Limited Company only allows its members to transfer shares, and the general
public cannot subscribe to its shares or debentures.

It is not mandatory for the private limited company to publish its financial reports.
In comparison to a public limited corporation, a private limited company is subject
to less rules and governmental monitoring, they can process legal procedure
quickly. For example - the requirement to conduct the statutory general meeting, to
submit a with the Registrar, to keep annual reports, etc. Additionally, although a
Public Limited Company requires a certificate of commencement, private limited
companies can begin operations with just the certificate of incorporation. Private
limited companies are just ideal for startups.

Companies according to their Liability

Limited by shares

A company limited by shares means that the liability of the company members is
restricted by the Memorandum of Association (MOA). A Memorandum of
Association (MoA) is the company's foundation. It is a legal document created
during the establishment and registration of a company to describe its relationship
with shareholders and to specify the goals for which the company was founded.
The term limited in this case implies the stockholders' limited liability. They are
solely liable for any company liabilities up to the value of their company shares.
There are no personal assets at risk. In other words, the owner or directors are not
personally accountable if the firm fails.

Limited by Guarantee

Companies limited by guarantee are defined in Section 2(21) of the Companies Act
2013 as "a company having the liability of its members restricted by the
memorandum to such sum as the members may respectively promise to contribute
to the assets of the business in the event of its liquidation process." Guarantee
Company is another name for a company limited by guarantee.

In a nutshell, it is a company that has no shareholders but is owned by members

known as guarantors who commit to pay a small fee if the firm is liquidated. It is a
special form for non-profit organizations. Profits made by the company are
reinvested in it to be used for various purposes under this structure.

Unlimited Company

According to clause (92) of Section 2 of the Companies Act, 2013 (India), an

unlimited company is one that has no limitations on the liability of its members, i.e.
shareholders. The shareholders' responsibility is unlimited. In the event of a
liquidation, they will be forced to pay from their personal assets to settle the
company's liabilities.
Types of Companies Based on Control

Holding Company

According to the Companies Act of 2013, a holding company is one that holds at
least 50% of another corporate body. As a result, the holding company has the
opportunity to influence the Board of Directors and participate in the entity's
decision-making process. In a nutshell, a holding company's primary job is to
supervise and direct its subsidiary companies.

A holding company is a type of business entity that is generally a corporation or a

limited liability company (LLC). A holding company does not manufacture, sell, or
undertake any other commercial activity. Rather, holding firms own the majority of
the shares in other companies.

Subsidiary Company

A subsidiary company, according to the Companies Act of 2013, is one whose

operations are supervised or managed by a parent or holding company. The
holding firm owns more than half of the shares in the subsidiary. A wholly-owned
subsidiary is one in which the holding company owns 100% of the shares of the
subsidiary. Except otherwise provided in the controlling legislation, a subsidiary
does not have the authority to own shares of the holding company.

A subsidiary firm benefits from having relatively few regulatory compliances and
diverse but measured risks by being managed by a parent company. Further, the
subsidiary companies have a distinctive legal position from the controlling
corporation.

Associate Company

An associate company, also known as an affiliate company, is one in which a parent

company owns a sizable percentage of the shares. The percentage is normally
between 20% and 50%. When more than 50% of the shares is owned, it becomes a
subsidiary of the parent company.

The parent company does not have complete power over the policies and business
decision-making features of the associate company since the minority shareholding
(less than 50%) does not include the right to influence the affiliate company's board
decisions.

Companies classified according to their stock

Listed company

A listed company is one that is listed on one or more recognized stock exchanges in
or outside of India. Shares of publicly traded companies are freely exchanged on
stock exchanges. They must adhere to the standards defined by the Securities and
Exchange Board of India (SEBI).

Unlisted company

Unlisted companies are those that are not listed on any recognized stock exchange
and whose shares are not freely traded on stock exchanges. These companies get
funding from friends, family members, relatives, financial institutions, or private
investors to meet their capital requirements.

Other Companies

Government Company

A government company is one in which the central government, the state

government, or both the central and state governments own at least 51% of the
paid-up share capital. There are various government companies, including Steel
Authority of India Limited, Bharat Heavy Electricals Limited, Coal India Limited,
State Trading Corporation of India, and others.

Foreign Company

A "Foreign Company" is what the Companies Act of 2013 specifies under Section 2.
(sub-section 42). It defines a foreign corporation as any company that has been
formed outside of India and - Has a physical presence in India, through any other
agency, or through electronic/digital means. The company's business operations
are carried out in any other way.

Share Capital
What Is Capital?

Resources and assets that have the potential to create value are referred to as
"capital," such as money, real estate, buildings, equipment, and machinery. These
resources make it easier to produce commodities or services. Every company needs
liquid assets to finance daily operations—to pay liabilities like salaries, rent, power
bills, commission, freight, etc.

Every business has to make a capital investment in order to operate over the long
term, as well as during the first stages of development. Many sources, including
individual savings, personal loans, company loans, angel investment, the sale of
shares, etc., are used by businesses to obtain capital.

What is Share Capital

Share capital is defined as the amount of money raised by a firm via the issuance of
common shares from both public and private sources. On the liability side of the
company's balance sheet, it is shown as owner's equity.

The term "share capital" refers to the funds raised by a company in order to offer
shares to the general public. Simply explained, share capital is the money that
shareholders give to a company. It is a long-term source of money that allows for
smooth operations, profitability, and financial development.

Capital basically relates to the assets utilized to operate a firm. A company's share
capital is split into smaller denominations. These units are each referred to as
shares. Alternatively, it could be the resources necessary to start a company. The
phrases capital and share capital are synonymous. The term "share capital" under
the Indian Companies Act refers to a company's proportion of capital or interest.

Explanation

A company's share capital is reported on its balance sheet under the shareholder's
equity segment. Depending on the source of the funding, the information can be
listed in many line items. A line for common stock, another for preferred stock, and
a third for additional paid-in capital are commonly included.

Shares of common and preferred stock are recorded at their par value at the time
of sale. The "par" or face value is a nominal figure in modern trade. A company's
real amount received in excess of its par value is reported as "additional paid-in
capital."
A company's reported share capital comprises only payments for purchases made
directly from the firm. Later sales and purchases of those shares, as well as the
growth and fall of their open market values, have no influence on the company's
share capital.

Following its initial public offering, a firm can choose to have more than one public
offering (IPO). The profits from such future sales would be used to increase the
company's share capital on its balance sheet.

Share capital is categorized as authorized, issued, subscribed, called up, or paid-up.

The company's share capital can be categorized in terms of accounting:

Authorized Capital

Authorized Capital, commonly known as the company's registered capital or

nominal capital, is the maximum amount of share capital that a company is
permitted to issue to its shareholders under its legal documents.

According to the procedure outlined in the Companies Act, the authorized capital
can be reduced or raised. It is important to note that the company is not required
to offer the entire amount of authorized capital for public subscription at once.
Company can circulate share capital depending on its need, but it should never go
beyond the amount of authorized capital.

Companies commonly reserve a portion of their authorized share capital for future
financial requirements. Without shareholder consent, a firm cannot increase its
authorized share capital.

Issued Capital

The term "issued capital" refers to the total number of shares that the company has
issued to its shareholders. In other terms, the issued capital is the number of
shares issued or just after owned by the shareholders.

As an example, suppose a company has a Rs. 50,000,000 authorized capital, with

Rs. 10 being the price per share. Suppose a company received an order for 10,000
shares, but instead issued 8,000,000 shares at a price of Rs. 10 each. Then, Rs
80,000 would be issued as capital (8,00,000 x 10).
Finally, issued capital refers to the shares that the company has actually issued to
the shareholders. These shareholders can include the general public, institutional
investors, and insiders who get stock as part of their remuneration packages.
Outstanding shares are even referred to as issued shares.

Subscribed Capital

Section 2(86) of the Companies Act of 2013 defines subscribed capital. Subscribed
capital is the portion of issued capital that has been purchased by the general
public. If, for example, 13,000 shares of Rs 100 each are offered to the public and
12000 shares are applied for, the subscribed capital would be Rs 12,00,000.

Called up Capital

Section 2 (15) of the Companies Act of 2013 defines called-up capital. Called-up
capital is the portion of the Subscribed Capital that the Board has specified for
payment by the shareholders. Called up capital is the amount of share capital that
stockholders owe but have yet to pay. For example, if the board calls Rs 60 per
share on 12000 shares of Rs 100 each, the called-up capital will be Rs 720000 (60 x
12000).

Saving & Investment

What is saving?

Savings are the funds left over after subtracting a person's consumer expenditure
from their disposable income over a specific time period. Savings represent an
individual or family's net excess of money after all expenses and obligations have
been paid.

Savings are retained in the form of cash or cash equivalents (e.g., bank deposits),
which have no risk of loss but offer similarly low returns. Investing can increase
savings, but doing so involves placing money at risk.

High-yield savings account

A high-yield savings account is a deposit account that offers a significantly higher

interest rate than conventional savings accounts accessible at brick-and-mortar
banks. These accounts are primarily provided by internet banks and credit unions.
Compared to the traditional savings account throughout the country, these
accounts provide much higher returns.

Money market account

A money market account is a bank account that pays interest based on current
money market interest rates. In the end, it appears and operates similar to a
savings account, but with a few special functions of a checking account. Interest
rates are often higher than those available on savings and transaction accounts.

A money market account will mostly have some or all of the following features:

● A greater interest rate than the same bank's checking account

● FDIC protection
● Capability to write checks
● Debit or ATM cards are both acceptable.
● A requirement for a minimum balance
● There is a monthly withdrawal restriction.
● Maintenance or service costs are charged on a monthly basis.

Certificate of deposit

A certificate of deposit (CD) is a form of savings account where the issuing bank
pays interest in return for holding a certain amount of money for a specified period
of time, such as a year, five years, or six months. When you cash in or redeem your
CD, you will get the amount you initially invested plus any interest. Utilizing
certificates of deposit is among the safest methods of saving money.

In contrast to savings accounts, CDs require that the money stay intact for the
duration of the term in order to avoid penalty fees and losing on interest.

Cash Management Account

Cash management is the process of accumulating and controlling cash flows.Cash

management is a skill that both individuals and businesses can benefit from. It is an
essential component of a company's financial stability. Cash is necessary for
people's financial stability and is typically seen as a component of their overall
wealth portfolio.
A cash management account, or CMA, combines features and services that are
comparable to those of checking, savings, and/or investment accounts into a single
package. CMAs are generally provided by nonbank financial service providers, and
some CMAs are able to do so because of the cheap overhead of online-only
services, which allows them to provide above-average interest rates and fees that
are fair or nonexistent.

Hence, an online-managed nonbank cash account called a cash management

account allows customers to deposit your cash, earn attractive interest rates, and
take cash when they need it.

Nonbank signifies that broker-dealers or financial advising businesses constitute

the majority of CMA providers.

Depending on the financial organization, a cash management account may have

different specialized features. For example, some cash management accounts
include access to ATMs, debit cards, check writing facilities, and online payment
options. Some cash management accounts could be thought of as alternatives to a
more conventional bank account like a checking or savings account because of
these recognizable characteristics.

One can also use cash management accounts that have a brokerage component to
transfer funds straight from the cash account to investment accounts.

What Is an Investment?

An asset or object acquired with the aim of generating income or appreciating in

value is considered an investment. The growth in the value of an asset over time is
referred to as appreciation. When a person buys a thing as an investment, the
objective is not to consume the commodity but rather to utilize it to build wealth in
the future.

An investment is always the outflow of some resource today—time, effort, money,

or an asset—with the goal of a bigger return in the future than what was first
invested. An investor, for example, may buy a monetary asset today with the
expectation that it will give income in the future or that it will be sold at a better
price later for a profit.
Listing of Securities

Stocks, bonds, and other securities issued by issuers must be listed in order to
provide liquidity to investors. The formal entry of a securities to the Exchange's
trading platform is known as listing. It offers liquidity to investors without
jeopardizing the issuer's demand for cash, and it guarantees effective supervision
of the issuer's conduct and trading of securities in the interests of investors.

The issuer that wishes to obtain trading privileges for its securities meets the listing
conditions specified in the applicable legislation and the Exchange's listing
regulations. It also agrees to pay the listing fees and comply with the listing
standards on an ongoing basis. All issuers that list their securities must meet the
corporate governance standards established by authorities.

Various Segment of Market

Market Segments

Market segments are groups of individuals that are grouped together for marketing
purposes. Market segments are subsets of a broader market, and they commonly
group people together based on one or more related criteria.

Corporations and their marketing teams employ a variety of factors to define a

target market for their products and services. After carefully analyzing the needs,
lifestyles, demographics, and emotions of the target customer, marketing
specialists approach each group differently.

Capital market

A capital market is a platform where funding instruments such as shares,

debentures, debt instruments, bonds, ETFs, and so on are traded. It is a source of
funding for people, businesses, and governments.

The assets traded here are primarily long-term investments with a one-year lock-in
period. Short-term investments, on the other hand, are typically found in the
money market.

Equity Market

The term "equity market" refers to the marketplace where businesses offer shares
for sale and investors purchase them, assisting the former in raising money to
support business expansion and growth. It provides investors with a fair role in the
business; as a result, they acquire ownership of the company through the shares
they buy.

A stock market is often known as an equity market. Either an over-the-counter

(OTC) market or a stock exchange are used to buy and sell these stocks. Here, a set
price is used for the sale and purchase. This is the price at which both the buyer
and the seller agree to exchange goods.

Debt market

The debt market, often known as the bond market, is where debts are purchased
and sold. A single physical exchange does not exist for bonds. The majority of
transactions are performed between brokers, huge institutions, or individual
investors.

Derivative Market

Financial derivatives are contracts whose value is based on an underlying asset,

group of assets, or benchmark. A derivative is a contract entered into between two
or more parties that can be traded on an exchange or over-the-counter (OTC).

These contracts may be used to trade a variety of assets and come with their own
set of risks. The underlying asset's changes affect the pricing of derivatives. These
financial products are widely used to get access to certain markets and can be
exchanged to reduce risk. Derivatives can be used to either minimize risk (hedging)
or to take risk in exchange for a proportional return (speculation). Derivatives can
shift risk (and the associated profits) from risk-averse to risk-seeking investors.

Future & Options

Futures contracts are financial agreements between two parties to purchase or sell
an asset in a certain amount at a predetermined price and date. The underlying
asset could be a commodity (such as agricultural products and minerals), a stock
index, a pair of currencies, or an index fund.

Futures contracts obligate traders to transact an asset regardless of its current

market price. These are important for speculators and hedgers who utilize price
movements to maximize profits or reduce losses. Furthermore, customers can
trade them at a pre-set rate until the contract's expires and settle their positions in
cash or by physical delivery.
Commodity Market

In general terms, a commodity is described as an object that is purchased and sold.

It falls under the category of all types of transportable property, with the exception
of Actionable Claims, Money, and Securities.

A product with commercial value that can be produced, purchased, sold, and
consumed is referred to as a commodity. Essentially, commodities are the output of
an economy's primary sector. Agriculture and the acquisition of raw materials are
the main concerns of the primary sector of an economy.

metals, energy (crude oil, natural gas), and other materials that are essential inputs
for the secondary sector of the economy.

The commodity market is a real-world or online marketplace where traders come

together to purchase or sell positions in commodities including wheat, barley,
copper, gold, oil, and other metals. Though primarily focused on agricultural
products, commodity markets now deal in a wide range of goods, including
infrastructural products like oil and electricity as well as basic metals like gold,
silver, and copper. About 50 main commodity exchanges globally trade in more
than 100 commodities.

Hence, a commodities market is a place where raw resources or basic goods can be
bought, sold, or traded.

Currency

A currency future is an agreement between two parties to exchange a specific

amount of a specified currency at a predetermined price on a set date. Currency
markets are often referred to as the interbank market.

A "commodity futures contract" is a contract where the underlying asset is a

commodity, such as wheat or oil. The contract is called a "currency futures contract"
when the underlying is an exchange rate. On the settlement date, both parties to
the futures transaction must meet their obligations.

Trade in currency derivatives is quite similar to trading in stock options and futures.
Instead of stocks, currency pairings are the assets being exchanged in this case. A
currency future contract can be used to trade one currency for another. The
Foreign Exchange Markets are where currency options and currency futures are
traded. Forex rates are simply the value of a foreign currency in relation to national
currency. In India, the key participants include various banks, exporters, importers,
and companies.

Spot Market

A spot market is a financial market that trades financial instruments and

commodities for immediate delivery. Delivery is the act of physically exchanging a
financial instrument or commodity for cash. Because cash payments are processed
quickly and assets are physically exchanged, the spot market is also known as the
cash market or physical market.

When an investor (Mr. Kunal) wants to purchase 1,000 shares of Reliance Industries
on the National Stock Exchange, it is an example of a spot market transaction (NSE).
He will get in touch with his broker to purchase the shares at the current rate,
which is now 2,363 rupees. The broker completes the instant transfer of shares to
the seller for a price of 47,260 rupees. As soon as the payment clears and is
received by the seller, ownership of the shares is given to Mr. Kunal.

Forward Market

A forward market is an over-the-counter market where a price is fixed for a

financial instrument or asset for delivery in the future. Although it often refers to
the foreign currency market, it also covers stocks, commodities, and interest rates.

Through a forward contract, a party can purchase or sell an asset at a fixed price
within a given time period in the future. A commodity, a delivery date, and an order
size can all be specified in forward contracts. Grain, natural gas, oil, precious
metals, and other things can all be considered commodities.

Future market

A futures market is an auction market where traders purchase and sell

commodities and futures contracts for delivery at a later date. Futures are
exchange-traded derivatives contracts that lock in the delivery of a commodity or
asset at a specific price in the future.
Futures contracts are more standardized as compared to Forward markets.
Forward markets generally entail physical delivery, whereas futures contracts are
cash-settled.

As a result, they are settled every day. These agreements have standard terms and
set maturity dates but cannot be customized.

Savings

Savings refers to the money that is left over after consumer expenditure is
deducted from disposable income during a specific time period. Therefore, savings
is the residual cash that a person or household possesses after all debts and
obligations have been met.

Types of Savings

Ordinary Saving

An ordinary saving bank account where funds are deposited without a specific
purpose is referred to as an "ordinary saving deposit." A transactional account is
another name for this account. When you take money out of this account, such as
cash or checks, you have quick access. There are no fees or restrictions on deposits
or withdrawals from Ordinary Savings accounts.

High Yield Saving account

Investment

An investment is a purchase undertaken with the intention of making money or

increasing in value. Appreciation is the term used to describe when an asset's value
increases over time. When one purchases an asset as an investment, they don't
intend to utilize it right now to make money; instead, they plan to use it later to
generate wealth.

Types of Investments

Stocks/Equities

A share of stock is a unit of ownership in either a public or private firm. The investor
can be eligible to receive dividend payments derived from the company's net profit
if they hold stock. Its value can increase and be sold for financial gains as the
business grows and more investors show an interest in purchasing its shares.

Common stock and preferred stock are the two main stock classes to invest in.
Voting rights and participation eligibility are often included with common stock.
When it comes to dividends, preferred stock often has priority over common
stockholders and must be paid first.

Debt investment

A debt investment is when a shareholder lends money to a company or project

sponsor in the hope that the borrower will repay the investment including interest.

A debt fund is an investment pool, like a mutual fund or exchange-traded fund, in

which fixed income investments are the majority of the holdings. A debt fund can
invest in floating rate debt, collateralized assets, money market instruments,
short-term or long-term bonds, and securitized products.

Debt funds are a subset of the fixed income asset class and are commonly referred
to as credit funds or fixed income funds. Investors who want to safeguard their
wealth or get low-risk income distributions opt for these low-risk funds.

Hybrid Investment

An investment fund known as a hybrid fund shows diversification across two or

more asset types. These funds often mix bonds and equities in their investments. A
different name for them is asset allocation funds.

These funds usually provide a return that is higher than pure fixed income
instruments like bonds but lower than pure variable income securities like stocks.
They are seen to be riskier than pure fixed income instruments but less risky than
pure variable income securities like stocks.

Active investment

An investment approach known as active investing includes the investor actively

purchasing and selling securities. Active investors buy securities and keep a close
eye on their activities to take advantage of profitable possibilities.
Active investors regularly check the changes in their stock prices throughout the
day. Active investors usually aim to make quick money. Active money management
aims to exceed average stock market returns and make the most of temporary
price fluctuations.

Passive Investment

A passive investment approach seeks to optimize profits by reducing purchasing

and selling. Index investing is a popular passive investment method in which
investors buy a representative benchmark, like the nifty50 index, and hold it for a
long period of time.

Passive investing is a long-term wealth-building technique that involves purchasing

and keeping securities that closely match stock market indexes. It can reduce risk
because you're investing in a variety of asset classes and industries rather than a
single stock.

Less buying and selling are involved with passive investing, which usually leads to
investors purchasing index funds or other mutual funds.

Short term Investment

Short-term investments, also known as marketable securities or temporary

investments, are financial assets that can be quickly converted to cash, often within
the span of 6 to 12 months. Many short-term investments are sold or converted to
cash after six to twelve months. CDs, money market accounts, high-yield savings
accounts, government bonds, and Treasury bills are all prominent types of
short-term investments. These investments are often high-quality and liquid assets
or financial assets.

Although short-term investments mostly provide lower rates of return, they are
very liquid and allow investors to withdraw funds immediately if necessary.

Long Term Investment

Long-term investments are those made in various financial instruments that

investors plan to keep for a longer duration of time, often a year or more. Investors
use such investment alternatives in order to reap large profits over the long term.
While the rewards of these investments are great, the risks connected with them
are equally large. As a result, it takes conviction to believe in long-term profit
realization and to commit to keeping such assets for more than a year. In a
nutshell, long-term investments are for risk-takers.

Distinction between Saving and Investment

Saving is systematically putting money away, generally into a bank account. Savings
are commonly done with a specific goal in mind, such as paying for a car, a down
payment on a home, or any unforeseen costs. Saving can also refer to depositing
money into instruments like a bank time account (CD).

Investing is using some of your money to help it increase by purchasing assets that
can increase in value, such as stocks, real estate, or mutual fund shares.

Earning

Earnings is the money received by a person or company after taxes have been paid.
Earnings in stock market is divided into: -

Dividend

A company can pay its shareholders a dividend as a monetary or non-monetary

compensation. Dividends can be paid in a variety of ways, including cash, shares, or
any other form. The dividend of a firm is decided by its board of directors. However,
a firm is not obligated to pay dividends. Dividends are generally a portion of a
company's profit that it distributes to its shareholders.

A dividend is the distribution of a company's profits to its eligible shareholders. The

board of directors of a company decides on dividend distributions and quantities.
The dividend yield is the dividend per share expressed as a percentage of the share
price of a firm.

Interest

The financial reward that a lender or financial organization receives for lending
money is called interest. It serves as a means of offsetting for the risk that comes
with lending and part ownership.
Interest is charged on auto or college loans, mortgages, credit cards, savings
accounts, and overdraft protection. It is usually agreed upon between the lender
and the borrower in order to avoid the danger of late payments, inflationary
pressures, and other issues. As a result, an equilibrium price defines the borrower's
interest liability and the lender's income.

Capital Gains

A capital gain is a rise in the value of an asset or investment due to price increase.
In other terms, a gain happens when the current or selling price of an item or
investment surpasses its purchase price. Capital gains are attributed to all sorts of
capital assets, including but not limited to stocks, bonds, goodwill, and real estate.

Topic: Share Trading

Direct stock exchange transactions between investors are not permitted. Licensed
participants in a stock exchange are stock brokers. They make trades on behalf of
an investor. They either work as an individual service provider or for a brokerage
company. It is preferable if they have the necessary qualifications and expertise in
the field of finance. In the stock market, a broker is also known as a Trading
Member.

A stock broker is knowledgeable with market procedures, so you may rely on their
judgment and understanding. They can help you make the appropriate market
judgements.

Demat account

The Demat account is where your securities will be kept digitally. To create a new
Demat account, you must provide the following documents:

A passport-sized picture.

A copy of your PAN card.

Aadhaar card, passport, voter ID card, driving license, PAN card, or any other
recognized photo identity.
Address proof such as ration card, passport, voter ID card, driving license, bank
passbook, power bill, self-declaration from the High Court or Supreme Court,
identification card, or address proof provided by a recognized body.

A Demat account is opened once you submit the necessary papers and they are
validated.

In addition, a trading account is formed in line with the Demat account. To open a
trading account, you must submit the following documents:

A passport-sized picture.

A duplicate of your PAN card.

Aadhaar card, passport, voter ID card, driving license, PAN card, or any other
authorized picture identity is acceptable.

Ration card, passport, voter ID card, driving license, bank passbook, power bill,
self-declaration from the High Court or Supreme Court, identification card, or
address proof provided by a recognized body are all acceptable forms of address
verification.

Benefits of Demat Account

The human experience in the virtual world has undergone a transformation due to
the digital age. In a similar vein, the Demat Account service has improved trading
experiences globally.

Demat accounts were created when shares were converted to electronic format
and finally the whole stock market went paperless, much to how email services
changed how people communicated from letters to online mailing.

In truth, the aforementioned conversion process, also known as dematerialization,

can be credited for the advantages of a demat account.

A client can obtain the dematerialization procedure, which transforms physical

certificates into electronic balances.

An investor must have an account with a Depository Participant Identification if

they plan to dematerialize their securities.
The NSE's Demat Account feature was launched by SEBI in 1996, and the BSE
followed suit a few years later. Additionally, the Depositories Act, which was
approved by the Indian Parliament, gave this order its authority.

The Depositories, including NSDL and CDSL, took on the task of dematerialize
physical shares, which is at the core of the advantages of a Demat account.

Let's now examine some key attributes of the Demat account and how they benefit
traders.

The minimization of risks

Physical shares were the only form of trading prior to the rise of the digital age.
Additionally, dealing with tangible shares exposes the entire trading process to
dangers like theft or loss of paper shares.

However, what was even more concerning were the cases of counterfeiting that
were hard to prevent since actual shares were too simple to generate.

These dangers have been simply addressed as shares are only stored in Demat
accounts and are only held in Dematerialized form.

Record-keeping is simple

If you don't have access to a Demat Account, it might be difficult to keep track of
the shares you are purchasing and selling each day. This activity requires the
keeping of a separate record book, which is also subject to human mistake.

On the other hand, a Demat account would instantly provide you with a thorough
summary of all the transactions, including all incoming and exiting shares.

This will also make it easier for average traders to monitor their performance and
profit-loss information.

With such information readily available on a Demat account, traders and investors
can get insights into market behavior and patterns and afterwards make the
necessary adjustments to their trading methods.

Types of Demat Account

Normal demat account:

Regular demat account is for people who only trade with equity shares. The shares
that are purchased are kept in the account in digital form. It takes the ones that are
sold from it. It is not necessary to have a regular demat account if you intend to
trade futures and options. This is because futures and options do not need to be
kept because they have an expiration date.

The Basic Services Demat Account is a new form of demat account that SEBI has
established (BSDA). Similar to a regular demat account, with the exception that if
the balance is less Rs 50,000, there are no maintenance fees. The annual fee is Rs
100 for assets between Rs 50,000 and Rs 2 lakh. The BSDA was established with the
goal of promoting financial inclusion and assisting investors who want to
participate in the markets but have not yet opened a demat account.

Repatriable demat account

Non-resident Indians should use this form of demat account (NRIs). It enables the
transfer of wealth. Such demat accounts, however, call for a Non-Resident External
(NRE) bank account. You must shut the demat account you held while a resident
Indian after you become an NRI. After that is finished, you can transfer the shares
to an NRO demat account. There is a restriction on repatriation that takes effect if
you want to sell the shares. A maximum of USD $1 million can be repatriated by
you in a given year (January–December).

Non-repatriable demat accounts

Once more, these accounts are for NRIs. Transferring money abroad is not possible,
though. The demat account must be connected to an NRO bank account as well.

How to Open Demat Account

You don't need to leave your house to establish a demat account. The entire
procedure is digital and can be finished using just your cell phone in 10 to 15
minutes. The steps that show you how to establish a demat account on your own
are listed below.

Search for depository participant

You cannot trade with a stock market directly, just as you cannot create a bank
account directly with the Reserve Bank of India. During this step, a depository
participant enters the picture. The depository participant not only simplifies
operation for stock exchanges but also offers traders and investors a wide range of
trading possibilities. Indian depository participants include, among others,
Sharekhan, Zerodha Broking Limited, Angel Broking, etc.

So, what is a depository you may think?

In the same way that your money is kept in a bank, your assets are kept in a
depository. If you want to create an account with a depository participant linked to
a major depository, you must pay certain dp fees to the financial institution known
as a depository. Your financial assets, including bonds, stocks, mutual funds, and
other dematerialized assets, must be kept safely by the depository. National
Securities Depository Limited and Central Securities Depository Limited are India's
two principal depositories (Central Depository Services Limited). Depository
participants step in as none of these organizations allow for the opening of an
account or trading directly.

A depository participant acts as an intermediary for traders, investors, and CDSL

and NSDL. A depository participant is essentially any facility that functions like a
bank in terms of holding assets and processing transactions. Instead of storing
money, a depository participant stores assets such as stocks. You can create a
Demat account with a DP and store securities before trading with them, as your
account can be connected if you create a trading account. A depository participant,
who acts as an agent for one or both of the NSDL and CDSL, assists you in
efficiently managing your assets.

As a result, choose a depository with whom you wish to create a demat account.
Consider the dp's reputation and if it can deliver the exact services you require.

Provide essential details

You can open an account by filling out a form on the dp website. You will need to
start by entering some basic information like your name, phone number, email
address, etc. You will have to provide the information from your Pan Card.

Provide bank details

Your account number, IFSC code, account type, and other information must be
included. Adding your bank account information is crucial since it will be used to
credit any money owed to you or debit money when you buy securities.

Document should be uploaded

A demat account requires several papers, all of which are listed above. The
mandatory papers are primarily shared by brokers, banks, and other financial
institutions that serve as an internet trading platform. You must guarantee that the
papers are valid as of the submission date and have not passed their expiry date.

Personal confirmation

Since the entire procedure is digital, verification may be done independently from
home. You don't have to wait for a representative from the dp to come to you and
verify your identification. To finish the procedure, simply film a brief video of
yourself reading out a prescribed script (your name, pan number, residence, etc.).

E-sign

Most dp will enable you to digitally sign your application using a cellphone number
connected to your Aadhar. It minimizes paperwork and is a convenient and secure
solution.

Submittal of a form

You can submit your form after completing these steps, and your demat account
will be activated shortly after. You will get information about your account,
including the demat account number and login information.

Charges for a demat account

The fees associated with creating a Demat Account will vary according on the DP
you use. Before creating a Demat account, it is critical to understand the types of
fees charged by DPs.

Fees for opening a demat account:

Account opening fees differ amongst service providers. While online trading
platforms and brokerage businesses do charge a nominal amount as an account
opening cost, other banks provide no account opening fees.

Depository Account Maintenance Fees:

Demat accounts do not have a minimum balance requirement, however they do

have an annual maintenance fee that varies from INR 200 to INR 1000 depending
on the DP you choose to create your Demat account with. The type of Demat
account you choose to create with the DP will also influence the Demat account
fees. For custody values of securities less than INR 50,000, BSDA or Basic Service
Demat Accounts completely waive AMC (annual maintenance charges). The AMC is
INR 100 for prices between INR 50,000 and INR 2,00,000. The BSDA is considered as
a Full Service Demat Account automatically for securities with a value more than
INR 2,00,000. AMC exemptions are commonly given by DPs, but they are one-time
deals that do not continue after the first year.

Brokerage Fees or Transaction Fees:

Depending on the DP you select, there will be a brokerage cost or transaction fee.
This indicates that the DP will charge a nominal brokerage fee each time a security
enters or exits your account. The brokerage charge is based on the transaction
value and the kind of securities being traded. The DP discloses the brokerage
charge up front as part of the terms and conditions they provide to the client when
creating an account.

Demat fees

Demat fees are a small cost associated with transferring paper equity or share
certificates to electronic format. The cost of the conversion varies amongst DPs.

Charges for Custodian or Safety:

The DP levies a tiny monthly cost as a custodian or safety fee, ranging from INR 0.5
to 1 per security, to keep your account secure.

A secure, simple, and inexpensive option to invest in the stock market is through an
online demat account. Before creating a Demat account, it is advisable that small
investors examine Demat rates and expenses between DPs.
There are two different ways to close a Demat account:

Account closure: A request to cancel the Demat account online can be made to the
concerned depository partner (DP) when there are no outstanding holdings or
payments in the investor's account.

Transfer and account closure: The process is slightly different if there are pending
securities that need to be moved to another Demat account.

1. Download the Demat account closure form from the website of your depository
participant (bank or investment firm).

2. Then thoroughly complete the form and submit it together with your KYC
documentation. Check the credibility of each proof. This stage entails either
delivering the paperwork to the nearby DPs office or sending it to the relevant head
office.

3. If the account is shared by more than one person, both must sign the closure
form in front of an official from their depository participant.

4. Verify that the account is not holding any shares, and that it has a positive
balance. You may verify this by signing into your account.

Closing or deleting a demat account when moving pending securities or

shares from one Demat account to another:

1. There are two national depositories in India: NSDL and CDSL. In the event of
intra-depository transfers, an Intra DIS slip is required, as well as the 'Off-Market
transfer option in the Demat account.

2. The DIS slip functions similarly to a check, but only for Demat account
transactions. It is used to make the sale or transfer of shares from one account to
another easier and more secure. You must give your Demat account provider or DP
with a DIS slip in order to conduct a transaction (depository participant). On the
other hand, an off-market transfer is a method of transferring shares between two
parties without using a stock exchange. An off-market transfer occurs when you
want to transfer part or all of the shares in your demat account to the demat
account of someone else. One example of an off-market transaction is the giving of
shares to family members.
3. Next, obtain the original CML (client master list) with the logo, stamp, and
signatures from the account.

4. Following that, the completed form must be specified, together with the names
and ISINs of the shares you desire to transfer. The target client's ID, which is a
16-character code, must also be specified.

5. Submit the paperwork to your DP's office or mail them to their headquarters.

6. For closure, a bank official must additionally check the self-attested Demat
closure form.

Trading Account

A trading account is any investment account that holds securities, cash, or other
assets. Trading account is most typically used to refer to a day trader's primary
account. Because these investors often purchase and sell assets, often within the
same trading session, their accounts are subject to specific regulation. The assets
stored in a trading account are distinct from those held in a long-term purchase
and hold plan.

The Benefits and Necessity of a Trading Account

Trading Accounts provide several advantages to investors, making the share trading
environment more robust and efficient. Here are a few examples of these
advantages:

Informative

Investment in the stock market necessitates extensive research and study in order
to make an informed decision. Most stockbrokers' online trading systems give
real-time news and information to investors, such as daily market updates and key
news and announcements that can affect share prices. Moreover, one may view
market depth and real-time price charts to assist them keep on top of the market.

Access to several stock exchanges

SEBI regulates many stock exchanges in India, including the NSE, BSE, MCX (Multi
Commodity Exchange), and NCDEX (National Commodity & Derivatives Exchange).
Because stockbrokers are registered with SEBI and the Exchange, creating a trading
account gives you access to trade on various Exchanges.

Mobility and Smooth Transactions

As many trading platforms switch to mobile applications, investors may now use
the app from their smartphones or similar devices and trade from anywhere and at
any time. The process of placing an order or beginning a transaction has gotten
easier as the process has evolved. With the advancement of technology, the entire
process has gotten faster, allowing traders to save and spend more.

Personalized Trading Experience

Online trading systems provide you entire control over the experience, allowing you
to tailor it to your own needs and specifications. Changes to your on-going orders,
watchlists, and activating SMS and email notifications are all possible.

Various types of trading accounts

Depending on the sort of usage you wished to engage in, trading accounts were
available in a vast array of forms.

With a Cash Account, the customer is obligated to pay the entire price for any
securities bought. A customer cannot borrow money from their brokers to
complete transactions in a cash account since all of the cash and securities are their
own.

When you start a cash account, you usually deposit funds by sending a direct bank
transfer, though you can alternatively mail a check.

After the funds have been sent to your brokerage, you certainly have a few options:
A money market fund, which delivers nominal returns but significantly reduces risk
and enables you access to your money whenever you need it, is an investment that
certain brokerages keep cash in.

It is comparable to a savings account in that it allows you to access the money

whenever you need it while paying higher interest than a checking account. Various
additional cash management techniques, such as a checking account that is directly
connected to your investment account can be used by other brokerages.
However, the brokerage's ultimate objective is always the same: to enable you to
invest that money in the stock market. After funding your cash account with money,
you may next buy the assets that are appropriate for your portfolio.

A Margin Account allows the client to borrow funds from their broker for trading
purposes. This offers them an advantage since they can now purchase more
securities than they could previously with solo finance. There is some risk
associated with this because if the stocks you purchased lose value, your broker will
contact you to deposit the securities or cash to the account instantly. They can also
sell your securities anytime they want to recover their losses.

Trading in Equity and Derivatives - A derivative is a sort of contract in which the

value is determined by another agreed-upon security or asset. This form of account
is established with a stock exchange trading member.

Commodities Trading Account - A commodity market is a platform where traders

trade in primary economic products rather than manufactured goods. As a result, a
commodity trading account is one that facilitates the purchase and sale of such
primary economic goods (such as agricultural produce, gold, oil, and so on).

The Share Trading Account makes it easier to purchase and sell stocks. A share
trading account is a virtual account that allows you to buy and sell stocks in the
stock market online. A trading account, for example, can be used to trade stocks
and other assets such as mutual funds, bonds, and ETFs online.

Option Account – It is a brokerage account that has been granted permission to

hold option positions or transactions. An option is a contract that allows the seller
or buyer to sell or purchase a security at a defined time and rate.

How to open trading account

Select a Stock Broker

There are several stock brokers who will allow you to create a trading account.
There are two types to pick from:

● Brokers who are traditional

● Brokers who offer low-cost services.
Evaluate the pricing and services offered by stock brokers

Traditional brokers will provide you with a trading account in addition to extra
services like advising, tips, research reports, etc. The brokerage charged on your
trading transactions will be high as a result of the additional services. Discount
brokers provide you access to basic tools and a trading account so you can make
your own trading decisions. Because of this, they offer lesser brokerage—typically a
flat fee per trade, regardless of the trade's transaction value.

Contact the broker of your choice to create an account

The days of establishing accounts offline are long gone. You may now contact a
stockbroker online and go to their account opening page. You may call them to
resolve any issues you may have and to learn more about how quickly they respond
to calls by checking their service numbers.

Complete the Account Opening & KYC Form

Once you've decided on a broker, you will have to fill out an online form to create
an account. By taking the following steps, you can create a trading account:

1. Open a new account form.

2. Enter your name, phone number, email, and PAN information.

3. Include your bank information and address information.

4. Upload your photo, signature, and the papers for your bank information, such as
a voided check or bank statement, along with your KYC documents for identification
and address verification. You must also submit income documentation if you
choose to trade futures and options.

5. Perform a personal verification. Create a short video of yourself, then upload it.

6. Sign the paper electronically using your Aadhar registered mobile phone.

Application Verification Process

The online application you submit for a Trading account is examined by the
broker's verification team. The information you provided on the application form is
verified against the information in your proof document. Any difference from the
verification document may result in the application being rejected.

Information about your trading account

You will get confirmation and login information after your account has been
opened. You may monitor the current share prices on your trading account, make a
watchlist, and purchase shares of your ideal companies. However, you must first
transfer funds from your bank account into your trading account to start trading.

Charges

Every stock broker must pay yearly turnover charges, which are to be collected by
the stock exchanges, in accordance with SEBI Regulations based on his overall
turnover. NSE has gradually decreased the transaction fees over time in order to
spread the advantages of efficiency.

An exchange transaction fee of 0.0035% (or Rs. 3.5 per Rs. 1 lakh) of the turnover
must be paid by each member. Trading members must additionally pay securities
transaction tax (STT) at a rate of 0.125% on all delivery-based transactions (payable
by both the buyer and the seller), and at a rate of 0.025% for non-delivery trades for
equity (payable by the seller only).

The market regulator SEBI has rules about the highest brokerage fee a broker could
charge. No broker should charge more than 2.5% of the entire traded value in
brokerage fees, according to SEBI Rule.

The maximum amount of brokerage that a trading member could charge in

connection with transactions involving securities that are noted for trading on the
CM segment of the Exchange is set at 2.5% of the contract price, exclusive of
statutory levies like the securities transaction tax, SEBI turnover fee, service tax, and
stamp duty. However, there are cases of brokerage costs in the market as low as
0.15 percent.

Stamp duties are levied at the rates set by the respective states. In Maharashtra,
brokers with a registered office in Maharashtra are charged @ Rs. 1 for every Rs.
10,000 or part thereof (i.e., 0.01%) of the value of the security at the time of
purchase/sale, as applicable. If the securities are not delivered, a penalty of 20
paise is charged for every Rs. 10,000 or part thereof (i.e. 0.002%).
A trading account has added costs. These fees are determined by how many
transactions were made using the account. These costs vary from business to
business.

The three primary categories of trading account fees are:

Opening Fees for Trading Accounts

When a company is a financial institution, a trading account is often free of charge.

Maintenance charge per year

This fee is generally assessed in advance on an annual basis to maintain your

account and guarantee reliable service. By combining it with account opening costs,
several broker firms try to make this procedure simpler.

Fee for transactions

Any brokerage firm's fees are generally determined by the volume of transactions,
either in terms of rupee value or number of stocks. The transaction cost increases
as the sums increase. Depending on the plan and broker you select, you are
required to pay a brokerage charge.

How is a Trading Account Closed?

A formal request sent to a broker in a specific format is required to start the

process of canceling a trading account. In most cases, the broker's website contains
a form to terminate the trading account. Here is how it works.

Make sure that any outstanding debts—including ongoing margin charges, Demat
charges, pay-in debits, etc.—have been paid in full before submitting the account
closure form. The trading account will not be canceled unless this is done. The
procedure of closing a trading account usually takes one week.

Before you terminate a trading account, keep in mind that doing so ends your
brokering relationship with that specific broker. You can even terminate your
trading account if it's simply a temporary break. When an account is canceled, it
cannot be opened again; instead, you must establish a new trading account and go
through the standard KYC procedure once more.
There are two methods—online and offline—for closing a trading account. You can
close your trading account via the offline approach by submitting the account
closure form. The website usually has a copy of this form you can download, print,
and submit. The account cancellation form can also be electronically signed and
submitted online.

If you want to shut your trading account as well as your Demat account, there are
two things you should keep in mind. First, make sure there are no pending Demat
charges or stocks in your Demat account. You might alternatively ask the broker for
a closure cum transfer instead. These stocks will only be transferred if the name,
PAN number, Aadhar number, etc. match.

LESSON: KYC Documentation

Know Your Customer

Know Your Customer was established in Hong Kong in 2015 with the goal of
revolutionizing the KYC compliance industry. The goal of the founders was to
completely digitize and automate the onboarding process for both corporate and
individual clients, increasing productivity and increasing safety.

Know Your Customer has offices in Hong Kong, Dublin, Singapore, and London in
addition to a strong international presence.

Name, complete address (with PIN code number if the address is in India), PAN,
valid mobile number, and valid email-id, are the six KYC elements. Investors must
now provide their income range and custodian information for clients who have
custodial settlements.

The trading accounts will be deemed non-compliant and prohibited from trading at
the Exchange in cases where the aforementioned 6 KYC elements were not
updated.

To guarantee a smooth settlement, investors are recommended to confirm that the

trading and demat accounts meet the KYC requirements.

By March 31, 2023, investors must make sure they have linked their Aadhar
number to their PAN. Investors whose PANs are not added with their Aadhaar
numbers by March 31, 2023, will not be allowed to trade starting on April 1 of that
year since their PANs would become invalid.

The investors are hereby urged to abide by the regulatory instructions on KYC
compliance and similar requirements that could from time to time be issued by
Exchanges and Depositories.

KYC Modification

How can KYC be updated online? Online KYC updates save you the inconvenience
of physically visiting a kiosk and are a quick and easy process. Here is how it works:

1. Open the KYC online site and log in.

2. Check that portal's settings for a "Update KYC" option.

3. The set of KYC preferences will appear when you click the button.

4. Uploading the most recent scanned copies of the pertinent papers for altering
your name or address goes along with updating whatever has to be changed.

5. You must confirm a one-time password that will be sent to the registered email
address or mobile number you provided before your information is stored and
submitted for verification.

6. Press the "Submit" button after carefully entering the OTP. Your information is
now being reviewed, and in the next few days, you will be informed as to whether
your KYC verification was successfully completed without errors.

KYC Updation

KYC (Know Your Customer) is a requirement to confirm the customer's

identification and stop financial fraud. Every user must undergo KYC verification in
accordance with Reserve Bank of India (RBI) regulations before using any type of
financial service in the nation. To do this, you can create bank accounts, use wallets
to conduct transactions, invest in mutual funds or fixed deposits, etc. You may
move forward with investments and transactions without any hassles after the KYC
verification is complete. However, you must periodically update your KYC in
accordance with the RBI.
Your KYC data should reflect your most recent personal data. It is crucial to contact
the bank and update your KYC information if any of the initial details submitted
change. Changes to your name, address, and other details will be necessary to
ensure that your identity is not used fraudulently.

Periodic KYC updates are also required by RBI regulations for high-risk,
medium-risk, and low-risk clients. These differentiating criteria are based on a
number of variables, including consumer location, turnover volume, payment
method and type, socioeconomic standing, etc. The method is the same, but the
deadlines can change. Below is a list of the various intervals for high-risk,
medium-risk, and low-risk KYC updates:

KYC updates for high-risk clients: High-risk clients should have their KYC updated
every two years.

KYC update for consumers with medium risk: Every eight years, medium risk
consumers should have their KYC updated.

KYC updates for low-risk clients: Low-risk clients should have their KYC updated
every 10 years.

Topic: Market Participants

A regulator is a person or group chosen by the government to regulate a particular

area of activity, like banking or industry.

There are several organizations in existence that the national and state
governments use to control and monitor financial markets and corporations. These
organizations each have a distinct set of tasks and obligations that allow them to
operate independently of one another while pursuing set objectives. One such
organization is the Securities and Exchange Board of India.

Formation of the SEBI

On April 12, 1988, a decision of the Indian government established the Securities
and Exchange Board of India as a non-statutory organization.

A non-statutory body is an organization that lacks legal authority and is not

established by an act of parliament.
The provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992)
went into effect on January 30, 1992, and the Securities and Exchange Board of
India was constituted as a statutory entity in the same year.

Role of SEBI

This regulatory authority serves as a watchdog for all capital market players, with
the primary goal of creating an environment for financial market enthusiasts that
facilitates the efficient and seamless operation of the securities market. SEBI is also
very significant in the economy.

To do this, it assures that the three primary players in the financial market, namely
securities issuers, investors, and financial intermediaries, are taken care of.

1. Securities issuers

These are business entities that obtain funding from a range of market sources. A
healthy and open atmosphere is provided for them by this organization.

2. Investment

The market activity is maintained by investors. In order to regain the trust of the
general people, who put their hard-earned money into the markets, this regulatory
body is charged with preserving an economy free from fraud.

3. Institutional Fund Managers

These are the individuals who serve as intermediaries between issuers and
investors. They simplify and secure financial transactions.

SEBI's key three functions are as follows:

Protective Purpose

As the name implies, SEBI carries out these duties to safeguard the interests of
investors and other financial players.

It consists of

investigating price manipulation

Stop insider trading

Promote ethical behavior

Increase investor awareness

Interdict dishonest and unfair business practices

Functional Regulation

These responsibilities are mostly carried out to monitor how the company is
conducting business on the financial markets.

These tasks include developing standards and a code of conduct to ensure the
appropriate operation of financial intermediaries and corporations.

Regulation of corporate takeovers

conducting investigations and exchanging audits

Brokers, sub-brokers, merchant bankers, etc. registration

Collection of fees

exerting and performing powers

credit rating agency registration and regulation

Development Functions

This regulatory body also conducts several development-related tasks, such as, but
not limited to:

Training intermediaries

encouraging ethical business practices and reducing fraud

Conduct analysis on promoting self-regulating organizations

Directly purchase and sell mutual funds from AMC through a broker

Lesson: Stock Exchanges

India's major stock exchanges

Following is a list of India's major stock exchanges:

National Stock Exchange

In 1992, the National Stock Exchange was established. Under the Securities
Contracts (Regulation) Act of 1956, SEBI approved it as a stock exchange, and it
started operating in 1994. The managing director and CEO of the National Stock
Exchange of India Ltd. is Ashish Kumar Chauhan (NSE).

The exchange was the first in India to offer completely automated electronic
trading. NSE is a leader in innovation and technology, which has secured the
top-notch functioning of its systems. The NSE is the largest private wide-area
network in the nation due to the exchange's backing of more than 3,000 VSAT
terminals.

Compared to the Bombay Stock Exchange, it is more stable and effective because
of its automated system (BSE).

Bombay Stock Exchange

On July 9, 1875, the Bombay Stock Exchange was established. The exchange is the
first of its kind in Asia.

Premchand Roychand, a prominent trader, created the Native Share and Stock
Brokers Association, later known as the Bombay Stock Exchange, in 1875.

With a median trading speed of six microseconds, it is also the quickest exchange in
the whole globe.

In accordance with the Securities Contracts Regulation Act, the Indian government
formally recognized it in August 1957.

The BSE participated in the UN initiative for sustainable stock exchanges in 2012.
The CEO and MD of BSE is Shri Ashish Kumar Chauhan (Bombay Stock Exchange).

In the BSE, there are about 5000 firms listed.

Multi Commodity Exchange of India

Modern commodity derivatives market, Multi Commodity Exchange of India Ltd
(MCX), the first publicly listed exchange in India, allows online trading of commodity
derivatives transactions, providing a platform for price discovery and risk
management. The Exchange, which started operating in November 2003, is
governed by the Securities and Exchange Board of India. (SEBI).

Trading in commodity derivative contracts is made available by MCX across a

number of different sectors, including bullion, industrial metals, energy, and
agricultural commodities, as well as on indexes built from these contracts. Offering
commodities options contracts, bullion index futures, and basic metals index
futures contracts is a first for India's exchange. The Exchange establishes quality
standards and trade laws in compliance with the regulatory framework with an
emphasis on providing commodities value chain players with neutral, secure, and
transparent trading platforms.

Metropolitan Stock Exchange of India

Under Section 4 of the Securities Contracts (Regulation) Act of 1956, Metropolitan

Stock Exchange of India Ltd. (MSE) has received recognition from the Securities and
Exchange Board of India (SEBI). The Ministry of Corporate Affairs of the
Government of India designated The Exchange as a "recognized stock exchange" on
December 21, 2012.

For trading in the debt market, futures and option contracts, currency derivatives,
and capital market divisions, MSE provides an electronic, public, and high-tech
platform.

The Exchange has agreed to accept SEBI's assistance in principle for implementing
SME trading regulations.

All sectors other than SME have a live trading platform at the Exchange. All deals on
the Exchange are cleared and settled by Metropolitan Clearing Corporation of India
Limited (MCCIL), a subsidiary of the Exchange.

The four pillars of MSE's distinctive market development strategy are "Information,
Innovation, Education, and Research." MSE upholds its purpose of
Financial-literacy-for-Financial Inclusion, as envisioned by the Government of India.
The Exchange has worked together to create knowledge and awareness initiatives
with reputable academic institutions, the media, trade associations, international
standards, and business professionals.

The Exchange's present ownership is evenly distributed among corporations,

banks, and individual investors. The Exchange is required to request from SEBI a
yearly renewal of recognition.

Calcutta Stock Exchange

The Calcutta Stock Exchange (CSE) is a stock exchange that is situated in Kolkata,
India. It is South Asia's second-oldest stock exchange. The CSE offers its members
the chance to trade on the futures and options markets of the National Stock
Exchange of India Limited and the Bombay Stock Exchange (BSE) in addition to the
capital markets (NSE).

Despite the fact that stock trading in Calcutta dates back to the early 1800s, there
was no established marketplace or code of ethics. It is reported that stockbrokers
met under a neem tree in the area where the Standard Chartered Bank's
headquarters are currently located in Calcutta.

The British East India Company's loan securities are the oldest instance of securities
transactions in India. The Calcutta Stock Exchange Association, the official
exchange, was formed in 1908. It had 150 members at the time. The Association
established limited liability in 1923.

In accordance with the key sections of the Securities Contracts Regulation Act of
1956, the exchange was officially recognized by the Indian government in 1980.
Since then, the CSE has expanded to include over 900 members and over 3,500
listed businesses. The current Exchange building in Kolkata's Lyons Range was built
in 1928.

National Commodity & Derivatives Exchange Ltd.

An agricultural commodities exchange in India is called the National Commodities

and Derivatives Exchange (NCDEX). It has independent directors and provides a free
internet trading platform for commodities. It was established as a public limited
company on April 23, 2003, in accordance with the Company Act of 1956, and it
began operations on December 15, 2003. India's Securities and Exchange Board
oversees NCDEX (SEBI).
The National Commodities and Derivatives Exchange, which has its main office in
Mumbai, has branches in Delhi, Jaipur, Ahmedabad, Indore, Hyderabad, and
Kolkata. The platform had 387 members nationwide as of March 2019.

There are a total of 22 commodities on NCDEX that are allowed to be traded on the
online marketplace. The products include guars, pulses, and spices, none of which
are traded on any other international marketplace. As a result, the commodities,
which are relevant to India economically, play a significant role in the trade of the
nation.

Indian Commodity Exchange Limited

A national online trading platform for commodities derivatives is called Indian

Commodity Exchange Limited. To make deliveries easier, grading and vaulting
facilities have been set up. This exchange is perfectly situated to take advantage of
the enormous potential of the commodities market and to promote involvement
from actual users so they can take advantage of the prospects for hedging, risk
management, and supply chain management in the commodities markets.

MMTC Ltd, Indian Potash Ltd, KRIBHCO, IDFC Bank Ltd, Reliance Exchangenext Ltd
(Reliance Capital), and Indiabulls Housing Finance Ltd are notable shareholders in
The Exchange, which is a public-private cooperation.

Role of stock exchange

The following are a few of the most significant tasks carried out by the stock
exchange:

Role of an Economic Barometer - The stock market plays the role of an economic
barometer, providing information on the health of the economy. It keeps track of all
significant and minor changes in share prices. It is correctly referred to as the
economy's pulse since it shows how the economy is performing.

Securities valuation: Using supply and demand parameters, the stock market
assists in the valuing of securities. Companies that are prosperous and focused on
expansion generally charge more for the securities they supply. The valuation of
securities helps the government, investors, and creditors in carrying out their
respective duties.
Transactional Safety: Transactional safety is guaranteed by the listing of the
securities that are traded on the stock market, which is done after checking the
company's financial status. All companies that are listed are required to follow the
guidelines established by the regulatory body.

Contributor to Economic Growth: stock exchanges provide a platform for buying

and selling shares from several firms, which contributes to economic growth.
Continuous disinvestment and reinvestment are a part of the trade process, which
presents prospects for capital development and, as a result, economic expansion.

Public education about equity investment: Stock exchanges assist in educating

the public about equity investment and by rolling out new securities to better cater
to invest in securities.

Allows for healthy speculation of traded securities: The stock exchange assures
demand and supply of securities, as well as liquidity, by allowing for healthy
speculation of traded securities.

Facilitates liquidity: The stock exchange's primary responsibility is to provide a

convenient marketplace for the selling and purchase of securities. In other words,
the stock market offers liquidity in terms of investment, giving investors the
assurance that their current holdings may be turned into cash.

More effective capital allocation: Profitable companies will have active share
trading, which enables them to raise additional funds from the equity market. For
investors, the stock market facilitates better capital allocation in order to maximize
profit.

Encourages saving and investment: The stock market is a key source for investing
in a variety of assets that have higher yields. Stock market investments are
preferable to gold as investment choices.

Lesson: Investors, Traders and listed Companies

There are several different sorts of investors that focus their investments and
services on only one financial channel. An investor is first classified into two types:
active and passive.
Active Investor: An investor that actively seeks for incredible investment
possibilities and has integrated investing into their daily lives is referred to be an
active investor. Investors that aim to buy stocks with low share prices compared to
their book values are an example of taking an active strategy. Others may want to
make long-term investments in "growth" stocks, which may be losing money right
now but have great potential in the future.

Passive Investor: A passive investor, on the other hand, is an investor who makes
long-term investments that can have low initial value but have high future value
potential and can serve as an amazing investment opportunity if you are ready to
wait a long time. This group commonly involves investors such as mutual fund
investors and real estate investors.

Active investment techniques are losing ground to passive (indexed) investing as

the principle driving the stock market. Part of the reason for this popularity boom is
the expansion of low-cost target-date mutual funds, exchange-traded funds, and
robo-advisors.

Different types of investors based on different types of risk

Investors who are cautious or risk-averse

These investors avoid taking risks. They choose to face comparatively less risks.
They are satisfied with the significantly lower returns for the relatively lower risk.
These investors have low tolerances for risk. They do not want to lose money on
their investments, even if it is for a short time. Short-term fixed deposits, long-term
fixed deposits, and debt instruments directly or through debt mutual funds are
examples of investments for risk-averse investors.

Investors that are risk-neutral or moderate risk taker

These investors have a moderate level of willingness to take risks and a moderate
level of risk tolerance. They are prepared to take some losses on their investments.
They also have a reasonable anticipation of benefits. For the possibility of greater
benefits in the long run, they are willing to accept minor losses in the short to
medium term.

Examples of investments for risk-averse investors include a mix of short- and

long-term fixed deposits, debt instruments directly or through debt mutual funds,
and stocks directly or through an equity mutual fund. Equity and debt are both
investments in balanced mutual funds. Multi-asset mutual funds make investments
in commodities, stocks, and debt. These mutual funds are also good examples of
investments for risk neutral investors.

Aggressive, risk-loving, or risk-seeking investors

These investors deliberately seek out fairly high risks. These risk takers anticipate
significantly higher benefits in exchange for taking on such a high level of risk. They
also have a high propensity for risk as well as a high-risk tolerance. They are willing
to accept short- to medium-term losses in exchange for possible long-term
rewards. Equities, either directly or through an equity mutual fund, and equity
derivatives like futures and options are examples of investments for risk-taking
investors.

On the basis of duration

Short-term investors - Investors that invest in financial assets with a one-year or

shorter time scale in mind are said to be short-term investors. Ultra-short-term
bonds with maturities of less than a year, capital or convertible notes, investments
in money markets (such as buying and selling currencies), etc. are examples of
short-term investment instruments.

Long-term investors - On the other hand, long-term investors are those that invest
in long-term financial instruments and keep them for a duration of more than a
year. Long-term investors want to keep their investment instruments, such stocks,
bonds, or derivative contracts, for a long time.

Angel investors

A high-net-worth private individual who invests in startups or entrepreneurs is

known as an angel investor. The money is often given in return for a corporate
share interest. Angel investors are able to provide a one-time or continuous
financial contribution. An angel investor often contributes money to a startup
company when the risk is greatest. They often invest surplus cash they have on
hand in high-risk ventures.

Peer-to-Peer Lenders
Peer-to-peer lending, often known as P2P lending, is a type of financing in which
borrowers forego the traditional middleman—such as a bank—and instead get
loans directly from one another.

P2P lenders are individuals or groups of individuals that invest money to provide
small enterprises an opportunity to sell their goods and services in the financial
sector. These lenders are experts in this area of lending, therefore a company must
approach them on its own if it wants financial assistance. These financiers directly
support the endeavors of small firms and buy their shares if they like the company
idea and believe it has a future. P2P lending examples include crowdsourcing, in
which companies look to raise money from several investors online in exchange for
goods or other benefits.

Personal Investors

Any individual that invests on their own is considered to be a personal investor. An

individual investor puts their own money to work by purchasing stocks, bonds,
mutual funds, and exchange-traded funds (ETFs). Personal investors aren't experts;
rather, they're people looking for better returns than can be found in basic
investing instruments like savings accounts or certificates of deposit.

Venture Capitalists

Private equity investors that aim to invest in start-ups and other small firms are
known as venture capitalists. These investors usually take the shape of a company.
In contrast to angel investors, they look at companies that are already in the early
stages and have the potential to expand rather than trying to fund startups to help
them start their businesses from the ground.

These are businesses that commonly want to grow but lack the resources to do so.
As compensation for their investment, venture capitalists look for an ownership
position in the firm, support its expansion, and then sell their share for a profit.

Institutional investors

Organizations that invest other people's money are considered institutional

investors. Mutual funds, ETFs, HFTs, and pension funds are a few examples of
institutional investors. Institutional investors are able to buy enormous quantities
of assets, often large blocks of stocks, because they raise significant sums of funds
from a large number of individuals. Institutional investors have a variety of
techniques to affect asset prices.

Dos for issuing securities

Prospectus/Abridged Prospectus should be read and carefully noted.

Risk aspects related to the problem.

The issuer's financial data

Goal of the problem.

Any pending legal disputes and defaults.

IPO Grading.

Base price for the issue.

Company Overview.

History of the promoters

prior to applying, instructions.

Contact the compliance officer listed in the offer document if you have any
questions or concerns.

File a complaint with the issuing company's compliance officer and post issue lead
manager as instructed in the offer document if you do not receive a share
certificate, credit to your demat account, or a refund of your application fee.

Don'ts

Avoid being misled by market rumors.

Never rely on any promise—implicit or explicit—made by anyone.

Don't base your investment decisions on market index or stock performance of

rival firms operating in the same sector as the issuer.
Do not count on the price of the issuer company's shares to increase in the near
future.

Investing in derivatives

Do’s

Examine all of the exchanges' disclosures and rules, regulations, bylaws, and
guidelines.

Trade only via an approved Trading Member (TM) registered with SEBI or an
Exchange-registered Trading Member (TM).

Make sure the contract note was only issued by the authorized person's TM while
working with that individual.

When transacting with an authorized person, just pay the TM for brokerage,
payments, margins, etc.

Make sure you have a properly signed contract note from your TM detailing the
specifics of each conducted trade as well as your individual client ID.

Obtain a receipt for any margin-related collateral you have placed with the Trading
Member (TM).

Examine the Client-Trading Member Agreement in detail.

Don'ts

Before reading and comprehending the Risk Disclosure Documents, do not begin
trading.

Never trade on any product without understanding the risks and potential rewards
involved.

Dos: collective investment schemes

Make sure the entity is registered with SEBI before investing.

Read the offer document of the programme attentively, paying close attention to
the risk considerations.
Check the project's feasibility.

Check and confirm the promoters' experience and background.

Make that the entity's assets have clear and marketable titles.

Make sure the Collective Investment Management Company has the tools it needs
to implement the plan.

Verify the scheme's credit rating and rating history.

Look for the scheme's evaluation and read the concise appraisal report.

Read the scheme's objects carefully.

Examine the offer document for information on the preceding programmes'

promises and actual results.

Don’t

Do not invest in any CIS entity that is not registered with SEBI.

Don't let indicative results fool you.

Don't rely on market rumors.

Dealing with brokers & sub - brokers

Dos

Deal solely with intermediaries who are SEBI registered.

Ascertain that the intermediary has a current registration certificate.

Make that the intermediary has the right to trade in the market.

Who will place orders on your behalf? Be sure to specify.

Before beginning operations, demand that the middleman sign the client
registration form.
Enter into a contract detailing all terms and conditions with your broker or
sub-broker.

Before signing, make sure you have completely read the agreement and risk
disclosure form.

Ensure that you sign on all of the agreement's pages and that the broker or another
person who is allowed to sign does the same. The contract should also be signed by
submitting their name and address, witnesses.

Request a legitimate contract note or confirmation memo for all transactions made
within 24 hours of the transaction.

After receiving the original contract note or confirmation memo, sign the copy and
provide it to the broker.

Request bills for each settlement.

Ensure that the contract note clearly displays the broker's name, trade time and
number, transaction price, and brokerage.

Require a regular accounting statement.

Create checks or draft exclusively in the intermediary's business name.

Verify payment/delivery receipt within 48 hours of payout.

If there are disagreements, contact the intermediary/Stock broker in writing, w ithin

a reasonable period, the exchange or SEBI.

Sub-broker disagreements should be reported to the primary broker within six

months.

Before engaging in any transaction, familiarize yourself with the guidelines and
circulars published by stock exchanges and SEBI.

Give the broker or sub-broker instructions that are precise and unambiguous.

Records of all directions given to the broker or sub-broker should be kept.

Maintain constant monitoring of your Demat A/c portfolio.

Don’ts

Dealings with unregistered middlemen should be avoided.

Pay the middleman no more than the authorized brokerage.

Never negotiate arrangements on behalf of others.

Don't forget to put down in writing any phone orders for higher value.

When fulfilling your security pay-in responsibility, do not sign any blank delivery
instruction slips.

Accept no duplicate or unsigned contract notes or confirmation memos.

Accept any signed contract notes or confirmation memos with caution.

Don't postpone paying the broker or delivering the securities to the sub-broker.

If there are any enticing commercials, don't let them fool you.

Don't follow market rumor's or engage in unlawful deals.

Buyback of securities

DOS

Read the special resolution on the proposed buy back carefully before deciding on
it.

Compare the buyback price to the market price over the last few months, earnings
per share, book value, etc.

Check to see if the price being asked is fair.

Carefully read and adhere to the requirements before submitting your application
for the bidding of shares.

Make sure your application gets to the collecting center in sufficient time.

Contact the Merchant Banker if you don't get the letter of offer within a reasonable
amount of time.
Clearly and legibly provide the data provided in the letter of offer.

Don’ts

Never submit more than one application.

Don't forget to legibly complete the application.

Don't alter the application form in any way.

Avoid cutting and pasting in the application form.

Send the application to the correct address.

Never apply after an offer has closed.

Don't forget to fill out the application form completely.

Keep in mind to sign the application form.

Don't fill up the application form with inaccurate or inconsistent information.

Dealing in securities

Dos

Primarily transact on stock exchanges.

Deal only with intermediaries that are registered with SEBI.

Complete the necessary account opening paperwork in a professional manner,

(Forms for client agreement, client registration, etc.)

Get a "Know Your Client Agreement" and sign it.

Before making any trades, read up on and fully comprehend the dangers related to
investing in securities and derivatives.

Before making an investment choice, consider the investment's risk-return profile

as well as the liquidity and safety issues.
Before making a purchase, discuss all the details with your broker and clarify any
queries you may have.

Invest based on logical thinking, fundamentals, and any information that is readily
available to the public.

Give your broker, sub-broker, or depository participant precise, unambiguous

instructions.

Don’ts

Off-market trades should be avoided given the advantages of stock exchange

trading.

Avoid working with unlicensed brokers.

Avoid being fooled by promises of inflated profits.

Verify all information before investing rather than basing decisions on hearsay and
rumors.

Do not neglect to consider the investment's hazards.

Beware of market rumors that might mislead you.

Don't let rapid increases in stock prices or prices, or unreliable, favorable-looking

articles or tales, convince you to invest in fundamentally flawed firms (penny
stocks).

What is a listed company

A publicly traded company issues shares of its stock for trading on a stock
exchange. A company that is listed in India has satisfied the Securities and
Exchange Board of India (SEBI) standards for offering shares for sale to the general
public and has been approved for trading on a market like the National Stock
Exchange. A public firm, that is, listed companies are required to provide
shareholders and the SEBI with quarterly financial reports.

On the other hand, a private company is any company that is held by private
persons and isn't registered with or acknowledged by any stock exchanges.
LESSON: Market Intermediaries

Stock Broker

A stockbroker, by definition, is a middleman with the legal right to transact in

securities on behalf of investors on a stock exchange. In order to purchase or sell
stocks through exchanges, which serve as a platform for the investor to enter and
transact in securities, the investor seeks the help of a broker because it is difficult
for him to transact directly on the stock exchange.

The majority of the time, stockbrokers are employed by a stockbroking company,

but they can also operate independently and demand a specific level of
compensation in return. In other terms, a stockbroker is a person in charge of the
commission who performs trading services on behalf of his customer and aids the
investor in making a more informed choice.

Role of Stock Broker in Stock Market

The functions and responsibilities of a broker are as follows:

(a) Consultative Services - In general, brokers inform and assist their customers to
make trading decisions about the purchasing or selling of stocks since they stay
current on market conditions and could thus suggest stocks/securities for better
earnings.

(b) Manage the Trading Platform and Related Paperwork - Stockbrokers enable
trading on behalf of their clients, as well as complete related tasks, keep track of all
transactions and statements, and manage related paperwork.

(c) Managing Client Portfolios – Brokers manage the portfolios of their clients and
inform them of any changes. Additionally, they answer consumer questions about
investments.

How to find a stock broker

Simple and fast account opening

Opening an account is the initial step in trading, and if that is challenging and
time-consuming, won't feel like moving ahead. Checking the account opening
procedure is therefore crucial. It ought to be simple and quick.
Security-related reputation

Everyone wants to be sure that the stock broking company they are using to invest
is safe and secure when it comes to investing money. Verify the firm's history, that
of its parent company, and the broker's status, if any.

The first step is to research the stockbroker's history and reputation. What do the
consumers of the brokers say about their platforms and how old are the brokers?
You may browse consumer feedback, grievances, and assess the individual user
experiences.

Analyzing how big a broker is based on the total number of active clients is another
technique to assess their reputation. The larger the stockbroker, the more stable its
trading platform will be.

Cost-effective

Before you decide on a course of action, consider all possible expenses. Numerous
situations might result in charges. There are fees for starting an account, deducting
money from your demat account, converting physical shares to electronic form,
and many more. Look out for unforeseen costs.

When investing and trading, there should be no or very few hidden fees. Every fee
incurred during transactions should be explained in detail. Before choosing a
stockbroker, ask your customer service representative whether there are any
hidden fees. Additionally, you may look at the stockbroker's pricing and charges
area to learn about all the fees that clients are required to pay.

Variety of Services Provided

Find a stockbroker who offers all of the diverse trading and investment alternatives
you're looking for. If you want to trade stocks, derivatives (futures & options),
currencies, commodities, etc., for example, seek a broker who allows you to deal in
all of these, not just one.

Check to see if this variety of facilities is offered by that broker if you also intend to
invest in other possibilities, such as mutual funds, bonds, etc. Most reputable
brokers today provide services for a variety of investments and trading
instruments.
Fee Transfer

It should be possible to easily link your trading account and savings account. Search
your stockbroker for the fund transfer procedure. It should be quick and simple to
send and withdraw money online. Furthermore, find out whether that brokerage
charges a fee for fund transfers.

Keep in mind the features, tools, and education

The tools, training, and features that a broker offers should also be considered
when making the decision. Different levels of service are offered by different
brokers. For example, while some brokers provide simple trading tools, others offer
more advanced ones. You might want to pick a broker that provides additional
instruction and training if you are a novice investor. If you are a seasoned investor,
though, you might want to pick a broker with more sophisticated capabilities. Make
sure to inquire about the various service levels and select the one that best suits
your needs.

Registration

For many market areas, the SEBI has created a standard registration certificate. The
clearing corporation and the stock exchange both need to provide their approval.
The entity must apply through the regulator and the relevant stock market in the
way specified in order to register. The organization would receive a certificate with
a special registration number. The applicant must conform to the SEBI's "Fit and
Proper" Criteria.

Responsibilities of A Stock Broker To its Clients

The stock broker must provide the client with the appropriate protection with
regard to the client's rights to dividends, rights, bonus shares, etc. in regard to
transactions routed through it and must not take any action that is likely to harm
the interests of the client with whom or for whom they may have engaged in
securities transactions.

The stock broker and the customer are required to periodically reconcile and settle
their accounts in accordance with the Rules, Regulations, Bye Laws, Circulars,
Notices, and Guidelines published by SEBI and the applicable Exchanges where the
deal is performed.
The stock broker shall issue to his constituents a contract note for trades
conducted in such format as may be defined by the Exchange from time to time,
comprising records of all transactions including information of order number, trade
number, trade time, trade price, trade quantity, details of the derivatives contract,
client code, brokerage, all charges imposed, and all other relevant details as needed
therein to be filled in and issued in such way and therewith. Within one working day
of the trades being executed, the stock broker must deliver contract notes to the
investors in paper copy or electronically using a digital signature.

Unless the client specifies otherwise and subject to any terms and conditions that
may be set forth by the relevant Exchange where the trade is executed from time to
time, the stock broker shall make payment out of funds or delivery of securities, as
the case may be, to the Client within one working day of receipt of the payout from
the relevant Exchange where the trade is executed.

The stock broker is required to provide each of its clients a full "Statement of
Accounts" for both money and securities in the regularity and format as may be
from time to time defined by the relevant Exchange where the deal is completed.
The Statement must further specify that the customer must notify the stock broker
of any mistakes in the Statement within the time frame that may be established by
the relevant Exchange from time to time, depending on where the deal was
performed.

The clients must get daily margin statements from the stockbroker. The daily
margin statement should contain the collateral that was placed, the collateral that
was used, the condition of the collateral (available balance/due from the client), and
a breakdown of the collateral in terms of cash, fixed deposit receipts (FDRs), bank
guarantees, and securities.

In order to enter into a connection with a stock broker and fulfill his responsibilities
and commitments under this agreement, the Client must guarantee that he has the
necessary legal ability. He must also be permitted to do so. The client must take all
necessary steps to verify that any transactions they enter into comply with all
applicable laws and regulations before entering into any such transaction.

Educational information
The tools, training, and features that a broker provides should also be considered
when making your decision. Different levels of service are offered by different
brokers. For example, while some brokers provide simple trading tools, others
offer more advanced ones. You might want to pick a broker that provides additional
instruction and training if you are a newbie investor. If you are a professional
investor, though, you might want to pick a broker with more sophisticated
capabilities. Make sure to inquire about the various service levels and select the
one that best suits your needs.

Underwriter

The term "underwriting" originated from the early industrial revolution practice of
asking risk takers to sign their names below the total risk they take in exchange for
a certain premium.

An underwriter is any person, often a member of a financial institution, that

assesses and takes on another party's risk in mortgages, insurance, loans, or
investments in exchange for a commission, premium, spread, or interest.

While underwriters work for insurance firms, agents and brokers both represent
consumers and insurance companies.

Merchant banker

The term "merchant banker" refers to any individual working in the field of issue
management, whether they are arranging the purchase, sale, or subscription of
securities, or they are managing, advising, or providing corporate consulting
services in connection with such issue management.

Merchant banks assist multinational firms and specialize in international trading.

Unlike retail or commercial banks, merchant banks do not provide financial services
to the general public.The biggest merchant banks in the world are J.P. Morgan
Chase, Citigroup, and Goldman Sachs.

Portfolio manager

A portfolio manager is a person or group of persons who are in charge of managing

daily portfolio trading, implementing an investment strategy, and investing the
assets of a mutual, exchange-traded, or closed-end fund. One of the most crucial
things to consider when looking at fund investing is a portfolio manager. Active or
passive portfolio management is an option, and historical performance data shows
that only a small percentage of active fund managers continuously outperform the
market.

Debenture Trustee

The phrase will be broken down into two parts before defining who a Debenture
Trustee is. Each portion will first focus on one of the essential ideas before
examining the notion as a whole.

Debenture

A debenture is a type of debt instrument that the company signs acknowledging its
commitment to repay the cash at a certain rate and with interest. It is one approach
to increasing the company's lending capital.

Debentures are thus, the money obtained by the debentures forms a part of the
company's capital structure but does not become share capital. Instead, they
function more like a loan bond or certificate of loan confirming the fact that the
company is obligated to pay a specific sum with interest.

Debenture Trustee

The term "debenture trustee" refers to the trustee of a trust deed used to secure
the issuance of debentures by a body corporate.

According to SEBI regulations, the name of the "Debenture Trustee" must be

mentioned in the prospectus of the Issue for all debenture issuance (public/rights)
of companies having a maturity period more than 18 months.

To represent and safeguard the interests of bond and debenture holders, a

Debenture Trustee is appointed. The need for the establishment of a debenture
trust stems from the need to organize the numerous debenture holders and make
it easier for the companies issuing debentures to communicate with one
organization rather than individual debenture holders.

Distributors and advisors

Distributors act on behalf of their company. Based on their own "advice," they offer
their principal's products to customers. Their pay will be determined by their
principle and will be dependent on the products sold.

Distributors of financial instruments usually provide advice and sell products that
their clients require and are compensated indirectly through commissions inherent
in the products they sell. Fee-only advisors, on the other hand, provide advice and
charge a fee directly to the customer.

LESSON: Trading & Settlement

Order Management

An electronic system called an order management system (OMS) is created to

efficiently and affordably execute securities orders. When brokers and dealers fill
orders for various types of securities, they utilize an OMS to follow the status of
each transaction across the system.

Pre-open session

The NSE introduced the idea of the pre-open session to reduce the volatility of
stocks at the market's daily opening. Between 9:00 and 9:15 a.m., the NSE and BSE
hold a pre-open session.

Orders are received, amended, or canceled within the first 8 minutes of the
pre-market period (between 9:00 AM and 9:08 AM).

Limit orders and market orders are also possible. The order collecting window will
shut between 9:07 AM and 9:08 AM.

New orders cannot be placed after the pickup window closes at 9.15 a.m. Orders
are matched, and trades are completed. During the order collecting period, you can
only place orders on the equity section.

After Market Order

Similar to pre-market orders, post-market orders are only permitted for stock
trading during the closing session. From 3:40 to 4:00 PM, the post-market or closing
session is open.
People can put buy/sell orders in equities during this session (delivery segment
utilizing CNC product code), but keep in mind that even if you make a market order,
it will be carried out at the market's closing price. So, for example, if Reliance's
closing price at 3:30 PM is Rs. 800, you can place market orders between 3:40 PM
and 4:00 PM to buy or sell Reliance at the market price (will be taken at Rs. 800).

The post-market session is not particularly active, however between 3:40 PM and
4:00 PM, MarketWatch can be opened to view stock activity.

Normal order

This order type, also known as NRML, is used in the cash category to take delivery
of a stock that is held in your Demat Account. You are eligible for extra trading
restrictions on your stock and cash holdings. Your Demat account's stock holdings
will determine the extra cap.

You also get an additional two days to pay the balance owed on deals that aren't
settled on Transaction (T) day. The settlement day, which is T+2, is the last day that
this money can be paid out.

Buy Limit Order

With a buy limit order, traders could decide how much they will spend for an asset
and can acquire it at or below a given price. While initiating a transaction, a limit
order guarantees that the investor will pay that sum or less. The price is assured,
but the order's fulfillment is not.

The price is assured, but the order's fulfillment is not. After all, a purchase limit
order won't be executed until the asking price is equal to or lower than the
established limit price. The order is not completed and the investor could lose out
on the trading opportunity if the asset does not reach the predetermined price. To
put it another way, if an investor uses a buy limit order, they are assured to pay the
price specified in the order or a price that is at least as favorable.

Limit order

You can purchase or sell a stock with a limit order at the price you choose or a
higher price.
In other words, if you put a purchase limit order for stock at Rs 92, you only want to
pay Rs 92 or less for it from the exchange. Not more than Rs 92 should be paid.
Hence for example, if you put a sell limit order at Rs 95, you intend to sell the stock
for Rs 95 or more.

You can make a purchase or sell order at the price you choose by using a limit
order. If no counter order is available for the amount you've specified at the price
you've set, there is a potential that your order won't be completed in full.

Limit order to sell

limit price is lower than the highest possible bid price

Market Orders

You can purchase or sell a stock at the best price by using a market order.

When you submit a buy market order, you wish to purchase a specific number of
shares from the exchange at the best price that is offered. Similar to this, if you
place a sell market order, you wish to sell your shares for whatever price potential
buyers are ready to pay.

If there are interested counterparties, such as buyers or sellers for your sell market
order or purchase market order, your deal will execute as soon as it reaches the
exchange. This is the benefit of market orders. On the other hand, slippage results
from the instant order execution (which means you could be paying slightly more
money to buy or getting slightly less money to sell your stocks).

Stop loss

Traders and investors use stop-loss orders as a tool to minimize losses and lower
risk exposure. With a stop-loss order, a trader specifies that he wants to leave a
position he is in if the price of his investment goes to a particular level that equates
to a specific amount of loss in the transaction. In the event that the market goes
against him, putting a stop-loss order allows a trader to reduce his risk in the deal
to a particular amount.

For example, a trader who purchases stock at $25 per share can place a stop-loss
order to sell his shares at $20 per share, closing out the deal. As a result, he may
only lose a maximum of $5 per share on the transaction. If the stock price goes
below $20 per share, the order will be executed automatically, closing out the
trade. In the case of a sudden and substantial price movement against a trader's
position, stop-loss orders can be very useful.

Trailing stock loss order

With a trailing stop loss order, the stop price is adjusted at a set percentage or
number of points above or below the stock's market price.

Bracket Order

A market order known as a bracket order can only be placed during intraday
trading. These orders include a purchase order, a stop-loss order, and a target
order. Stock market traders can square off a favorable position by the end of the
trading session by using bracket orders. The outcome, though, depends totally on
the stock selections and the trader's choice of the stop-loss and target levels.

Delivery trading

Delivery trading occurs in a trader's trading account and includes trading shares
that have already been credited to or will be credited to a demat account. In
delivery trading, traders are required to cover all margin costs and make sure that
the exchange is received at the latest by the first half of T+1. The position could be
squared off and the loss, if any, will be deducted from the customer account if the
payment for the delivery transaction is not made by the next day.

Intraday trading

Intraday is short for "within the day." The word is a shorthand used in the financial
industry to refer to securities that trade on the markets during regular business
hours. Among these securities are stocks and exchange-traded funds (ETFs). The
terms "intraday" and "highs" and "lows" refer to the asset's daily highs and lows.
Short-term or day traders who want to place multiple transactions within a single
trading session should pay close attention to intraday price changes. When the
market ends, these active traders will close out all of their positions.

Buy today, sell tomorrow

It takes t+2 days for shares you purchase on the market to appear in your Demat
account. It implies that you won't be able to profit if the price increases the next
day. However, BTST meaning states that even if the stocks haven't been delivered
to you yet, you are still permitted to leverage an increase in price.

Using the purchase today, sell tomorrow strategy, investors can trade their stocks
two days after purchasing them. You must know that BTST trading falls between
intraday deals and the cash market while attempting to understand "what is BTST
trading."

Transactions in cash trading are only permitted when shares are delivered to the
demat account. It takes two days, and during that period the stock price can vary
significantly. Trading BTST aids in removing this delay.

An order book is an electronic list of purchase and sell orders for a single
investment or financial instrument grouped by price level. The quantity of shares
being offered or bid on at each price point is recorded in an order book as market
depth. As they include details on pricing, availability, size of the market, and the
parties initiating transactions, these listings help to improve market transparency.

Buy orders, sell orders, and order history are the three components of an order
book.

Trading

Stock trading is the act of purchasing and selling company shares in an effort to
profit from price fluctuations. The short-term price fluctuations of these equities
are closely monitored by traders. They aim to purchase cheap and expensive items.

Screen Based Trading System

Without the use of information technology for instant matching or deal recording,
trading on Indian stock exchanges used to be conducted in the open market. This
was ineffective and time-consuming.

The efficiency and volume of trade were limited as a result. A member can enter
the quantities of a security and the price at which he would like to transact into the
computer, and the transaction is executed as soon as a matching sale or buy order
from a counterparty is obtained. This nationwide, online, fully automated
screen-based trading system (SBTS) was introduced by NSE to provide efficiency,
liquidity, and transparency.
Online trading

Online trading is a technique that makes it easier to purchase and sell financial
instruments including mutual funds, stocks, bonds, shares, commodities,
derivatives, and ETFs using an electronic interface.

Offline trading

When you physically direct your broker to conduct a deal over an exchange, this is
known as offline trading. You can speak with your broker via phone or go to their
office. Your broker will verify your account information and execute a deal on your
behalf. Trading over the phone will probably take more time. The broker and the
trader, as well as the broker and the exchange, can communicate back and forth
often. During this transaction, the stock prices may fluctuate in an unfavorable way
for the trader.

Pre-Market

Every day there is a trading session, the pre-open stock trading session lasts from
9:00 to 9:15 am. It lasts for 15 minutes. This is the period available for traders to
trade before the normal trading session begins. The session consists of matching
and gathering periods throughout this brief duration. The price range that is
acceptable must match with the open market pricing range. Orders may be
canceled, modified, or placed within this short time.

Normal Market

This session, often known as the continuous trading session, continues from 09:15
AM until 03:30 PM. You are free to trade throughout this session, place orders to
buy or sell stocks, and change or cancel those orders at any time. A bilateral order
matching system is used during this window. This implies that each sell order is
matched with a purchase order that has been put at the same stock price, and each
buy order is matched with a sell order that has been placed at the same stock price.

Closing Session

Bids for the next day's transaction can be placed at 3.40 p.m. – 4 p.m. after the
stock market closes. If sufficient buyers and sellers are present in the market during
this time, bids submitted during this period are confirmed. Regardless of
fluctuations in the opening market price, these transactions are executed at the
agreed-upon price.

Therefore, if an investor who has already made bids sees their beginning price
above the closing price, they might realize capital gains. During the brief window
from 9.00 a.m. to 9.08 a.m., bids could be canceled if the closing price is higher than
the opening share price.

Trading book

The portfolio of financial instruments that a bank or brokerage maintains is known

as a trading book. There are several motives for buying or selling financial products
in a trading book. A bank's tradable financial assets are listed in this type of
accounting ledger. Trading books are liable for gains and losses that directly impact
the financial organization.

Position

Position trading is a long-term investment strategy that supports the buy-and-hold

approach for several months or even years.

Long Position

The term "long position" refers to what an investor obtains when they buy
securities or derivatives in the anticipation that their value will rise. Those who
possess the underlying asset have long positions in options. Having a long position
in options can refer to either complete ownership of an asset or having an option
on that asset.

Short Position

When a trader first sells a security with the purpose of eventually repurchasing or
covering it at a lower price, they are creating a short, or short position. When the
traders predict that the price of an asset will drop soon, they can choose to short
that security.

Squaring off

Squaring off is a trading strategy applied by investors and traders mostly in day
trading. A trader buys or sells a certain number of an asset (often stocks) and then
reverses the transaction later in the day in the hopes of making a profit (Price
difference after deducting broker commissions and taxes).

By way of example, Person A pays Rs 10 per share through a broker to purchase

100 shares of Reliance from the BSE Sensex. Later that day, Person A sells every
share for Rs. 12 and pays Rs. 10 in broker fees. (200-10), or Rs. 190, is A's net profit.

Mark to Market Position

The term "mark to market" refers to a technique for determining the fair values of
accounts, such as assets and liabilities, that are subject to cyclical swings. The
objective is to regularly offer assessments of a company's or institution's current
financial position. It is carried out while considering the current market conditions.

The fair market value of investments like futures and mutual funds can be
displayed using the mark to market approach in the financial markets.

Delivery Position

Delivery trading is carried out in an investor's trading account; it involves trading in

shares that are already held in or that will soon be credited to a demat account. In
delivery trading, traders are required to cover all margin costs and make sure that
the exchange is paid at the latest by the first half of T+1. The position could be
squared off and the loss, if any, will be deducted from the client account if the
payment for the delivery transaction is not completed by the next day.

Settlement

The delivery of purchased securities to the buyer and the payment received from
the seller form the two-way procedure known as trade settlement.

The actual ownership transfer takes place on the settlement date when you
purchase or sell financial securities.

Settlement Cycle

The amount of time needed to settle a trade is referred to as the settlement cycle.
The settlement cycle for all instruments traded on the Indian markets is T+1 day,
where T denotes the trading day.
Stock Lending & Borrowing

Clients can lend or borrow securities using the Securities Lending and Borrowing
(SLB) mechanism at a predetermined rate and duration. If the loan fee and quantity
quoted by the borrower and lender match at the exchange, the order will be
executed.

LESSON: Margin & Pledge

In a margin account, the broker lends the investor money so they may buy more
securities than they otherwise could have with the amount in their account.

To buy securities on margin is to, in effect, use cash or current assets in your
account as collateral for a loan.

To guarantee that purchasers in the stock market have actual cash backing their
purchases, stock exchanges often demand a margin, or a minimum amount of cash
or securities, to be retained in one's trading account in order to execute a trade of a
given value. The concept of 'peak margins' was recently introduced in India from
01-Dec-20 by SEBI.

The margins that investors must maintain with their broker for every transaction
will be determined based on the highest value of positions taken by them during
the day, according to the company. Previously, margin requirements were
determined based on investors' closing positions at the end of the trading day.

Securities or money could be used as the provided margin. The minimum margin in
the cash sector is 20% of the transaction value, and in the F&O segment, it is the
total of the exposure and SPAN margins, which could vary for each company.

Required Upfront Margin

The minimal amount needed to execute a deal is known as upfront margin, and it
must be paid beforehand on the trading day. The following are the upfront margins
for each segment:

EQ = Minimum Margin + Extra Margin

F&O = Extreme Loss Margin + Span Margin

Span Margin + Extreme Loss Margin = CDS.

Span Margin = MCX

Mark to Market Margin

The term "mark to market" (MTM) refers to a technique for determining the fair
value of accounts, such as assets and liabilities, that are sensitive to variation. The
goal of mark to market is to offer a realistic assessment of an institution's or
company's current financial position based on current market circumstances.

Certain assets, such as futures and mutual funds, are also marked to market in
trading and investing to represent the current market value of these investments.

Initial Margin

Initial margin is the percentage of equity that the owner of a margin account must
provide in order to buy securities. In other words, the initial margin is the
percentage of the market value of the securities acquired that the investor is
required to pay in cash.

Span Margin

Exchanges calculate risk and margins for F&O portfolios using Standard Portfolio
Analysis of Risk (SPAN). The maximum probable loss for a portfolio and the
required margin is determined by SPAN using the price and volatility of the
underlying investment in addition to a variety of other variables. When placing an
order, SPAN margin is tracked, collected, and updated by the exchanges
throughout the day.

SPAN margin serves as collateral in options trading to protect against any negative
price changes. The minimal amount of margin required to execute a futures or
options deal in the market is called SPAN.

Exposure Margin

The exposure margin is often levied in addition to the SPAN margin and is
commonly done at the broker's discretion. It is gathered to offer protection against
a broker's liability that can potentially develop owing to irregular movements in the
market. It is also known as an additional margin.
For index futures contracts, the exposure margin is set at 3% of the contract's
value. For example, the exposure margin applicable there will be 3% of Rs. 5 Lakhs,
or Rs. 15,000, if the value of a NIFTY futures contract is Rs. 5,00,000.

The standard exposure margin for stocks, options, and other derivatives is 5%- or
1.5-times standard deviation, whichever is higher.

Margin trading

Margin is the amount that is borrowed from a broker in order to buy an

investment, and it represents the difference between the investment's total value
and the loan sum. Margin trading is the practice of borrowing money from a broker
and utilizing that money to trade a financial asset that serves as security for the
broker's loan. In a standard brokerage account known as a "margin account," an
investor is permitted to use the current cash or assets in their account as collateral
for a loan. Margin leverage tends to increase both gains and losses. A margin calls
in the case of a loss might compel that your broker can sell securities without your
permission.

Margin Call

When the brokerage account balance drops below the required minimum
maintenance margin, the stockbroker alerts the trader, which is known as a margin
call. The trader places both their own money and the money they borrowed from a
broker to buy securities in a margin account.

Immediately after receiving the warning, the trader must add more money or
assets to the account in order to maintain the open position. In order to close
positions, they may also decide to sell some assets.

As a result, it will help them meet or lower the maintenance margin requirements.
However, failure to do so can result in the stockbroker being forced to liquidate the
trader's positions. It will assist in restoring the account balance to the necessary
minimal maintenance margin.

Margin Penalty

According to SEBI regulations, transactions executed without adequate margin, net

buying premium, physical delivery margins, and marked-to-market losses (if
applicable) as required by the exchange are subject to a margin shortfall penalty.
The fine is between 0.5 and 1% of the margin shortfall.

Pledge of Securities

Shares that have been pledged are those that the company's promoters have given
the lender as collateral security in order to borrow money or obtain a loan to pay
for personal expenses as well as business needs, such as working capital needs,
business finance, or raising money for new ventures.

In order to support a debt facility as a kind of collateral, securities are, in other

words, provisionally transferred from the pledges/securities creditor's account into
the pledges/securities pledgor's account. When securities are pledged, the
pledgee/creditor keeps possession of the securities; but, until there is a default, the
pledgee/creditor does not retain complete ownership or title to the securities.

Required Upfront Margin

The minimal amount needed to execute a deal is known as upfront margin, and it
must be paid beforehand on the trading day. The following are the upfront margins
for each segment:

EQ = Minimum Margin + Extra Margin

F&O = Extreme Loss Margin + Span Margin

Span Margin + Extreme Loss Margin = CDS.

Span Margin = MCX

Mark to Market Margin

The term "mark to market" (MTM) refers to a technique for determining the fair
value of accounts, such as assets and liabilities, that are sensitive to variation. The
goal of mark to market is to offer a realistic assessment of an institution's or
company's current financial position based on current market circumstances.

Certain assets, such as futures and mutual funds, are also marked to market in
trading and investing to represent the current market value of these investments.
Initial Margin

Initial margin is the percentage of equity that the owner of a margin account must
provide in order to buy securities. In other words, the initial margin is the
percentage of the market value of the securities acquired that the investor is
required to pay in cash.

Span Margin

Exchanges calculate risk and margins for F&O portfolios using Standard Portfolio
Analysis of Risk (SPAN). The maximum probable loss for a portfolio and the
required margin is determined by SPAN using the price and volatility of the
underlying investment in addition to a variety of other variables. When placing an
order, SPAN margin is tracked, collected, and updated by the exchanges
throughout the day.

SPAN margin serves as collateral in options trading to protect against any negative
price changes. The minimal amount of margin required to execute a futures or
options deal in the market is called SPAN.

Exposure Margin

The exposure margin is often levied in addition to the SPAN margin and is
commonly done at the broker's discretion. It is gathered to offer protection against
a broker's liability that can potentially develop owing to irregular movements in the
market. It is also known as an additional margin.

For index futures contracts, the exposure margin is set at 3% of the contract's
value. For example, the exposure margin applicable there will be 3% of Rs. 5 Lakhs,
or Rs. 15,000, if the value of a NIFTY futures contract is Rs. 5,00,000.

The standard exposure margin for stocks, options, and other derivatives is 5%- or
1.5-times standard deviation, whichever is higher.

Margin trading

Margin is the amount that is borrowed from a broker in order to buy an

investment, and it represents the difference between the investment's total value
and the loan sum. Margin trading is the practice of borrowing money from a broker
and utilizing that money to trade a financial asset that serves as security for the
broker's loan. In a standard brokerage account known as a "margin account," an
investor is permitted to use the current cash or assets in their account as collateral
for a loan. Margin leverage tends to increase both gains and losses. A margin calls
in the case of a loss might compel that your broker can sell securities without your
permission.

Margin Call

When the brokerage account balance drops below the required minimum
maintenance margin, the stockbroker alerts the trader, which is known as a margin
call. The trader places both their own money and the money they borrowed from a
broker to buy securities in a margin account.

Immediately after receiving the warning, the trader must add more money or
assets to the account in order to maintain the open position. In order to close
positions, they may also decide to sell some assets.

As a result, it will help them meet or lower the maintenance margin requirements.
However, failure to do so can result in the stockbroker being forced to liquidate the
trader's positions. It will assist in restoring the account balance to the necessary
minimal maintenance margin.

Margin Penalty

According to SEBI regulations, transactions executed without adequate margin, net

buying premium, physical delivery margins, and marked-to-market losses (if
applicable) as required by the exchange are subject to a margin shortfall penalty.
The fine is between 0.5 and 1% of the margin shortfall.

Pledge of Securities

Shares that have been pledged are those that the company's promoters have given
the lender as collateral security in order to borrow money or obtain a loan to pay
for personal expenses as well as business needs, such as working capital needs,
business finance, or raising money for new ventures.

In order to support a debt facility as a kind of collateral, securities are, in other

words, provisionally transferred from the pledges/securities creditor's account into
the pledges/securities pledgor's account. When securities are pledged, the
pledgee/creditor keeps possession of the securities; but, until there is a default, the
pledgee/creditor does not retain complete ownership or title to the securities.

Pay out

The clearing organization delivers the client's selected shares, which are then
transferred to the broker's account. The client's demat account is then adjusted as
a result.

The Securities and Exchange Board of India (Sebi) had announced new rules for
brokers on the pay-out of such stocks in an effort to avoid the exploitation of
unpaid client securities. The market regulator has stipulated that all securities
acquired through pay-out must be transferred from the pool accounts of trading or
clearing members to the client's demat account within one business day.

The clearing corporations first transfer the shares that a client wishes to purchase
to the broker's account. The pay-out date is the day a buyer receives the shares
from the broker.

The regulator has instructed brokers to move unpaid securities into a different
account called a client unpaid securities pledgee account. The unpaid securities will
be moved to the client's demat account, where an auto-pledge will be created with
the explanation "unpaid."

Trading or clearing members (TM/CM) are required to notify customers of fund

obligations and their right to sell securities in the event that a client fails to meet
their commitment by email or SMS.

Lesson: Stock Market and Tax Compliance

The asset's acquisition price as well as any associated costs or brokerage fees must
be considered when figuring out the capital gains on shares. You can have
long-term or short-term capital gains.

Capital gains refer to an investment's increasing value during the period of

ownership, increasing its present value. The capital gains would thus be equal to Rs.
10 lakhs in 8 years if you purchased shares of a firm in 2008 for Rs. 25 lakh and
their current worth is Rs. 35 lakhs. The capital gains, however, are not realized and
you lose money if you do not sell the shares.
The following three components can be subtracted from the total sale price to
determine short-term capital gains:

Brokerage fees or other costs associated with the asset's selling

the asset's cost of acquisition

In October 2015, Sandeep Venkatesh spent Rs. 38,750 for 250 shares of a publicly
traded company at a price of Rs. 155 each. In March 2016, five months later, at a
price of Rs. 48,000, he sold them for Rs. 192 per share. Let's find out how large his
capital gains will be in the short future.

48,000 rupees is the total sales value.

Brokerage at 0.5%: 240 rupees

Purchase price: 38,750 rupees

Sandeep would thus realize a short-term capital gain of Rs. 48,000 - (Rs. 38,750 +
Rs240) = Rs. 9,010.

The following three factors can be subtracted from the total sale price to determine
long-term capital gains:

Brokerage or other expenses made in connection with the sale of the asset Indexed
purchase price of the asset

Indexing the asset's acquisition price

When the price is lowered to reflect the increase in inflation in the asset's value, the
result is an "indexed cost." The cost that is indexed can be approximated using the
Cost Inflation Index that the Indian government publishes. There are accessible
Cost Inflation Indexes (CII) for the fiscal years 1981–1982 and 2016–2017.

You need to be aware of two things in order to calculate stop losses. What loss are
you first willing and able to accept? What are the finest technical stop-loss levels,
secondly? You can only determine how to compute the stop loss once you have
provided answers to these two questions. Let's examine three crucial methods for
determining stop losses.
The Percentage Method is the first method for calculating the stop loss. Intraday
traders often use this to establish stop losses. Here, the allowed loss is determined
using a percentage.

For example, if you purchase RIL at Rs. 2300 and set your stop loss at 0.8%, your
buy position's stop loss would be placed at Rs. 2282, which is Rs. 18 less. If a deal
goes bad, you can only lose up to that amount. Include brokerage and statutory
costs in your calculations of stop losses.

The second way for establishing the stop loss is the technical support/resistance
strategy. This strategy is used by the majority of seasoned intraday traders, but it
requires an expert understanding of how to interpret charts. The stop loss is
positioned above the resistance for sell positions and under the support for
purchase ones.

The Moving Averages Method seems to be the most effective technique for
determining the stop loss. How does this approach function? You can find a
long-term moving average to use as your first reference point. Either simple moving
averages (SMA) or exponential moving averages are options that you may choose
from (EMA). Set your stop loss slightly below the moving average level for buy
opportunities and slightly above the moving average line for sell positions once the
moving average has been established and locked.

The lesson of the story is that preserving a stop loss is a must, regardless of the
approach you choose. Never attempt intraday trading without using sufficient stop
losses. That acts as a kind of insurance for your money and guarantees your
continued success as an intraday trader over time.

Tax Implementation

The process through which a government or taxing body imposes or levies a tax on
its people and business entities is known as taxation.

Income Tax on Equity Share Trading can be classified as Long-Term Capital Gains or
Short-Term Capital Gains depending on the holding term. A Long-Term Capital Gain
(LTCG) or Long-Term Capital Loss (LTCL) is the profit or loss on the sale of a capital
asset held for more than the required holding term (LTCL).
Long Term Capital Gain (LTCG) on shares and securities subject to Securities
Transaction Tax (STT) was excluded under Section 10(38) of the Income Tax Act until
fiscal year 2018-19.

However, the exception under Section 10(38) was repealed in Budget 2018.
Furthermore, a new Section 112A of the Income Tax Act was adopted to charge a
10% income tax on Long Term Capital Gains on the sale of equity shares, over Rs. 1
lac worth of equities mutual funds and business trust units in a fiscal year. Section
112A becomes effective in fiscal year 2018-19 (academic year 2019-20).

Short-Term Capital Gains (STCG) are gains on the sale of equity shares listed
on a recognized stock exchange, units of equity-oriented mutual funds, and
units of business trusts; these gains constitute STCG covered under section
111A.

When STCG arises through the transfer of equity shares, units of equity-oriented
mutual funds (*), or units of business trusts through a recognized stock exchange
and the transaction is subject to securities transaction tax, Section 111A applies
(STT).

A mutual fund described in section 10(23D) that invests 65% of its investible funds
in equity shares of domestic companies is an equity oriented mutual fund.

The STCG is referred to as STCG covered under section 111A if the requirements of
that section are met as stated above. Such a gain is subject to tax at a rate of 15%
(plus any relevant surcharge and cess).

With effect from Assessment Year 2017–18, the 15% tax rate reduction will be
available even in cases where STT is not paid, provided that the transaction is made
on a recognized stock exchange that is housed in an IFSC and that the
consideration is paid or payable in foreign currency.

Futures and Options trading

Income from intraday equities trading is called speculative business income. It is

regarded as speculative since you wouldn't be dealing with the aim to take delivery
of the contract.
Income from trading F&O (both intraday and overnight) on all exchanges is referred
to as non-speculative business income. F&O is also viewed as non-speculative
because these instruments are utilized for hedging as well as for accepting and
delivering the underlying contracts.

These contracts result in giving and accepting delivery even though almost all
equity, currency, and commodity transactions in India are now cash-settled (there
are a few commodity futures contracts, almost all Agri-commodity contracts, along
with gold, have a delivery option attached to them.

If you execute such transactions often or if trading or investing in the markets is

your primary source of income, revenue from shorter-term stock delivery-based
trades (kept for between 1 day and 1 year) is likewise preferable to be viewed as
non-speculative business income.

When you have business income, there is no set tax rate like there is with capital
gains. All of your other income (salary, other business income, bank interest, rental
income, and other revenue) must be added to your speculative and non-speculative
business income, and be compensated based on your tax bracket.

Let us clarify with an example:

Kumar earns Rs. 1,000,000 annually.

Delivery-based equities short-term capital gains of Rs. 100,000

Trading F&O earnings: Rs. 100,000

Trading intraday equities costs Rs. 100,000.

What is Kumar's tax obligation given these earnings for the year?

Kumar needs to figure out his entire income by adding up his pay and any business
revenue in order to determine tax due (speculative and non-speculative). Because
capital gains are taxed at set rates as opposed to salaries or corporate revenue,
capital gains are not added to income.

Total revenue (business and salary) equals Rs. 1,000,000 in salary income plus Rs.
100,000 in F&O trading profits plus Rs. 100,000 in intraday equities trading, or Rs.
1,200,000.
Based on the tax slab, Kumar now have to pay tax on Rs. 12,00,000/- according to
the tax slab

0 - Rs.250,000: 0% - Nil

250,000 – Rs.500,000: 5% – Rs.12,500/-

500,000 – Rs.1,000,000: 20% – Rs.100,000/-

1,000,000 – 1,200,000: 30% – Rs.60,000/-

Thus, the total tax would be 12,500 plus 100,000 plus 60,000, or Rs. 172,500.

Kumar now has an extra Rs. 100,000 income from delivery-based equity that is
categorized as a short-term capital gain. This is subject to a flat 15% tax rate.

STCG: Rs. 100,000; thus, at 15%, the tax due is Rs. 15,000.

Taxes of Rs.172,500 plus Rs.15,000 equal Rs.187,500/-

Dividend income

A dividend is a payment made from a firm's net profits to shareholders who have
purchased ownership in the company.

The dividend payout ratio is used to compute the dividend income. The total
amount of dividends paid out relative to the company's net income is known as the
dividend payout ratio. The equation is –

Total Dividends Paid/Net Income or Profit Equals Dividend Payout Ratio.

The dividend payout ratio is 0 for businesses that do not pay dividends and for
those that pay their entire net income as dividends.

Alternatively, the dividend payout ratio can be calculated as 1 - Retention

Ratio.

Earnings per share minus dividends per share = Retention Ratio / Earnings per
share.

Where
EPS = Net income or total earnings divided by the number of shares

This ratio influences how much money the business gives to its shareholders. It is
also useful to quantify the amount of money that the firm reinvests in order to
develop and improve its operations, pay off current debt, or establish a cash
reserve. It also aids in determining the company's long-term viability.

Dividend taxation

Dividends were not subject to taxation for recipients prior to April 1, 2020.

Instead, it was the firms that paid the dividends that were responsible for paying
taxes. These businesses were required to pay a 15% Dividend Distribution Tax
(DDT) on the total amount of declared dividends.

In accordance with section 115BBDA, only dividends in excess of 10 lakhs were

subject to 10% tax in the shareholder's hands.

For businesses and stockholders that get dividend income, things changed once the
Finance Act, 2020 came into play.

Any dividends you receive, whether from direct equity investments or equity
mutual funds, will be subject to taxation.

Companies are no longer required to pay Dividend Distribution Tax (DDT) since the
burden of taxes has transferred from the dividend payer to the dividend receiver.

Dividend income is taxed differently for residents and non resident Indians.

Dividend tax rates in India for Indian residents

The method in which a dividend is taxed in this country is determined by the

recipient's profession. It is more explicitly dependent on whether the shareholder is
in the business of trading equities.

Dividends received are taxed as business income if the shareholder's profession

involves trading stocks.

If the shareholder is only an investor who receives dividends from Indian or foreign
companies as compensation for investing in them, the payout is taxed as
other-source income. The tax rate will be determined by the shareholder's income
tax slab rate.

To further grasp this, let's use a simple example. Let's imagine you are a software
developer. Additionally, by investing in select Indian and overseas firms, you may
earn an extra 10,000 in dividends. And let's imagine you pay taxes at a rate of 30%.

Your dividend income will be added to your total income and taxed at 30% in this
situation.

Non-resident Indian dividend tax rates (NRIs)

If you are a non-resident who has invested in shares of Indian firms, you must pay a
flat 20% tax on this income.

So, let's use the same scenario as before, except this time you're an NRI. In such a
situation, the tax on your $10,000 dividend income would be $2,000 (i.e. 20% of
$10,000).

Accordingly, the taxation of dividends for NRIs will be governed by the terms of
India's Double Taxation Avoidance Agreement (DTAA) with the nation in which the
relevant individual lives.

For the purpose of preventing double taxation, DTAAs are in place. Thus, if you are
an NRI and pay taxes on your profits in India, you are exempt from paying taxes on
that same income earned outside of India (or vice versa). If your dividend income
has been taxed twice, you may be able to seek double taxation relief.

TDS on income from dividends in India

TDS must be subtracted from the dividend amount before it is paid out by the
organization or mutual fund institution that pays your dividends. Based on your
residence status, different TDS rates apply to dividends.

If you are a resident,

Any dividend income in excess of 5,000 will be subject to a 10% TDS deduction.

Therefore, if you receive dividends of 10,000, after TDS deductions of 1,000, your
income will only be ₹9,000.
If you are a non-resident

TDS will be withheld at the amount of 20% on any dividend income that is paid out.
This is likewise governed by the applicable DTAA's rules.

Interest income

Interest income is the payment made to a company in exchange for lending it

money or enabling another company to use it. In a broader sense, interest income
is the sum that an investor makes from the money he invests in a project or asset.

Tax on the interest income

When interest income from all bank branches, including that from recurring
deposits, surpasses Rs. 10,000 in a fiscal year, a 10% tax on interest generated will
be subtracted starting in June 2015. It is necessary to report the interest as "income
from other sources."

The PPF and EPF money you take out at maturity is tax-free and has to be reported
as exempt income from other sources of income. Keep in mind: After five years of
continuous service, the EPF becomes tax-exempt.

A taxpayer who receives income from other sources has the same tax deductions
available to freelancers and businesses that they can use to offset certain costs
from their income. These deductions are shown below.

If not excluded under Section 115-O, commission or compensation for realizing

dividends, or interest on securities. The cost of realizing a dividend, including any
fees or commissions, could be deducted from the dividend income, which is taxed
as income from other sources.

Repairs, insurance premiums, and depreciation related to buildings, machinery,

and furniture are all deductible expenditures from rental revenue from the leasing
of such items (but not capital expenses).

The rent received from the equipment is taxable under the category of income
from other sources. The costs paid in relation to such equipment are allowable as a
deduction.
In the case of income in the form of a family pension that is distributed on a
monthly basis to the dependents of a dead employee, a standard deduction is
permitted. This deduction is equal to the lesser of Rs. 15,000 and one-third of such
income.

If you get interest on your compensation or improved pay, you can deduct 50% of
the interest (applicable starting from the assessment year 2010-11).

Any other cost (other than a capital expense) that has been incurred completely
and entirely for the purpose of producing or generating such income is eligible for a
deduction under Section 57(iii).

Bonus Shares

Bonus shares are extra shares that are awarded to current owners based on how
many shares they already hold, at no further cost. These are the company's
accumulated earnings that are converted into free shares rather than being
distributed as dividends.

Bonus shares taxation

The capital gain on selling a bonus share is equal to its selling price since the cost of
acquiring bonus shares is assumed to be zero.

ITR Filing

The Income Tax Department of India requires individuals to file the Income Tax
Return (ITR) form. It contains the details of the individual's earnings and the taxes
that must be paid on them during the tax year.

Individuals under the age of 60 and earning Rs. 2.5 lakhs or more are required to
pay tax in India. Income tax is the amount that an individual must pay for the
money they make throughout the fiscal year. The tax burden is computed using the
individual's income, tax slab, and other factors such as rebates, savings,
investments, and so on.

In contrast, an income tax return is just a record of your income, tax liabilities, tax
paid, and investments for the fiscal year. This information is compiled and
submitted to the appropriate authorities in the required format known as an
income tax return file.
Hence, income tax is the amount paid by you (the taxpayers), and the income tax
return is an annual record of the same.

ITR 1 - Use ITR 1 forms to file the income tax returns if you earn a salary, interest, or
rental income from only one residential property. This is the most prevalent type;
however, you cannot utilize it if you have capital gains or when you are trading for a
business income.

ITR 2 - For people and HUFs who do not engage in any company or profession and
have a salary, interest income, income from real estate, or income from capital
gains, you can utilize ITR 2. Hence, if you are an individual who solely invests in the
market (remember, you are an investor, so you have capital gains), you must utilize
ITR2.

ITR 3 (ITR 4 renamed ITR3 beginning in 2017) - Use ITR 3 if you have a salary,
interest income, income from real estate, income from capital gains, and income
from a company or profession.

Hence, if you are an individual reporting trading income as a business, you must
utilize ITR 3. If you are a trader and an investor, you can report trading as business
income and investments as capital gains on the same ITR 3 form.

If section 44AD and section 44AE are utilized for the computation of business
income, ITR 4 (formerly known as ITR 4S) is comparable to ITR 3 but has an
assumed scheme. If losses must be carried forward or any capital gains must be
reported, ITR 4 cannot be used. Hence, you may only file ITR 4 if you have business
income (speculative and non-speculative), however it is preferable to avoid using
this form if doing so would lower your tax obligation.

Topic: Stock News and Reports & Recommendations

LESSON: News & Information

Information about current affairs is known as news. This can be delivered through a
variety of channels, including word of mouth, printing, postal networks, radio,
technological communication, and the testimony of observers and witnesses to
events.
Stock prices fluctuate continuously owing to changes in supply and demand. The
market price of a stock rises as more people wish to acquire it. The price of a stock
will decline if more people try to sell it. The supply-demand relationship is
particularly responsive to headlines.

But, following the news is not a good stock-picking strategy for the individual
investor. Skilled traders generally respond before the news hits the stock market to
take advantage of the change in price of stocks that happens after the news gets
reported everywhere.

When unfavorable news is reported, people often sell their stocks. A poor earnings
report, a breakdown in corporate governance, macroeconomic and political
instability, and natural calamities all lead to selling pressure and a drop in the value
of money, if not, equities.

People will often purchase equities when good news is released. Positive economic
indications, good earnings reports, the introduction of a new product, corporate
acquisitions, and purchasing pressure all contribute to rising stock prices.

Generally, there are five categories of news. Let us understand them precisely: -

Company news - headlines pertaining to investments and business is the company

news. Business, economic, and financial activities and changes that occur within a
firm are tracked, documented, analyzed, and interpreted in company news. The
scope of all commercial activity connected to the firm is broadly covered by news.

The company's news plays a crucial part in information sharing, enabling investors
to make well-informed judgements about which firms to invest in or which
companies can be avoided for investing for the time being since they do not have
the strong fundamentals.

Broker News – The news related to broking firms includes guidelines given by SEBI
for brokers, information related to brokerage charges, broker review and so on.
This information helps the traders and investors in choosing the broking firm
wisely.

Exchange news - Exchanging currencies between nations at market prices is

referred to as foreign exchange. The foreign exchange market, often known as the
currency market or forex market, enables investors to take positions on various
currencies. Currency futures contracts are used for transactions by investors all
over the world. Investors can purchase or sell a currency at a future time at a
predetermined price by using currency futures.

In India, there has been a significant increase in the number of Forex traders and
Forex programs. The competition is therefore much more intense. Thus, keeping up
with the most recent news and trends in the forex market is not just useful, it is
crucial.

The news that affects the world economy, particularly India's economy, which is the
largest exporter and importer of products, is the most significant in the forex
market. The market would be impacted by any significant policy changes made by
the Reserve Bank of India.

Regulator’s News - The Securities and Exchange Board of India (SEBI) is the
primary regulating body for Indian stock exchanges and was founded in accordance
with the SEBI Act of 1992.

News related to SEBI is important for the traders and investors of the stock market
because major changes in the stock market to assist the investors are brought by
this regulating authority. Any changes made affect the stock market in general and
ultimately investors.

Third party news – This is a type of news that is originally published by any
authority and the same is shared with the people by a secondary source. While
reading such news it is important that the readers should consider only
authenticated news and sources.

Extract Genuine and Quality News – Authentic news is real and truthful and it is
credible. The traders and investors should look for only authenticated sources for
getting news.

One of the finest resources for day traders is news, along with economic data. This
is because you need to pick your sources wisely.

News plays a crucial part in trading, regardless of the asset class or instruments you
use. If you don't have the greatest informational source as a trader, you probably
won't be successful.
Furthermore, having the appropriate knowledge is useless if you cannot get your
hands on it right away. For example, there are numerous websites on the internet
that provide a lot of material, but we must verify the accuracy of that information.
The accuracy of the information can be checked from the source it was originally
taken from. Before believing in a particular news the investors and traders should
look for the news on different websites and portals to get the right information.

Sources of Information

NSE India

All the firms registered on the NSE Exchange's stock market have access to financial
data and stock quotations. NSE portal offers factual and regularly updated
information.

In case you can't find it elsewhere, you can always discover the financial data of any
firm on this page, such as quarterly reports, shareholding patterns, bulk/block
trade details, etc. The company is required to publish their financial reports to the
exchanges.

On this page, you can also get a tonne of historical information on NSE and nifty in
addition to charts. Information about corporations, local and international
investors, new listings, IPOs, etc., are available. Moreover, NSE India offers training
and credentials (known as NCFM).

BSE India

BSE India has a website by the name of Bombay Stock Exchange. In terms of the
majority of the data, this website complements NSE India. Because more firms are
listed on BSE than NSE, you can discover more information on this website.

On BSE India, you may get important information such as market data, index data,
charts, public offerings, OFS, IPOs, domestic and international investors, etc.

On the BSE India website, you can also access financial information including
quarterly reports, ownership patterns, details of bulk/block deals, stock prices, etc.,
similar to what is available on the NSE India website.

Financial news websites: Websites such as Bloomberg, Reuters, Yahoo Finance,

and CNBC provide up-to-date news and information on the stock market.
Stock market analysis websites: Websites such as Seeking Alpha, Zacks
Investment Research, and Morningstar provide in-depth analysis and research
reports on specific companies and sectors.

Company websites: Companies often post news, financial reports, and other
important information on their websites, which can be useful for investors.

Brokerage firms: Brokerage firms often provide their clients with research reports
and other investment resources, which can be useful for making informed
investment decisions.

Social media: Social media platforms such as Twitter and StockTwits are popular
sources of information for investors, where they can follow analysts, traders, and
other investors and gain insights into market trends.

It's important to keep in mind that no single source of information can provide a
complete picture of the stock market. It's always best to use multiple sources and
to do your own research before making investment decisions.

Usage of Information

Information plays a crucial role in the stock market, and investors use it in various
ways to make informed investment decisions. Some of the common ways in which
information is used in the stock market are:

1. Fundamental analysis: Investors use information such as financial reports,

earnings, and other economic indicators to analyze a company's financial
health and make investment decisions.
2. Technical analysis: Investors use historical price and volume data to identify
trends and patterns in the market and make predictions about future market
movements.
3. News and event analysis: Investors analyze news and events related to
companies, industries, and economies to determine how they may impact
the stock market.
4. Market sentiment analysis: Investors analyze the overall mood of the market,
including the behavior of other investors and market experts, to make
informed investment decisions.
 5. Risk management: Investors use information to manage risk by diversifying
their portfolio, setting stop-loss orders, and other risk management
strategies.

LESSON: Reports, Recommendations and Tips

To extract a report from an authenticated source in the stock market, you may
follow these steps:

1. Identify the source: The first step is to identify the source of the report you
need. This could be a financial institution, research firm, stock exchange, or a
regulatory agency, among others.
2. Obtain authentication: Depending on the source, you may need to create an
account or log in with your existing credentials to access the report. Follow
the instructions provided by the source to obtain authentication.
3. Navigate to the report: Once you are authenticated, navigate to the section
of the website that contains the report you need. The report may be in the
form of a research note, a market analysis, a regulatory filing, or other types
of reports.
4. Download or save the report: Depending on the format of the report, you
may be able to download it directly or save it to your account. Follow the
instructions provided by the source to download or save the report.
5. Analyze the report: Once you have the report, analyze the information to
gain insights into the stock market. You may use the information for
investment research, to make informed investment decisions, or to stay
up-to-date with market trends.

It's important to note that accessing certain reports from authenticated sources in
the stock market may require a subscription or a fee. Also, be sure to follow any
terms of use or other guidelines provided by the source to ensure you are using the
information properly.

Rumors

Rumors can have a significant impact on the stock market, as investors may react to
unverified information or speculation. These rumors can cause prices to fluctuate,
sometimes rapidly, which can result in significant gains or losses for investors.
It's important to note, however, that not all rumors are accurate, and investors
should be cautious about making decisions based solely on rumors or hearsay. It's
always a good idea to verify information before making investment decisions, and
to rely on trusted sources for market insights and analysis.

Moreover, it's worth noting that spreading false rumors about a company or stock
can be illegal and could result in legal action. Investors should always act with
integrity and be mindful of the impact of their actions on the broader market.

Cautious on Insider Information and Trading

Insider trading is the act of buying or selling a security based on material non-public
information that an individual has obtained through their position within a
company or other organization. This is generally considered illegal and unethical
because it creates an unfair advantage for those with access to the information.

As an investor, it's important to be cautious of any insider information that may

come your way. You should never act on information that you know, or even
suspect, may be insider information. Doing so could result in serious legal
consequences and harm your reputation as an investor.

Instead, it's important to focus on publicly available information and conduct

thorough research and analysis before making any investment decisions. This
includes reviewing financial statements, market trends, and news articles to gather
as much information as possible about a company or industry.

Additionally, if you suspect that someone has shared insider information with you,
it's important to report it to the appropriate authorities. Not only is it illegal to act
on insider information, but it's also illegal to share it with others. By reporting any
suspicions of insider trading, you can help ensure that the market remains fair and
transparent for all investors.

Insider Information

Insider information refers to non-public knowledge about a company that is known

only to a select group of individuals who have access to confidential information by
virtue of their position or relationship with the company. This information can
include upcoming financial results, mergers and acquisitions, changes in leadership
or corporate strategy, new product releases, or any other information that could
significantly impact the company's stock price or other financial metrics.

Using insider information to make investment decisions is illegal, as it gives those

with access to the information an unfair advantage over other investors who do not
have the same level of knowledge. The Securities and Exchange Board of India
(SEBI) closely monitors insider trading and has the power to prosecute individuals
who use insider information to make investment decisions.

As an investor, it's important to be mindful of the laws and regulations regarding

insider trading and to avoid making investment decisions based on confidential
information. Instead, it's important to rely on publicly available information, such as
financial statements, news articles, and industry trends, to make informed
investment decisions. This can help ensure that the market remains fair and
transparent for all investors.

Insider Trading

Insider trading is the act of buying or selling securities based on material non-public
information about a company that is known only to a select group of individuals
who have access to confidential information by virtue of their position or
relationship with the company. It is illegal under Indian securities laws because it is
considered to be a form of fraud.

Insider trading is harmful because it gives individuals who have access to

confidential information an unfair advantage over other investors who do not have
the same level of knowledge. It can also undermine investor confidence in the
market and create an uneven playing field.

The Securities and Exchange Board of India (SEBI) actively monitors for insider
trading and has the power to prosecute individuals who engage in insider trading.
Those found guilty of insider trading can face fines, imprisonment, and other legal
penalties. Additionally, individuals and companies can face civil lawsuits and
reputational damage.

As an investor, it's important to be mindful of the laws and regulations regarding

insider trading and to avoid making investment decisions based on confidential
information. Instead, it's important to rely on publicly available information, such as
financial statements, news articles, and industry trends, to make informed
investment decisions. This can help ensure that the market remains fair and
transparent for all investors.

Regulations

In India, insider trading is regulated by the Securities and Exchange Board of India
(SEBI) under the SEBI (Prohibition of Insider Trading) Regulations, 2015. These
regulations prohibit insider trading and set out rules and procedures to prevent
and detect insider trading.

Under the SEBI regulations, an "insider" is defined as any person who is or was
connected with the company or is deemed to have been connected with the
company and who is reasonably expected to have access to unpublished
price-sensitive information in respect of securities of the company, or who has
received or has had access to such information.

The SEBI regulations prohibit insiders from trading in securities of the company
when in possession of unpublished price-sensitive information. The regulations also
require companies to maintain a "Code of Conduct" for prevention of insider
trading and to appoint a "Compliance Officer" to oversee compliance with the
regulations.

The SEBI regulations also require companies to disclose information about insider
trading in their annual reports and to notify SEBI of any instance of insider trading.
Penalties for violating the insider trading regulations can include fines,
disgorgement of profits, and criminal prosecution.

Overall, the SEBI regulations aim to ensure that trading in securities is fair and
transparent, and to protect the interests of investors. It is important for investors to
be aware of these regulations and to comply with them to avoid legal and
reputational consequences.

LESSON: Advertisement

Stock Market Advertisement

Stock market advertisements are typically designed to promote a particular
investment product or service, such as a brokerage account, mutual fund, or
investment newsletter. The goal of these advertisements is to attract investors by
highlighting the potential benefits of the investment, such as high returns or low
fees.

It's important to approach stock market advertisements with a healthy dose of

skepticism and to carefully research any investment opportunities before deciding.
While advertisements may make bold claims or promises, it's important to evaluate
the underlying investment and to consider factors such as risk, fees, and past
performance.

Investors should also be wary of scams or fraudulent investment schemes that may
be promoted through stock market advertisements. These scams can take many
forms, including Ponzi schemes, pump-and-dump schemes, and high-pressure
sales tactics.

To protect yourself from investment scams, it's important to thoroughly research

any investment opportunity and to be wary of unsolicited investment offers or
high-pressure sales tactics. You should also be sure to work with reputable
investment professionals and to report any suspicious activity to the appropriate
authorities.

Code of Conducts

In India, the Securities and Exchange Board of India (SEBI) has established a code of
conduct for various participants in the securities market to maintain integrity,
transparency, and fair practices. The code of conduct is designed to promote
ethical behavior and ensure that all market participants operate with integrity and
in the best interests of investors.

The SEBI code of conduct applies to various market participants, including

stockbrokers, merchant bankers, portfolio managers, investment advisers, credit
rating agencies, and other entities involved in the securities market.

The code of conduct requires market participants to comply with certain ethical and
professional standards, including:
 1. Conducting themselves with integrity and honesty, and avoiding any
fraudulent or deceptive practices.
2. Maintaining confidentiality of client information and ensuring that such
information is not used for personal gain or for any other unauthorized
purpose.
3. Providing accurate and complete information to clients and ensuring that
such information is not misleading.
4. Disclosing any conflicts of interest and taking steps to manage such conflicts
in the best interests of clients.
5. Complying with all applicable laws and regulations and avoiding any actions
that may be in violation of the law.
6. Maintaining high standards of professional competence and constantly
updating their knowledge and skills.
7. Reporting any violations of the code of conduct or other unethical practices
to the appropriate authorities.

Overall, the SEBI code of conduct is designed to promote a fair and transparent
securities market and to protect the interests of investors. Market participants who
violate the code of conduct may face penalties, fines, or other legal consequences.

Misleading Advertisement in Indian stock market

Misleading advertisements in the Indian stock market are prohibited by the

Securities and Exchange Board of India (SEBI), which is the regulator for securities
markets in the country. Misleading advertisements can be problematic because
they can lead investors to make investment decisions based on false or incomplete
information.

SEBI has set out rules and regulations for advertising by companies and other
entities in the securities market. These regulations require that advertisements be
accurate, truthful, and not misleading, and that they contain all relevant
information that investors need to make informed investment decisions.
Advertisements must also comply with SEBI's code of conduct for market
participants, which requires that they be fair, transparent, and in the best interests
of investors.

SEBI has the power to act against companies and other entities that violate these
regulations, including fines and penalties, suspension or cancellation of
registration, and other legal consequences. In addition, investors who are harmed
by misleading advertisements may have the right to seek compensation or other
legal remedies.

To protect themselves from misleading advertisements, investors should always do

their own research before making investment decisions, and should be wary of any
investment opportunity that sounds too good to be true. They should also be sure
to work with reputable investment professionals and to report any suspicious
activity to the appropriate authorities.

Overall, it's important for all market participants to act with integrity and
transparency and to avoid any practices that could mislead investors or undermine
the integrity of the securities market.

Regulator and Exchanges Advertisement in Indian stock market

In India, both the regulator of securities markets, the Securities and Exchange
Board of India (SEBI), and the various stock exchanges, such as the National Stock
Exchange (NSE) and the Bombay Stock Exchange (BSE), are required to follow strict
guidelines when it comes to advertising.

SEBI and the stock exchanges are not allowed to advertise specific investment
products or services, as this could be seen as promoting particular companies or
investment opportunities. Instead, their advertising typically focuses on promoting
the overall benefits of investing in the securities markets, such as the potential for
high returns or the importance of diversification.

In addition to these general advertising guidelines, SEBI has set out specific rules
and regulations for advertising by market participants, including stockbrokers,
mutual funds, and investment advisors. These regulations require that
advertisements be accurate, truthful, and not misleading, and that they contain all
relevant information that investors need to make informed investment decisions.

Market participants who violate these regulations may face penalties, fines, or
other legal consequences, and investors who are harmed by misleading
advertisements may have the right to seek compensation or other legal remedies.

Overall, the goal of these regulations is to promote fair and transparent securities
markets and to protect the interests of investors. By ensuring that all market
participants and regulatory entities are held to high standards of conduct, investors
can be more confident in their investment decisions and the overall integrity of the
securities markets.

Herd Advertisement

In the context of the stock market, "herd advertising" typically refers to a marketing
tactic in which a company promotes its stock to potential investors by emphasizing
that a large number of other investors have already invested in the stock. The idea
is to create a sense of social proof and encourage investors to follow the crowd and
invest in the stock as well.

This approach can be effective in generating interest in a stock and attracting new
investors, but it's important for investors to evaluate a stock based on its
underlying fundamentals rather than simply following the herd. Just because many
other investors have bought a stock doesn't necessarily mean that it's a good
investment.

In general, it's important for investors to do their own research and make
investment decisions based on their own analysis and assessment of a company's
financial health, competitive position, growth potential, and other relevant factors.
While herd advertising can be a useful tool for raising awareness about a stock, it's
ultimately up to individual investors to make informed decisions about whether to
invest in a particular company.

Topic: Derivatives

1. Lesson: Commodity

Definition

In the stock market, a commodity refers to a basic good or raw material that is used
in the production of other goods or traded as a physical product. Some examples of
commodities include metals (such as gold, silver, and copper), energy products
(such as crude oil and natural gas), agricultural products (such as corn, wheat, and
soybeans), and livestock (such as cattle and hogs).

Commodities can be traded on exchanges or other markets, where their prices are
determined by supply and demand factors. Investors can buy and sell commodity
futures contracts, which are agreements to buy or sell a specific commodity at a
future date at a predetermined price.

Commodity prices can be influenced by a variety of factors, including global supply

and demand, geopolitical events, weather patterns, and government policies.
Because many commodities are used in the production of other goods, changes in
commodity prices can have a ripple effect throughout the economy and financial
markets.

In addition to trading in physical commodities or futures contracts, investors can

also gain exposure to commodities through exchange-traded funds (ETFs) or
mutual funds that invest in commodity-related assets. However, investing in
commodities carries risks and requires careful consideration of factors such as
market volatility, leverage, and market liquidity.

Classification

Commodities are raw materials or primary agricultural products that are traded on
exchanges in the stock market. They can be classified into the following categories:

1. Agricultural commodities: These include commodities such as wheat, corn,

soybeans, rice, sugar, coffee, cocoa, and cotton.
2. Energy commodities: These include commodities such as crude oil, natural
gas, heating oil, gasoline, and diesel.
3. Precious metals: These include commodities such as gold, silver, platinum,
and palladium.
4. Industrial metals: These include commodities such as copper, aluminum,
nickel, lead, and zinc.
5. Livestock commodities: These include commodities such as live cattle, lean
hogs, and feeder cattle.
6. Soft commodities: These include commodities such as rubber and lumber.

Each of these categories has unique characteristics and supply/demand dynamics

that influence their price movements in the stock market. Investors can trade these
commodities through futures contracts, exchange-traded funds (ETFs), or options
contracts.

Scope of Commodity Market

Commodities have become an increasingly important part of the Indian stock
market in recent years. The scope of commodities in the Indian stock market can be
broadly defined in the following ways:

1. Commodity Exchanges: India has three national-level commodity exchanges -

Multi Commodity Exchange (MCX), National Commodity and Derivatives
Exchange (NCDEX), and Indian Commodity Exchange (ICEX). These exchanges
facilitate trading in a wide range of commodities such as metals, energy,
agricultural products, and bullion. These exchanges provide a transparent
and regulated platform for price discovery and hedging for market
participants.
2. Regulation: The commodities market in India is regulated by the Securities
and Exchange Board of India (SEBI). SEBI regulates the commodity exchanges
and ensures that the trading is fair and transparent for all participants.
3. Market Participants: The scope of commodities in the Indian stock market
includes a range of market participants, including farmers, traders,
processors, exporters, and importers. These participants use the commodity
markets to manage price risk and access financing.
4. Investment Opportunities: Commodity futures trading allows investors to
take positions in commodities and benefit from the price movements in
these markets. Additionally, exchange-traded funds (ETFs) and mutual funds
that invest in commodities offer investors a convenient and diversified way
to invest in commodities.

In summary, the scope of commodities in the Indian stock market has expanded
significantly in recent years, providing market participants with new opportunities
for price discovery, risk management, and investment.

Commodity Trading

Commodity trading refers to the buying and selling of physical goods that are either
grown or extracted from the earth, such as agricultural products, metals, energy,
and other raw materials. These goods are typically traded on commodity
exchanges, where buyers and sellers come together to trade standardized
contracts that represent a specific amount of the underlying commodity.

Commodity trading can be done in a variety of ways, including through futures

contracts, options, exchange-traded funds (ETFs), and other derivatives. These
financial instruments allow investors to gain exposure to commodity markets
without actually owning the physical goods.

Commodity trading can be a high-risk, high-reward activity, as prices for these

goods can be volatile and subject to a range of economic, geopolitical, and
weather-related factors. Investors who are interested in commodity trading should
have a strong understanding of the markets they are trading in, as well as the
ability to manage risk effectively.

Lesson: Currency

Definition of Currency

Currency refers to the type of money that is used in a particular country or region
as a medium of exchange for goods, services, or other financial transactions. It
typically includes banknotes and coins that are issued by the government or central
bank and have a specific value assigned to them.

Forex

Forex is short for "foreign exchange", and it refers to the decentralized market
where different currencies are traded against each other. In the forex market,
participants can buy and sell currencies in order to profit from changes in their
exchange rates. This can include individuals, corporations, banks, and other
financial institutions.

Scope of Currency Market

Currency market scope is broad, and it impacts various industries and individuals
around the world. Here are some of the key areas where the currency market has a
significant impact:

1. International Trade: The currency market plays a crucial role in international

trade as it facilitates the exchange of currencies between countries.
Importers and exporters need to buy and sell foreign currencies to pay for
goods and services. The exchange rate affects the cost of these transactions
and impacts the profit margins of businesses involved in international trade.
2. Tourism: Tourism is another industry heavily impacted by the currency
market. When people travel to another country, they need to exchange their
 home currency for the local currency. The exchange rate can impact the cost
of travel and may also impact the flow of tourists to different destinations.
3. Financial Institutions: Banks and other financial institutions are major players
in the currency market. They use the market to manage their foreign
exchange risk, and they offer various currency-related services to their
customers, including currency exchange and international money transfers.
4. Investors: Investors, including individuals and institutional investors, can
trade currencies as a way to diversify their portfolios and potentially
generate profits. Currency trading can be done through a variety of
instruments, including forex futures, options, and exchange-traded funds
(ETFs).
5. Central Banks and Governments: Central banks and governments use the
currency market to manage their foreign currency reserves and influence the
value of their domestic currency. They may also intervene in the market to
stabilize the exchange rate or address economic issues.

Overall, the currency market has a significant impact on the global economy and is
a crucial component of international trade and finance.

Currency derivative

A currency derivative is a financial contract that derives its value from the
underlying exchange rate between two currencies. It allows market participants to
hedge against the risk of currency fluctuations and to speculate on the direction of
exchange rates.

Currency derivatives can take many different forms, including forwards, futures,
options, and swaps. Here are brief descriptions of each type:

1. Currency Forward: A currency forward is an agreement to buy or sell a

currency at a fixed exchange rate on a future date.
2. Currency Futures: Currency futures are standardized contracts traded on an
exchange that obligate the buyer or seller to buy or sell a specific currency at
a predetermined price and date.
3. Currency Options: Currency options give the buyer the right, but not the
obligation, to buy or sell a currency at a fixed exchange rate on or before a
specific date.
 4. Currency Swaps: Currency swaps are agreements between two parties to
exchange currencies for a specific period of time. They can be used to hedge
against currency risk or to borrow or lend in a foreign currency.

Currency derivatives are commonly used by corporations, banks, hedge funds, and
other institutional investors to manage currency risk, facilitate international trade,
and generate profits through speculative trading. They can be complex financial
instruments that require a solid understanding of the market and its risks before
trading.

Currency Pair

A currency pair is a combination of two currencies traded in the foreign exchange

market, where one currency is exchanged for the other. The first currency in the
pair is called the base currency, while the second currency is called the quote
currency. For example, in the currency pair EUR/USD, the euro is the base currency,
and the US dollar is the quote currency.

Currency pairs are traded in the forex market, and their exchange rates fluctuate
based on a variety of economic, political, and social factors. The exchange rate
indicates how much of the quote currency is needed to buy one unit of the base
currency. For example, if the EUR/USD exchange rate is 1.20, it means that 1 euro
can be exchanged for 1.20 US dollars.

There are three types of currency pairs:

1. Major Currency Pairs: These are the most frequently traded currency pairs,
which include the US dollar and another major currency such as the euro,
Japanese yen, British pound, or Swiss franc.
2. Minor Currency Pairs: Also known as cross-currency pairs, these pairs do not
include the US dollar and consist of two major currencies such as the euro
and Japanese yen or the British pound and Swiss franc.
3. Exotic Currency Pairs: These pairs include one major currency and one
currency from an emerging or less-developed economy, such as the US dollar
and Mexican peso or the euro and Turkish lira.

Currency pairs are identified by their symbols, which usually consist of three letters
representing the two currencies and a unique code. For example, the symbol for
the EUR/USD currency pair is EUR/USD, and the symbol for the USD/JPY pair is
USD/JPY.

Vehicle Currency

A vehicle currency is a currency that is used as an intermediary in international

trade and finance transactions, typically because it is widely accepted and highly
liquid. In other words, it is a currency that is used as a reference point to value
other currencies, and to settle international transactions.

The most widely used vehicle currency is the US dollar, which is used in around 80%
of all global transactions. The euro is another major vehicle currency, though it is
used less frequently than the US dollar. Other currencies such as the Japanese yen,
British pound, and Swiss franc are also used as vehicle currencies to a lesser extent.

The use of a vehicle currency can simplify international transactions by reducing the
need for multiple currency conversions. For example, if a company in Japan wants
to buy goods from a company in Germany, they may use the US dollar as a vehicle
currency rather than exchanging yen for euros directly. This can reduce transaction
costs and increase efficiency in the international financial system.

However, the dominance of a single currency as a vehicle currency can also have
economic and political implications. It can give the country that issues the currency
significant influence over the global financial system, and can make other countries
more vulnerable to fluctuations in the value of the vehicle currency. The use of
alternative vehicle currencies, or the development of new technologies that
facilitate currency exchanges, may help to reduce the potential risks associated
with a single dominant currency.

Spot Market

The spot market, also known as the cash market, is a financial market where
financial instruments such as currencies, commodities, and securities are traded for
immediate delivery, or settlement, in exchange for cash. In the spot market, the
price of the financial instrument is determined by the current market supply and
demand, and the settlement date is usually within two business days of the trade
date.

Currency trading
Currency trading, also known as forex trading, is the buying and selling of
currencies in the foreign exchange market with the aim of making a profit.
Currencies are traded in pairs, such as the EUR/USD or USD/JPY, and the exchange
rate of the currency pair represents the value of one currency relative to the other.

In currency trading, traders attempt to predict the future exchange rate

movements of currency pairs and profit from those movements. Currency trading
can be done through a broker or financial institution, which provides access to the
foreign exchange market and facilitates the execution of trades.

Currency trading offers a range of opportunities for traders, including the ability to
trade 24 hours a day, 5 days a week, low transaction costs, and the ability to profit
from both rising and falling markets. However, currency trading also carries risks,
including market volatility, leverage, and the potential for losses.

There are various trading strategies that traders use in currency trading, including
fundamental analysis, technical analysis, and algorithmic trading. Fundamental
analysis involves analyzing economic and political factors that affect currency
prices, while technical analysis involves using charts and other technical indicators
to identify trends and patterns in currency prices. Algorithmic trading involves using
computer programs to execute trades automatically based on predetermined
criteria.

Overall, currency trading is a popular and dynamic financial market that offers
opportunities for profit and risk. Traders need to have a deep understanding of the
market, solid risk management strategies, and discipline to be successful in
currency trading.

1. Lesson: Equity Derivative

Definition

An equity derivative is a financial instrument whose value is derived from the value
of an underlying equity security. In other words, it is a contract between two parties
that derives its value from the price movements of a stock or a stock market index.
Equity derivatives can be used to hedge against potential losses or to speculate on
potential gains in the value of the underlying equity.
Examples of equity derivatives include stock options, stock futures, stock swaps,
and stock warrants. Stock options give the holder the right, but not the obligation,
to buy or sell a specific amount of stock at a specific price within a specific time
period. Stock futures are contracts to buy or sell a specific amount of stock at a
specific price on a specific date in the future. Stock swaps involve exchanging one
stock for another at a predetermined price. Stock warrants are similar to stock
options but are typically issued by the company itself.

Equity derivatives are commonly used by investors, traders, and corporations to

manage risk or to make speculative bets on the future direction of the stock market
or individual stocks. For example, a stock option can be used to hedge against
potential losses in a stock portfolio, or to speculate on the future direction of a
stock's price.

Equity derivatives can be complex financial instruments, and they carry a significant
amount of risk. They require a deep understanding of the underlying equity and the
factors that influence its value. It is important for investors and traders to fully
understand the risks and rewards of equity derivatives before investing in them.

Scope of Derivative Market

The derivative market is a financial market where financial instruments such as

options, futures, swaps, and forwards are traded. These financial instruments
derive their value from an underlying asset such as a stock, bond, currency,
commodity, or interest rate. The scope of the derivative market is vast and can be
broken down into several categories:

1. Hedging: One of the primary purposes of the derivative market is to provide

a way for investors to manage risk. For example, an investor may use a
futures contract to lock in a price for a commodity they plan to buy or sell in
the future, protecting them from price fluctuations.
2. Speculation: Derivatives can also be used for speculation, where investors
bet on the future price movements of an asset. This can involve taking long
or short positions in the market, or using more complex strategies such as
options spreads or straddles.
3. Arbitrage: Another way investors can use derivatives is through arbitrage,
which involves taking advantage of price differences between different
markets. For example, an investor might buy a futures contract on a
 commodity in one market while simultaneously selling the same commodity
in another market at a higher price, profiting from the price difference.
4. Risk Transfer: Derivatives can also be used for transferring risk between
parties. For example, an airline may use a futures contract to lock in the price
of jet fuel, while a producer of jet fuel may use the same contract to lock in
the price they receive for their product.

The scope of the derivative market has grown tremendously in recent years, as
investors and corporations have looked for ways to manage risk and speculate on
the future direction of various markets. However, derivatives are complex financial
instruments that carry significant risk, and it is important for investors to fully
understand the risks and rewards of using derivatives before investing in them.

Example

One example of the derivative market is the options market. Options are a type of
derivative that give the holder the right, but not the obligation, to buy or sell an
underlying asset at a predetermined price on or before a specific date. The options
market is used by investors to hedge risk, speculate on price movements, or
generate income.

For example, an investor may buy a call option on a stock that they believe will
increase in value. If the stock price does increase, the investor can exercise the
option, buying the stock at the predetermined price and then selling it on the
market at the higher price for a profit. Alternatively, an investor may buy a put
option on a stock that they believe will decrease in value. If the stock price does
decrease, the investor can exercise the option, selling the stock at the
predetermined price and then buying it back on the market at the lower price for a
profit.

The options market is just one example of the derivative market. Other types of
derivatives include futures contracts, which are agreements to buy or sell an
underlying asset at a predetermined price on a future date, and swaps, which are
agreements to exchange one type of asset or cash flow for another. These financial
instruments are used by investors, traders, and corporations for a variety of
purposes, including hedging, speculation, and risk management.

Forward, Future and Options

Forward contracts, futures contracts, and options contracts are all types of financial
derivatives that allow investors to hedge risk or speculate on future price
movements of an underlying asset. While they all serve similar purposes, there are
some key differences between these types of contracts:

1. Forward Contracts: A forward contract is an agreement between two parties

to buy or sell an underlying asset at a predetermined price on a future date.
The terms of the contract, including the price, quantity, and delivery date, are
agreed upon at the time the contract is created. Forward contracts are
typically traded in over-the-counter (OTC) markets and are not standardized.
2. Futures Contracts: A futures contract is similar to a forward contract, in that
it is an agreement to buy or sell an underlying asset at a predetermined price
on a future date. However, futures contracts are traded on exchanges, are
standardized, and the terms of the contract are set by the exchange. Futures
contracts require margin, which is a deposit made by the buyer or seller to
ensure that they can fulfill the terms of the contract.
3. Options Contracts: An options contract is a type of derivative that gives the
buyer the right, but not the obligation, to buy or sell an underlying asset at a
predetermined price on or before a specific date. There are two types of
options: call options, which give the buyer the right to buy an underlying
asset, and put options, which give the buyer the right to sell an underlying
asset. Options contracts are traded on exchanges and are standardized, with
terms such as the underlying asset, the strike price, and the expiration date
all predetermined.

All three of these financial derivatives are used by investors, traders, and
corporations for a variety of purposes, including hedging, speculation, and risk
management. While they each have their own unique characteristics, they all
provide a way for investors to manage risk or speculate on the future price
movements of an underlying asset. It is important for investors to fully understand
the risks and rewards of each type of contract before investing in them.

Derivative as risk Mechanism

Derivatives can be used as risk management tools to help mitigate or transfer risk
from one party to another. Derivatives are often used as a way to hedge against
price movements in the underlying asset.
One way to use derivatives as a risk management tool is through the use of futures
contracts or options contracts. For example, an airline company may want to
protect itself against rising fuel prices, which could significantly increase its
operating costs. To do this, the airline company could enter into a futures contract
to purchase fuel at a fixed price on a future date. This would lock in the price of
fuel, effectively hedging the airline company against potential price increases.

Options contracts can also be used as a risk management tool. For example, a
farmer may want to protect against a potential drop in the price of corn. The farmer
could buy a put option, which gives them the right to sell a certain amount of corn
at a predetermined price. If the price of corn drops, the put option would allow the
farmer to sell their corn at the higher predetermined price, effectively hedging
against the price drop.

Derivatives can also be used as a way to transfer risk from one party to another. For
example, a bank may want to transfer the risk of default on a loan to another party.
The bank could use credit default swaps (CDS), which are a type of derivative that
allows the bank to transfer the risk of default to another party in exchange for a
premium payment.

In summary, derivatives can be used as a risk management tool to help mitigate or

transfer risk from one party to another. By using derivatives, investors and
corporations can manage risk more effectively, and potentially reduce their
exposure to volatile markets or events.

Hedging

Hedging is a risk management strategy that involves taking an offsetting position in

a financial instrument in order to reduce or eliminate the risk of adverse price
movements in another asset or investment. In other words, hedging is a way to
protect against losses that may occur in an investment.

Topic: Mutual Fund & AIFs

1. Mutual Funds

Definition
A mutual fund is a type of investment vehicle that pools money from multiple
investors to purchase a diversified portfolio of securities, such as stocks, bonds,
and other assets. Each investor owns a share of the mutual fund, which represents
a portion of the holdings of the fund. The fund is managed by a professional fund
manager, who uses the money from investors to invest in a variety of assets with
the aim of generating returns for the investors.

The value of the mutual fund shares is determined by the performance of the
underlying assets, and the price of the shares is calculated at the end of each
trading day based on the net asset value (NAV) of the fund. Investors can buy and
sell shares of mutual funds on the open market, making it a relatively easy way to
invest in a diversified portfolio without having to manage the assets themselves.
Mutual funds can provide individual investors with access to a broad range of
investment opportunities that may be difficult to obtain on their own.

How Do Mutual Funds Work?

Mutual funds are investment vehicles that pool money from multiple investors and
use the money to buy a portfolio of different assets, such as stocks, bonds, or other
securities. The value of the mutual fund is determined by the performance of the
underlying assets in the portfolio.

Here are the basic steps for how mutual funds work:

1. Investors buy shares in the mutual fund: Investors buy shares in a mutual
fund by investing a certain amount of money. The price of a share is
determined by the net asset value (NAV) of the mutual fund, which is the
total value of the assets in the fund divided by the number of shares
outstanding.
2. The mutual fund manager invests the money: The mutual fund manager uses
the money invested by the investors to buy a portfolio of assets, such as
stocks, bonds, or other securities. The mutual fund's investment strategy is
usually outlined in its prospectus, which provides details on the types of
assets the fund will invest in, the fund's investment objectives, and the fund's
risk profile.
3. The value of the mutual fund fluctuates: The value of the mutual fund's
shares will rise or fall depending on the performance of the underlying assets
 in the portfolio. If the value of the assets in the portfolio increases, the value
of the mutual fund's shares will also increase, and vice versa.
4. Investors can sell their shares: Investors can sell their shares in the mutual
fund at any time. The price they receive for their shares will be based on the
NAV of the mutual fund at the time of the sale. If the value of the mutual
fund has increased since the investor bought their shares, they will make a
profit. If the value of the mutual fund has decreased, they will make a loss.
5. Mutual funds charge fees: Mutual funds charge fees for managing the
portfolio of assets. These fees include the management fee, which is a
percentage of the assets under management, and other expenses, such as
marketing and administrative costs. These fees are deducted from the value
of the mutual fund, and they can have a significant impact on the return on
investment. It's important for investors to carefully review the fees
associated with a mutual fund before investing.

Asset Management Company (AMC)

An Asset Management Company (AMC) is a financial institution that manages

various types of investment funds, such as mutual funds, exchange-traded funds
(ETFs), and pension funds, on behalf of investors. The AMC pools money from many
investors and invests it in a diversified portfolio of assets, such as stocks, bonds,
and other securities, with the aim of achieving a particular investment objective.

The AMC is responsible for making investment decisions, selecting the securities to
be included in the portfolio, and monitoring the performance of the investments.
The company charges a fee for its services, usually a percentage of the assets under
management, which is known as the management fee.

1. Sponsor of Mutual Funds

In India, sponsors of mutual funds are typically financial institutions such as banks,
asset management companies, and financial services companies. These sponsors
are responsible for establishing the mutual fund and appointing an asset
management company to manage the investments of the fund.

The sponsor of a mutual fund in India is required to obtain approval from the
Securities and Exchange Board of India (SEBI) to launch the fund. The sponsor must
also comply with SEBI regulations related to the formation and operation of the
mutual fund, including regulations related to the fund's investment objectives, fees,
and disclosure requirements.

The sponsor is responsible for setting the initial price for the mutual fund's units,
and for promoting the fund to potential investors. The sponsor may offer
promotional incentives, such as waived entry fees or reduced expense ratios, to
attract investors.

In India, mutual fund sponsors are required to have a minimum net worth of INR 50
crore (approximately USD 6.7 million), and must maintain this net worth
throughout the life of the fund. This requirement is intended to ensure that
sponsors have sufficient financial resources to launch and sustain a mutual fund.

Trustee of Mutual Funds

In India, a trustee is an important entity in the mutual fund industry that acts as a
watchdog to protect the interests of investors in a mutual fund scheme. The trustee
is appointed by the sponsor of the mutual fund and is responsible for ensuring that
the mutual fund operates in compliance with the SEBI (Mutual Funds) Regulations,
1996.

The trustee of a mutual fund in India is typically a trust company or a bank, and is
independent of the sponsor of the mutual fund. The primary role of the trustee is
to safeguard the interests of the investors and ensure that the mutual fund is
managed in a manner that is in line with the objectives of the scheme and the
interests of the unit holders.

The key responsibilities of the trustee of a mutual fund in India include:

1. Ensuring compliance with SEBI regulations and guidelines

2. Monitoring the performance of the asset management company (AMC) to
ensure that the mutual fund's investments are managed in the best interests
of the unit holders
3. Reviewing and approving the appointment of the AMC, custodian, and other
service providers to the mutual fund
4. Ensuring that the mutual fund's investments are valued accurately and that
its financial statements are prepared in accordance with applicable
accounting standards
 5. Approving changes to the mutual fund's investment objectives, asset
allocation, and fees.

The trustee is required to act in the best interests of the unit holders and must
exercise its powers independently of the sponsor and the AMC. The trustee is also
required to report to SEBI any violations of regulations or any action taken in the
best interests of the unit holders.

Types of Mutual Funds

There are several types of mutual funds, each with different characteristics and
investment objectives. Here are brief explanations of some of the most common
types:

1. Equity Funds: These mutual funds invest primarily in stocks, with the aim of
achieving long-term capital appreciation. Equity funds can be further
categorized based on factors such as the size of the companies they invest in,
their investment style, and their geographic focus.
2. Debt Funds: These mutual funds invest primarily in fixed-income securities
such as government bonds, corporate bonds, and money market
instruments, with the aim of generating regular income for investors. Debt
funds can be further categorized based on factors such as the maturity of the
securities they invest in and their credit quality.
3. Balanced Funds: These mutual funds invest in a mix of equities and
fixed-income securities, with the aim of achieving both capital appreciation
and regular income.
4. Index Funds: These mutual funds aim to track the performance of a
particular stock market index, such as the S&P 500 or the BSE Sensex, by
investing in the same securities as the index in the same proportion.
5. Sector Funds: These mutual funds invest in a specific sector of the economy,
such as technology, healthcare, or energy, with the aim of achieving capital
appreciation by focusing on a particular theme.
6. Money Market Funds: These mutual funds invest in short-term debt
instruments such as Treasury bills and commercial paper, with the aim of
providing liquidity and capital preservation for investors.
7. Fund of Funds: These mutual funds invest in other mutual funds, with the
aim of achieving diversification across asset classes and investment styles.
These are just a few examples of the different types of mutual funds. Each type has
its own unique characteristics and risks, and investors should carefully consider
their investment goals and risk tolerance before investing in any mutual fund.

Categorization of Mutual Funds

Mutual funds are categorized based on several criteria, including the type of assets
they invest in, their investment objectives, and their investment styles. Here are
some common categorizations of mutual funds:

1. Asset Class: Mutual funds can be categorized based on the asset class they
invest in, such as equity, debt, or hybrid funds that invest in both asset
classes.
2. Investment Objective: Mutual funds can be categorized based on their
investment objective, such as growth funds that aim to generate capital
appreciation, income funds that aim to provide regular income to investors,
or balanced funds that aim to achieve both.
3. Investment Style: Mutual funds can be categorized based on their
investment style, such as value funds that invest in undervalued stocks,
growth funds that invest in stocks with high growth potential, or index funds
that aim to track the performance of a particular stock market index.
4. Market Capitalization: Equity mutual funds can be categorized based on
the market capitalization of the companies they invest in, such as large-cap
funds that invest in well-established, large companies, mid-cap funds that
invest in mid-sized companies, or small-cap funds that invest in small,
emerging companies.
5. Sector: Mutual funds can be categorized based on the sectors they invest in,
such as technology, healthcare, energy, or financials.
6. Geographical Focus: Mutual funds can be categorized based on their
geographical focus, such as funds that invest in a particular country, region,
or globally diversified funds that invest across the world.
7. Risk Profile: Mutual funds can be categorized based on their risk profile,
such as conservative funds that invest in low-risk securities, or aggressive
funds that invest in high-risk securities.

Each categorization has its own unique characteristics and risks, and investors
should carefully consider their investment goals and risk tolerance before selecting
a mutual fund. It is also important to read the fund's prospectus and understand its
investment objectives, asset allocation, and fees before making an investment
decision.

NAV Calculation

NAV or Net Asset Value is the per-unit market value of a mutual fund scheme. The
NAV represents the total value of the securities held by the mutual fund, minus its
liabilities, divided by the number of units outstanding. The NAV is calculated at the
end of each trading day.

The NAV of a mutual fund is calculated as follows:

1. Calculate the market value of all the securities held by the mutual fund,
including stocks, bonds, and other financial instruments.
2. Subtract any liabilities, such as fees and expenses owed by the mutual fund.
3. Divide the resulting value by the number of units outstanding in the mutual
fund.

For example, if a mutual fund has a market value of $100 million and liabilities of $2
million, and there are 10 million units outstanding, the NAV of the mutual fund
would be ($100 million - $2 million) / 10 million = $9.80 per unit.

Investors can use the NAV to determine the value of their investment in the mutual
fund. When an investor buys or sells units of a mutual fund, the transaction is
usually based on the NAV of the mutual fund on the day the transaction is
processed.

It is important to note that the NAV of a mutual fund can fluctuate daily based on
the performance of the underlying securities held by the mutual fund. The NAV is
just one of several factors that investors should consider when making investment
decisions. It is important to also consider the mutual fund's investment objectives,
risks, and fees before making an investment decision.

Distribution and Advisory of Mutual Fund

Distribution and advisory are two important aspects of the mutual fund industry
that help investors access and select appropriate mutual fund products. Here's a
brief explanation of each:
 1. Distribution: Mutual fund distribution refers to the process of selling mutual
fund units to investors through various channels such as banks, financial
advisors, brokers, and online platforms. Distributors act as intermediaries
between investors and mutual fund companies, and are compensated
through sales commissions or other fees.

Distributors are responsible for marketing and promoting mutual funds to potential
investors, providing them with information about the products and helping them
with the buying process. They also help investors with account opening,
maintenance, and customer service.

2. Advisory: Mutual fund advisory refers to the process of providing investment

advice and recommendations to investors about mutual funds. Advisors can
be independent professionals or employees of a financial institution, and
they are compensated through fees for their services.

Advisors help investors select mutual funds that align with their investment
objectives, risk tolerance, and other factors. They may also provide ongoing advice
and support to help investors make informed investment decisions, and monitor
the performance of their mutual fund investments.

It's important for investors to carefully consider their options when selecting
mutual fund distributors and advisors. Investors should evaluate the reputation,
experience, and qualifications of the distributor or advisor, as well as their fee
structure and potential conflicts of interest. Investors should also carefully review
the mutual fund prospectus and other disclosures before making an investment
decision.

Lesson: Alternate Investment Fund

Alternative Investment Fund or AIF

An Alternative Investment Fund (AIF) is a privately pooled investment vehicle that

invests in assets or strategies that are not typically available to the general public,
such as private equity, hedge funds, real estate, commodities, and infrastructure
projects.

AIFs are typically managed by professional fund managers or investment firms and
are regulated by the Securities and Exchange Board of India (SEBI) in India. AIFs can
be offered to a select group of investors, including high net worth individuals,
family offices, and institutional investors.

AIFs can take various forms, including closed-end funds, open-end funds, and
private equity funds. A closed-end AIF has a fixed number of shares and a specific
maturity date, while an open-end AIF allows investors to enter or exit the fund at
any time. Private equity funds are a type of AIF that typically invest in private
companies and are not publicly traded.

AIFs offer investors the potential for higher returns and diversification from
traditional investment options. However, they also come with higher risks due to
the nature of the underlying assets and lack of liquidity. AIFs are generally subject
to more stringent regulations than traditional investment options due to their
higher risk profile.

Various Type of AIF

There are three categories of Alternative Investment Funds (AIFs) in India, as

defined by the Securities and Exchange Board of India (SEBI):

1. Category I AIFs: These funds invest in start-ups, early-stage ventures, social

ventures, SMEs, or infrastructure or other sectors or areas which the
government or regulators consider as socially or economically desirable.
Category I AIFs are perceived to have a relatively low-risk, low-return profile.

Examples of Category I AIFs include:

● Angel Funds
● Social Venture Funds
● SME Funds
● Infrastructure Funds
● Venture Capital Funds
2. Category II AIFs: These funds invest in alternative assets, including real
estate, private equity, distressed assets, and other complex products.
Category II AIFs have relatively higher risk and return profile.

Examples of Category II AIFs include:

● Debt Funds
 ● Fund of Funds
● Private Equity Funds
● Real Estate Funds
3. Category III AIFs: These funds invest in a combination of debt and equity
and employ complex trading strategies, such as hedging and leveraging, to
generate higher returns. Category III AIFs are perceived to have the highest
risk and return profile.

Examples of Category III AIFs include:

● Hedge Funds
● Alternative Investment Funds investing in Derivatives

It's worth noting that AIFs are not publicly traded, and the minimum investment
size for an AIF is INR 1 crore. Additionally, each AIF is required to be managed by a
registered AIF manager who is subject to SEBI regulations.