Investment Attributes

Every investor has certain specific objectives to achieve through his long term/short term
investment. Such objectives may be monetary/financial or personal in character. The objectives
include safety and security of the funds invested (principal amount), profitability (through
interest, dividend and capital appreciation) and liquidity (convertibility into cash as and when
required). These objectives are universal in character as every investor will like to have a fair
balance of these three financial objectives. An investor will not like to take undue risk about his
principal amount even when the interest rate offered is extremely attractive. These objectives or
factors are known as investment attributes.

There are personal objectives which are given due consideration by every investor while
selecting suitable avenues for investment. Personal objectives may be like provision for old age
and sickness, provision for house construction, provision for education and marriage of children
and finally provision for dependents including wife, parents or physically handicapped member
of the family.Investment avenue selected should be suitable for achieving both the objectives
(financial and personal) decided. Merits and demerits of various investment avenues need to be
considered in the context of such investment objectives.

(1) Period of Investment (2) Risk in Investment

To enable the evaluation and a reasonable comparison of various investment avenues,
the investor should study the following attributes:
1. Rate of return
2. Risk
3. Marketability
4. Taxes
5. Convenience
6. Safety
7. Liquidity
8.Duration

Each of these attributes of investment avenues is briefly described and explained below.

Rate of return:
The rate of return on any investment comprises of 2 parts, namely the annual income and the
capital gain or loss. To simplify it further look below:
Rate of return = Annual income + (Ending price - Beginning price) / Beginning price
The rate of return on various investment avenues would vary widely.

2. Risk:
The risk of an investment refers to the variability of the rate of return. To explain further, it is the
deviation of the outcome of an investment from its expected value. A further study can be done
with the help of variance, standard deviation and beta. Risk is another factor which needs careful
consideration while selecting the avenue for investment. Risk is a normal feature of every
investment as an investor has to part with his money immediately and has to collect it back with
some benefit in due course. The risk may be more in some investment avenues and less in others.
The risk in the investment may be related to non-payment of principal amount or interest
thereon. In addition, liquidity risk, inflation risk, market risk, business risk, political risk, etc. are
some more risks connected with the investment made. The risk in investment depends on various
factors. For example, the risk is more, if the period of maturity is longer. Similarly, the risk is
less in the case of debt instrument (e.g., debenture) and more in the case of ownership instrument
(e.g., equity share). In addition, the risk is less if the borrower is creditworthy or the agency
issuing security is creditworthy. It is always desirable to select an investment avenue where the
risk involved is minimum/comparatively less. Thus, the objective of an investor should be to
minimize the risk and to maximize the return out of the investment made.

3. Marketability: It is desirable that an investment instrument be marketable, the higher the

marketability the better it is for the investor. An investment instrument is considered to be highly
marketable when:
 It can be transacted quickly.
 The transaction cost (including brokerage and other charges) is low.
 The price change between 2 transactions is negligible.
 Shares of large, well-established companies in the equity market are highly marketable.
While shares of small and unknown companies have low marketability.
To gauge the marketability of other financial instruments like provident fund (which in itself is
non-marketable). Then we would consider other factors like, can we make a substantial
withdrawal without much penalty, or can we take a loan against the accumulated balance at an
interest rate not much higher than our earning rate of interest on the provident fund account.

4. Taxes: Some of our investments would provide us with tax benefits while other would not.
This would also be kept in mind when choosing the investment avenue. Tax benefits are mainly
of 3 types:
 Initial tax benefits. This is the tax gain at the time of making the investment, like life
insurance.
 Continuing tax benefit. Is the tax benefit gained on the periodic return from the
investment, such as dividends.
 Terminal tax benefit. This is the tax relief the investor gains when he liquidates the
investment. For example, a withdrawal from a provident fund account is not taxable.

5. Convenience:
Here we are talking about the ease with which an investment can be made and managed.
The degree of convenience would vary from one investment instrument to the other.

6.Safety
Although the degree of risk varies across investment types, all investments bear risk.
Therefore, it is important to determine how much risk is involved in an investment. The
average performance of an investment normally provides a good indicator. However, past
performance is merely a guide to future performance - not a guarantee. Some
investments, like variable annuities, may have a safety net while others expose the
investor to comprehensive losses in the event of failure. Investors should also consider
whether they could manage the safety risk associated with an investment - financially and
psychologically.

7.Liquidity
A liquid investment is one you can easily convert to cash or cash equivalents. In other
words, a liquid investment is tradable- there are ample buyers and sellers on the market
for a liquid investment. An example of a liquid investment is currency trading. When you
trade currencies, there is always someone willing to buy when you want to sell and vice
versa. With other investments, like stock options, you may hold an illiquid asset at
various points in your investment horizon.

8. Duration
Investments typically have a longer horizon than cash and income options. The duration
of an investment-, particularly how long it may take to generate a healthy rate of return-
is a vital consideration for an investor. The investment horizon should match the period
that your funds must be invested for or how long it would take to generate a desired
return.
A good investment has a good risk-return trade-off and provides a good return-duration
trade-off as well. Given that there are several risks that an investment faces, it is
important to use these attributes to assess the suitability of a financial instrument or
option. A good investment is one that suits your investment objectives. To do that, it
must have a combination of investment attributes that satisfy you.

Economic v/s Financial

Investment Financial
Investment
A financial investment allocates resources into a financial asset, such as a bank account,
stocks, mutual funds, foreign currency and derivatives. Ambika Prasad Dash, author of
"Security Analysis and Portfolio Management" explains financial investments are
purchases of financial claims. This type of investment may or may not yield a return.
However, businesses gain from placing money into financial investments because many
safe assets, such as an interest-bearing savings account, may yield enough of a return to
protect it from inflation. Essentially, some financial investments offer protection against
rising prices.
Economic Investment
An economic investment puts resources in something that may yield benefits in excess of
its initial cost. Though these resources still include money, investments can also be made
in time, assistance and mentoring. Likewise, assets are not limited to financial
instruments. Mike Stabler, author of "The Economics of Tourism" explains economic
growth arises from a broader definition of an investment, such as an investment in
knowledge. An economic investment may include buying or upgrading machinery and
equipment or adding to a labor force. For example, an economic investment could be a
tuition reimbursement program for employees. The expectation is the company's expense
will lead to an employee who will use the education in ways to benefit the company.
Furthermore, offering this benefit may attract a wider, more-skilled pool of applicants
from which the company can choose. States also engage in economic investments. Art
Rolnick of the Minneapolis Federal Reserve explains that every dollar invested in early
education yields $8 worth of benefits in economic growth.

Similarities
In both cases, a company undergoes a cost-benefit analysis to deem the potential return
of the investment. Financial and economic investments also carry risk. Just as a stock
may tumble and cost the business money, investing in training programs could cost the
business money if the employee resigns one month later. Thus, both types of investment
require risk assessment. For financial investments, risk assessment includes analyzing
the previous performance of stock and evaluating its ratios. Studying the risk of an
economic investment includes reviewing resumes and performing reference checks,
following up on the credibility of vendors and reviewing customer reviews on machinery
and other costly purchases.

Considerations
Measuring the return of an economic investment is not as straightforward as a financial
investment. While a financial investment provides concrete data regarding the asset's
past performance and its day-to-day growth or decline, assessing economic investments
is not as direct because the return of an economic investment is not always apparent.
Using the college tuition reimbursement example, if an employee performs her work
faster as a result of her accounting class, managers typically attribute a more direct
reason such as becoming familiar with the job or enforcing the new rule of not listening
to music while working.

Investment and speculation

Definition of 'Investment'
An asset or item that is purchased with the hope that it will generate income or
appreciate in the future. In an economic sense, an investment is the purchase of goods
that are not consumed today but are used in the future to create wealth. In finance, an
investment is a monetary asset purchased with the idea that the asset will provide income
in the future or appreciate and be sold at a higher price.
'Investment' in Economic and Financial sense.
 The building of a factory used to produce goods and the investment one makes by going
to college or university are both examples of investments in the economic sense.
In the financial sense investments include the purchase of bonds, stocks or real estate property.

Be sure not to get 'making an investment' and 'speculating' confused. Investing usually involves
the creation of wealth whereas speculating is often a zero-sum game; wealth is not created.
Although speculators are often making informed decisions, speculation cannot usually be
categorized as traditional investing.

 Investment involves making a sacrifice of in the present with the hope of deriving future
benefits.
 Postponed consumption
The two important features are :
 Current Sacrifice.
 Future Benefits.
 It also involves putting money into an asset which is not necessarily marketable in the
short run in order to enjoy the series of returns the investment is expected to yield.
 People who make fortunes in stock market and they are called investors.
 Decision making is a well thought process.
 Key determinant of investment process:
 Risk
 Expected Return

Speculation
Speculation is the practice of engaging in risky financial transactions in an attempt to profit from
short or medium term fluctuations in the market value of a tradable good such as a financial
instrument, rather than attempting to profit from the underlying financial attributes embodied in
the instrument such as capital gains, interest, or dividends. Many speculators pay little attention
to the fundamental value of a security and instead focus purely on price movements. Speculation
can in principle involve any tradable good or financial instrument. Speculators are particularly
common in the markets for stocks, bonds, commodity futures, currencies, fine art, collectibles,
real estate, and derivatives.
Speculators play one of four primary roles in financial markets, along with hedgers who engage
in transactions to offset some other pre-existing risk,arbitrageurs who seek to profit from
situations where fungible instruments trade at different prices in different market segments, and
investors who seek profit through long-term ownership of an instrument's underlying attributes.
The role of speculators is to absorb excess risk that other participants do not want, and to provide
liquidity in the marketplace by buying or selling when no participants from the other categories
are available. Successful speculation entails collecting an adequate level of monetary
compensation in return for providing immediate liquidity and assuming additional risk so that,
over time, the inevitable losses are offset by larger profits.
  Speculation is a financial action that does not promise safety of the initial investment along with the
return on the principal sum.
 Its is usually short run phenomenon.
 Speculator the person tend to buy the assets with the expectation that a profit cane earned from
subsequent price change and sale.
PROCESS OF INVESTMENT AND SPECULATION

INVESTMENT V/S SPECULATION

Basis Investment Speculation

 1. Basis of acquisition Usually by outright Often on Margin
purchase

2.Marketable Asset Not necessary Necessary

3.Quantity of risk Small Large

i. Trading currencies: Investment or speculation?

In the case of the Forex market, currency trading is almost always speculation. I often like to
think of the Forex market as the world's largest poker game. Occasionally large corporations and
financial institutions buy currencies to hedge and protect themselves, or because they need a
large amount of foreign currency to pay a foreign bill or make a foreign purchase, but as
currency trading goes, it's almost always just pure speculation. Almost no FX trader buys a
currency to collect interest payments and such like. To be sure, many traders do engage in the
carry trade but such trades are usually highly leveraged and the trader is therefore first and
foremost betting that the currency they have bought won't fall in value against the currency they
used to buy it. FX traders are speculators and speculation is essentially gambling, albeit a form
of gambling that involves calculated risk and educated guesses rather than sticking the lot on red
number 7.

ii. Buying shares: Investment or speculation?

Shares are one of those assets classes that are bought both for speculative and investment
purposes, although there are no doubt a lot of small equity traders who confuse their speculative
bets for real investments. Whether one is investing or speculating when they buy shares really
depends upon why they are buying them. If you buy shares because you believe that the
companies future earnings per share justifies the price you are paying for the shares then you're
probably an investor. If however, you are buying shares in the belief that the price will soon rise
and you hope to sell them for more than you paid for them in the near future then you're
essentially speculating; you're really just hoping that someone will pay you more tomorrow than
you paid today. Investors who buy shares will therefore care a lot about the fundamentals: things
like the company's earnings, the net cash position on the company balance sheet and the value of
the company's tangible assets minus its debts and liabilities etc... Speculators on the other hand
will be primarily concerned with whether or not the price of a share is rising or whether it's
likely to jump in the near future.

iii. Trading commodities: Investment or speculation?

Like Forex traders, commodity traders are almost always just speculators. In fact, the
commodities futures market was originally setup so that farmers and other commodity producers
could guarantee the price they would receive for their goods in the future by shifting the risk
onto speculators. Commodities aren't investments as they generate no revenue, traders can't buy
commodities for their yields or their intrinsic value as there is none. Commodities are therefore
usually just purchased for either their usefulness or for speculative purposes.

iv. Buying property: Investment or speculation?

Like shares, property is one of those classes of assets that are bought by both investors and
speculators alike. And again, whether one is an investor or a speculator will depend upon why
they buy the property. If someone buys a property because they believe that the returns the
property can generate in the form of rents justifies the price tag then they are an investor and
even if the property falls in value it shouldn't matter to much to them as the property was bought
for its rental yield, not its expect future resale value. Property speculators on the other hand are
more concerned with what they believe their properties will be worth in the future as they are
essentially gambling that whatever they pay for it today, someone else will pay them more for it
in the future.
Features of a good investment

a. Objective fulfillment
An investment should fulfil the objective of the savers. Every individual has a definite objective
in making an investment. When the investment objective is contrasted with the uncertainty
involved with investments, the fulfilment of the objectives through the chosen investment
avenue could become complex.
b. Safety
The first and foremost concern of any ordinary investor is that his investment should be safe.
That is he should get back the principal at the end of the maturity period of the investment. There
is no absolute safety in any investment, except probably with investment in government
securities or such instruments where the repayment of interest and principal is guaranteed by the
government.
c. Return
The return from any investment is expectedly consistent with the extent of risk assumed by the
investor. Risk and return go together. Higher the risk, higher the chances of getting higher return.
An investment in a low risk - high safety investment such as investment in government securities
will obviously get the investor only low returns.
d. Liquidity
Given a choice, investors would prefer a liquid investment than a higher return investment.
Because the investment climate and market conditions may change or investor may be
confronted by an urgent unforeseen commitment for which he might need funds, and if he can
dispose of his investment without suffering unduly in terms of loss of returns, he would prefer
the liquid investment.
e. Hedge against inflation
The purchasing power of money deteriorates heavily in a country which is not efficient or not
well endowed, in relation to another country. Investors who save for the long term, look for
hedge against inflation so that their investments are not unduly eroded; rather they look for a
capital gain which neutralises the erosion in purchasing power and still gives a return.
f. Concealabilty
If not from the taxman, investors would like to keep their investments rather confidential from
their own kith and kin so that the investments made for their old age/ uncertain future does not
become a hunting ground for their own lives. Safeguarding of financial instruments representing
the investments may be easier than investment made in real estate. Moreover, the real estate may
be prone to encroachment and other such hazards.
h. Tax shield
Investment decisions are highly influenced by the tax system in the country. Investors look for
front-end tax incentives while making an investment and also rear-end tax reliefs while reaping
the benefit of their investments. As against tax incentives and reliefs, if investors were to pay
taxes on the income earned from investments, they look for higher return in such investments so
that their after tax income is comparable to the pre-tax equivalent level with some other income
which is free of tax, but is more risky.
Investment Process

The process of investment includes five stages:

1. Investment Policy: The policy is formulated on the basis of investible funds, objectives
and knowledge about investment sources.
2. Security Analyses: Economic, industry and company analyses are carried out for the
purchase of securities.
3. Valuation: Intrinsic value of the share is measured through book value of the share and
P/E ratio.
4. Portfolio Construction: Portfolio is diversified to maximise return and minimise risk.
5. Portfolio Evaluation: The performance of the portfolio is appraised and revised.

Financial Instruments

Definition of 'Financial Instrument'

A real or virtual document representing a legal agreement involving some sort of monetary
value. In today's financial marketplace, financial instruments can be classified generally as
equity based, representing ownership of the asset, or debt based, representing a loan made by an
investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of
instrument. Different subcategories of each instrument type exist, such as preferred share equity
and common share equity, for example.
Financial instruments can be thought of as easily tradeable packages of capital, each having their
own unique characteristics and structure. The wide array of financial instruments in today's
marketplace allows for the efficient flow of capital amongst the world's investors.
A financial instrument is a tradeable asset of any kind; either cash, evidence of an ownership
interest in an entity, or a contractual right to receive or deliver cash or another financial
instrument.
According to IAS 32 and 39, it is defined as "any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity
Financial instruments can be categorized by form depending on whether they are cash
instruments or derivative instruments:
 Cash instruments are financial instruments whose value is determined directly by the
markets. They can be divided into securities, which are readily transferable, and other
cash instruments such as loans and deposits, where both borrower and lender have to
agree on a transfer.
 Derivative instruments are financial instruments which derive their value from the
value and characteristics of one or more underlying entities such as an asset, index, or
interest rate. They can be divided into exchange-traded derivatives and over-the-counter
 (OTC) derivatives.
Alternatively, financial instruments can be categorized by "asset class" depending on whether
they are equity based (reflecting ownership of the issuing entity) or debt based (reflecting a
loan the investor has made to the issuing entity). If it is debt, it can be further categorised into
short term (less than one year) or long term.
Foreign Exchange instruments and transactions are neither debt nor equity based
and belong in their own category.

Money Market is the part of financial market where instruments with high
liquidity and very short-term maturities are traded. It's the place where large
financial institutions, dealers and government participate and meet out their short-
term cash needs. They usually borrow and lend money with the help of
instruments or securities to generate liquidity. Due to highly liquid nature of
securities and their short-term maturities, money market is treated as safe place.
Money market means market where money or its equivalent can be traded.

Money is synonym of liquidity. Money market consists of financial institutions

and dealers in money or credit who wish to generate liquidity. It is better known
as a place where large institutions and government manage their short term cash
needs. For generation of liquidity, short term borrowing and lending is done by
these financial institutions and dealers. Money Market is part of financial market
where instruments with high liquidity and very short term maturities are traded.
Due to highly liquid nature of securities and their short term maturities, money
market is treated as a safe place. Hence, money market is a market where short
term
obligations such as treasury bills, commercial papers a and sold.

Benefits and functions of Money Market:

Money markets exist to facilitate efficient transfer of short-term funds between
holders and borrowers of cash assets. For the lender/investor, it provides a good
return on their funds. For the borrower, it enables rapid and relatively inexpensive
acquisition of cash to cover short-term liabilities. One of the primary functions of
money market is to provide focal point
for RBI’s interventiongeneralforlevelsinfluencingofinterestratesthe liqu economy. RBI being the
main constituent in the money market aims at ensuring that liquidity
and short term interest rates are consistent with the monetary policy objectives.

Money Market & Capital Market:

Money Market is a place for short term lending and borrowing, typically within a
year. It deals in short term debt financing and investments. On the other hand,
Capital Market refers to stock market, which refers to trading in shares and bonds
of companies on recognized stock exchanges. Individual players cannot invest in
money market as the value of investments is large, on the other hand, in capital
market, anybody can make investments through a broker. Stock Market is
associated with high risk and high return as against money market which is more
secure. Further, in case of money market, deals are transacted on phone or through
electronic systems as against capital market where trading is through recognized
stock exchanges.

Money Market Futures and Options:

Active trading in money market futures and options occurs on number of
commodity exchanges. They function in the similar manner like any other futures
and options
Role of Reserve Bank of India:
The Reserve Bank of India (RBI) plays a key role of regulator and controller of money market.
The intervention of RBI is varied –curbing crisis situations by reducing key policy rates or
curbing inflationary situations by rising key policy rates such as Repo, Reverse Repo, CRR etc.

Money Market Instruments:

Money Market Instruments provide the tools by which one can operate in the money market.
Money market instrument meets short term requirements of the borrowers and provides liquidity
to the lenders. The most common money market instruments are Treasury Bills, Certificate of
Deposits, Commercial Papers, Repurchase Agreements and Banker's Acceptance.

Treasury Bills (T-Bills):
Treasury Bills are one of the safest money market instruments as they are issued by Central
Government. They are zero-risk instruments, and hence returns are not that attractive. T-Bills are
circulated by both primary as well as the secondary markets. They come with the maturities of 3-
month, 6-month and 1-year.
The Central Government issues T-Bills at a price less than their face value and the difference
between the buy price and the maturity value is the interest earned by the buyer of the
instrument. The buy value of the T-Bill is determined by the bidding process through auctions.
At present, the Government of India issues three types of treasury bills through auctions,
namely, 91-day, 182-day and 364-day.

Certificate of Deposits (CDs):
Certificate of Deposit is like a promissory note issued by a bank in form of a Certificate
entitling the bearer to receive interest. It is similar to bank term deposit account. The certificate
bears the maturity date, fixed rate of interest and the value. These certificates are available in the
tenure of 3 months to 5 years. The returns on certificate of deposits are higher than T-Bills
because they carry higher level of risk.

Commercial Papers (CPs):
Commercial Paper is the short term unsecured promissory note issued by corporates and
financial institutions at a discounted value on face value. They come with fixed maturity period
ranging from 1 day to 270 days. These are issued for the purpose of financing of accounts
receivables, inventories and meeting short term liabilities.
The return on commercial papers is is higher as compared to T-Bills so as the risk as they are
less secure in comparison to these bills. It is easy to find buyers for the firms with high credit
ratings. These securities are actively traded in secondary market.

Repurchase Agreements (Repo):
Repurchase Agreements which are also called as Repo or Reverse Repo are short term loans
that buyers and sellers agree upon for selling and repurchasing. Repo or Reverse Repo
transactions can be done only between the parties approved by RBI and allowed only between
RBI-approved securities such as state and central government securities, T-Bills, PSU bonds and
corporate bonds. They are usually used for overnight borrowing.
Repurchase agreements are sold by sellers with a promise of purchasing them back at a given
price and on a given date in future. On the flip side, the buyer will also purchase the securities
and other instruments with a promise of selling them back to the seller.

Banker's Acceptance:
Banker's Acceptance is like a short term investment plan created by non-financial firm, backed
by a guarantee from the bank. It's like a bill of exchange stating a buyer's promise to pay to the
seller a certain specified amount at a certain date. And, the bank guarantees that the buyer will
pay the seller at a future date. Firm with strong credit rating can draw such bill. These securities
come with the maturities between 30 and 180 days and the most common term for these
instruments is 90 days. Companies use these negotiable time drafts to finance imports, exports
and other trade.

Federal Agency Notes
Some agencies of the federal government issue both short-term and long-term obligations,
including the loan agencies Fannie Mae and Sallie Mae. These obligations are not generally
backed by the government, so they offer a slightly higher yield than T-bills, but the risk of
default is still very small. Agency securities are actively traded, but are not quite as marketable
as T-bills. Corporations are major purchasers of this type of money market instrument.

Short-Term Tax Exempts
These instruments are short-term notes issued by state and municipal governments. Although
they carry somewhat more risk than T-bills and tend to be less negotiable, they feature the added
benefit that the interest is not subject to federal income tax. For this reason, corporations find
that the lower yield is worthwhile on this type of short-term investment.

Repurchase Agreements/ REPOs
Repurchase agreements—also known as repos or buybacks—are Treasury securities that are
purchased from a dealer with the agreement that they will be sold back at a future date for a
higher price. These agreements are the most liquid of all money market investments, ranging
from 24 hours to several months. In fact, they are very similar to bank deposit accounts, and
many corporations arrange for their banks to transfer excess cash to such funds automatically.

MONEY MARKET AT CALL AND SHORT NOTICE

Next in liquidity after cash, money at call is a loan that is repayable on demand, and money at
short notice is repayable within 14 days of serving a notice. The participants are banks & all
other Indian Financial Institutions as permitted by RBI.
The market is over the telephone market, non bank participants act as lender only. Banks borrow
for a variety of reasons to maintain their CRR, to meet their heavy payments, to adjust their
maturity mismatch etc.
MONEY MARKET MUTUAL FUNDS(MMMFs)
A money market fund is a mutual fund that invests solely in money market instruments. Money
market instruments are forms of debt that mature in less than one year and are very liquid.
Treasury bills make up the bulk of the money market instruments. Securities in the money
market are relatively risk-free. Money market funds are generally the safest and most secure of
mutual fund investments. The goal of a money-market fund is to preserve principal while
yielding a modest return by investing in safe and stable instruments issued by governments,
banks and corporations etc.

GOVERNMENT SECURITIES(G- Secs)

Government Securities are securities issued by the Government for raising a public loan or as
notified in the official Gazette. G-secs are sovereign securities mostly interest bearing dated
securities which are issued by RBI on behalf of Govt. of India(GOI). GOI uses these borrowed
funds to meet its fiscal deficit, while temporary cash mismatches are met through treasury bills
of 91 days.
G-secs consist of Government Promissory Notes, Bearer Bonds, Stocks or Bonds, Treasury Bills
or Dated Government Securities. Government bonds are theoretically risk free bonds, because
governments can, up to a point, raise taxes, reduce spending, and take various measures to
redeem the bond at maturity.

Features of Government Securities

Usually issued and redeemed at face value
No default risk as the securities carry sovereign guarantee.
Ample liquidity as the investor can sell the security in the secondary market
Interest payment on a half yearly basis on face value
No tax deducted at source Can
be held in D-mat form
Rate of interest and tenor of the security is fixed at the time of issuance and is not subject to
change (unless intrinsic to the security like FRBs).
Redeemed at face value on maturity
Maturity ranges from of 2-30 years.

CALL MONEY MARKET AND SHORT TERM DEPOSIT MARKET

The borrowers are essentially the banks. DFHI plays a vital role in stabilizing the call and short
term deposit rates through larger turnover and smaller spread. It ascertains the prospective
lenders and borrowers, the money available and needed and exchanges a deal settlement advice
with them indicating the negotiated interest rates applicable to them. When DFHI borrows, a call
deposit receipt is issued to the lender against a cheque drawn on RBI for the amount lent. If
DFHI lends it issues to the RBI a cheque representing the amount lent to the borrower against
the call deposit receipt.

INTER BANK PARTICIPATION CERTIFICATES

With a view for providing an additional instrument for evening out short-term liquidity within
the banking system, two types of Inter-Bank Participations (IBPs) were introduced, one on risk
sharing basis and the other without risk sharing. These are strictly inter-bank instruments
confined to scheduled commercial banks excluding regional rural banks. The IBP with risk
sharing can be issued for 91-180 days. Under the uniform grading system introduced by Reserve
Bank for application by banks to measure the health of bank advances portfolio, a borrower
account considered satisfactory if the one in which the conduct of account is satisfactory, the
safety of advance is not in doubt, all the terms and conditions are complied with, and all the
accounts of the borrower are in order. The IBP risk sharing provides flexibility in the credit
portfolio of banks. The rate of interest is left free to be determined between the issuing bank and
the participating bank subject to a minimum 14.0 per cent per annum. The aggregate amount of
such IBPs under any loan account at the time of issue is not to exceed 40 per cent of the
outstanding in the account.
The IBP without risk sharing is a money market instrument with a tenure not exceeding 90 days
and the interest rate on such IBPs is left to be determined by the two concerned banks without
any ceiling on interest rate.

BILLS REDISCOUNTING
It is an important segment of money market and the bill as an instrument provides short term
liquidity to the suppliers in need of funds. Bill financing seller drawing a bill of exchange & the
buyer accepting it, thereafter the seller discounting it, say with a bank. Hundies, an indigenous
form of bill of exchange, have been popular in India, but there has been a general reluctance on
the part of the buyers to commit themselves to payments on maturity. Hence the Bills have been
not so popular.

GILT EDGED GOVERNMENT SECURITIES

These are issued by governments such as Central Government, State Government, Semi
Government authorities, City Corporations, Municipalities, Port trust, State Electricity Board,
Housing boards etc.
The gilt-edged market refers to the market for Government and semi-government securities,
backed by the Reserve Bank of India(RBI). Government securities are tradable debt instruments
issued by the Government for meeting its financial requirements. The term gilt-edged means 'of
the best quality'. This is because the Government securities do not suffer from risk of default and
are highly liquid (as they can be easily sold in the market at their current price). The open market
operations of the RBI are also conducted in such securities.
Common money market instruments
 Certificate of deposit - Time deposit, commonly offered to consumers by banks, thrift
institutions, and credit unions.
 Repurchase agreements - Short-term loans—normally for less than two weeks and
frequently for one day—arranged by selling securities to an investor with an agreement
to repurchase them at a fixed price on a fixed date.
 Commercial paper - short term usanse promissory notes issued by company at discount
to face value and redeemed at face value
 Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located
outside the United States.
 Federal agency short-term securities - (in the U.S.). Short-term securities
issued by government sponsored enterprises such as the Farm Credit
System, the Federal Home Loan Banks and the Federal National
Mortgage Association.
 Federal funds - (in the U.S.). Interest-bearing deposits held by banks and
other depository institutions at the Federal Reserve; these are immediately
available funds that institutions borrow or lend, usually on an overnight
basis. They are lent for the federal funds rate.
 Municipal notes - (in the U.S.). Short-term notes issued by municipalities
in anticipation of tax receipts or other revenues.
 Treasury bills - Short-term debt obligations of a national government that
are issued to mature in three to twelve months.
 Money funds - Pooled short maturity, high quality investments which buy
money market securities on behalf of retail or institutional investors.
 Foreign Exchange Swaps - Exchanging a set of currencies in spot date
and the reversal of the exchange of currencies at a predetermined time in
the future.
 Short-lived mortgage- and asset-backed securities

Capital market
The capital market (securities markets) is the market for securities, where
companies and the government can raise long-term funds. The capital market
includes the stock market and the bond market. Financial regulators, oversee the
capital markets in their respective countries to ensure that investors are protected
against fraud. The capital markets consist of the primary market, where new
issues are distributed to investors, and the secondary market, where existing
securities are traded.

Stock market
The term ‘the stock market’mechanismthat enablesis thea tradingconceptof f
company stocks (collective shares), other securities, and derivatives. Bonds are still
traditionally traded in an informal, over-the-counter market known as the bond market.
Commodities are traded in commodities markets, and derivatives are traded in a variety of
markets (but, like-the-counter’)bonds,mostly. ‘over
The size of the worldwide ‘bond market’ is market’ is estimated at
aboutesmarkethas$been51estimatedtrillionat. about $300 trillion. It must be noted though that
the derivatives market, because it is stated in
terms of notional outstanding amounts, cannot be directly compared to a stock or
fixed income market, which refers to actual value.
The stocks are listed and traded on stock exchanges which are entities (a
corporation or mutual organisation) specialised in the business of bringing buyers
and sellers of stocks and securities together.
Primary markets
The primary market is that part of the capital markets that deals with the issuance
of new securities. Companies, governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue. This is typically done
through a syndicate of securities dealers. The process of selling new issues to
investors is called underwriting. In the case of a new stock issue, this sale is an
initial public offering (IPO). Dealers earn a commission that is built into the price
of the security offering, though it can be found in the prospectus.

Features of a primary market are:

 This is the market for new long term capital. The primary market is the
market where the securities are sold for the first time. Therefore it is also
called New Issue Market (NIM)
 In a primary issue, the securities are issued by the company directly to investors
 The company receives the money and issue new security certificates to the investors
 Primary issues are used by companies for the purpose of setting up new
business or for expanding or modernizing the existing business
 The primary market performs the crucial function of facilitating capital
formation in the economy
 The new issue market does not include certain other sources of new long
term external finance, such as loans from financial institutions. Borrowers
in the new issue market may be raising capital for converting private
capital into public capital; this is known as ‘going public’
Secondary markets
The secondary market is the financial market for trading of securities that have
already been issued in an initial private or public offering. Alternatively,
secondary market can refer to the market for any kind of used goods. The market
that exists in a new security just after the new issue, is often referred to as the
aftermarket. Once a newly issued stock is listed on a stock exchange, investors
and speculators can easily trade on the exchange, as market makers provide bids
and offers in the new stock.
In the secondary market, securities are sold by and transferred from one investor
or speculator to another. It is therefore important that the secondary market be
highly liquid and transparent. Before electronic means of communications, the
only way to create this liquidity was for investors and speculators to meet at a
fixed place regularly. This is how stock exchanges originated.

The rationale for secondary markets

Secondary marketing is vital to an efficient and modern capital market. Fundamentally,
secondary markets mesh the investor’s t prefe to tie up his or her money for a long period of
time, in case the investor needs it to deal with unforeseen circumstances) with the capital an
extended period of time.

For example, a traditional loan allows the borrower to pay back the loan, with interest, over a
certain period. For the length of that peri inaccessible to the lender, even in cases of
emergencies. Likewise, in an emergency, a partner in a traditional partnership is only able to
access his or her original investment if he or she finds another investor willing to buy out his or
her interest in the partnership. With a securitised loan or equity interest (such as bonds) or
tradable stocks, the investor can sell, relatively easily, his or her interest in the investment,
particularly if the loan or ownership equity has been broken into relatively small parts. This
selling and buying of small parts of a larger loan or ownership interest in a venture is called
secondary market trading.
Under traditional lending and partnership arrangements, investors may be less likely to put their
money into long-term investments, and more likely to charge a higher interest rate (or demand a
greater share of the profits) if they do. With secondary markets, however, investors know that
they can recoup some of their investment quickly, if their own circumstances change.

Instruments traded in the capital market

The capital market, as it is known, is that segment of the financial market that deals with the
effective channeling of medium to long-term funds from the surplus to the deficit unit. The
process of transfer of funds is done through instruments, which are documents (or certificates),
showing evidence of investments. The instruments traded (media of exchange) in the capital
market are:
1. Debt Instruments

A debt instrument is used by either companies or governments to generate funds for capital-
intensive projects. It can obtained either through the primary or secondary market. The
relationship in this form of instrument ownership is that of a borrower –creditor and thus, does
not necessarily imply ownership in the business of the borrower. The contract is for a specific
*
duration and interest is paid at specified periods as stated in the trust deed (contract agreement).
The principal sum invested, is therefore repaid at the expiration of the contract period with
interest either paid quarterly, semi-annually or annually. The interest stated in the trust deed may
be either fixed or flexible. The tenure of this category ranges from 3 to 25 years. Investment in
this instrument is, most times, risk-free and therefore yields lower returns when compared to
other instruments traded in the capital market. Investors in this category get top priority in the
event of liquidation of a company.

When the instrument is issued by:

 The Federal Government, it is called a Sovereign Bond;

 A state government it is called a State Bond;

 A local government, it is called a Municipal Bond; and

 A corporate body (Company), it is called a Debenture, Industrial Loan or Corporate

Bond
2. Equities (also called Common Stock)
This instrument is issued by companies only and can also be obtained either in the primary
market or the secondary market. Investment in this form of business translates to ownership of
the business as the contract stands in perpetuity unless sold to another investor in the secondary
market. The investor therefore possesses certain rights and privileges (such as to vote and hold
position) in the company. Whereas the investor in debts may be entitled to interest which must
be paid, the equity holder receives dividends which may or may not be declared.

The risk factor in this instrument is high and thus yields a higher return (when successful).
Holders of this instrument however rank bottom on the scale of preference in the event of
liquidation of a company as they are considered owners of the company.

3. Preference Shares

This instrument is issued by corporate bodies and the investors rank second (after bond holders)
on the scale of preference when a company goes under. The instrument possesses the
characteristics of equity in the sense that when the authorised share capital and paid up capital
are being calculated, they are added to equity capital to arrive at the total. Preference shares can
also be treated as a debt instrument as they do not confer voting rights on its holders and have a
dividend payment that is structured like interest (coupon) paid for bonds issues.

Preference shares may be:

 Irredeemable, convertible: in this case, upon maturity of the instrument, the principal sum
being returned to the investor is converted to equities even though dividends (interest)
had earlier been paid.

 Irredeemable, non-convertible: here, the holder can only sell his holding in the secondary
market as the contract will always be rolled over upon maturity. The instrument will also
not be converted to equities.

 Redeemable: here the principal sum is repaid at the end of a specified period. In this case
it is treated strictly as a debt instrument.

Note: interest may be cumulative, flexible or fixed depending on the agreement in the Trust
Deed.

4. Derivatives

These are instruments that derive from other securities, which are referred to as underlying assets
(as the derivative is derived from them). The price, riskiness and function of the derivative
depend on the underlying assets since whatever affects the underlying asset must
affect the derivative. The derivative might be an asset, index or even situation.
Derivatives are mostly common in developed economies.
Some examples of derivatives are:

 Mortgage-Backed Securities (MBS)

 Asset-Backed Securities (ABS)
 Futures
 Options
 Swaps
 Rights
 Exchange Traded Funds or commodities

Of all the above stated derivatives, the common one in Nigeria is Rights where by
the holder of an existing security gets the opportunity to acquire additional
quantity to his holding in an allocated ratio.
DERIVATIVES
A derivative is a financial instrument which derives its value from the value of
underlying entities such as an asset, index, or interest rate—it has no intrinsic
value in itself. Derivative transactions include a variety of financial contracts,
including structured debt obligations and deposits, swaps, futures, options, caps,
floors,collars, forwards, and various combinations of these.
To give an idea of the size of the derivative market, The Economist magazine has
reported that as of June 2011, the over-the-counter (OTC) derivatives market
amounted to approximately $700 trillion, and the size of the market traded on
exchanges totaled an
additional $83 trillion. However, these are this value greatly exaggerates the market value and
the true credit risk faced by the parties
involved. For example, in 2010, while the aggregate of OTC derivatives exceeded
$600 trillion, the value of the market was estimated much lower at $21 trillion.
The credit risk equivalent of the derivative contracts was estimated at $3.3 trillion.
Still, even these scaled down figures represent huge amounts of money. For
perspective, the budget for total expenditure of the United States Government
during 2012 was $3.5 trillion, and the total current value of the US stock market is
an estimated $23 trillion. The world annual Gross Domestic Product is about $65
trillion.
And for one type of derivative at least, Credit Default Swaps (CDS), for which the
inherent risk is considered high, the higher, notional value, remains relevant. It
was this type of derivative that investment magnate Warren Buffet referred to in
his famous 2002 speech in
which warned against “weapons of financial
[8]
2012 amounted to $25.5 trillion, down from $55 trillion in 2008.
In practice, derivatives are a contract between two parties that specify conditions
(especially the dates, resulting values and definitions of the underlying variables,
the parties' contractual obligations, and the notional amount) under which
payments are to be made between the parties. The most common underlying assets
include commodities, stocks, bonds, interest rates and currencies.
There are two groups of derivative contracts: the privately traded Over-the-counter (OTC)
derivatives such as swaps that do not go through an exchange or other intermediary, and
exchange-traded derivatives (ETD) that are traded through specialized derivatives exchanges or
other exchanges.
Derivatives are more common in the modern era, but their origins trace back several centuries.
One of the oldest derivatives is rice futures, which have been traded on the Dojima Rice
Exchange since the eighteenth century. Derivatives are broadly categorized by the relationship
between the underlying asset and the derivative (such as forward, option, swap); the type of
underlying asset (such as equity derivatives, foreign exchange derivatives, interest rate
derivatives, commodity derivatives, or credit derivatives); the market in which they trade (such
as exchange-traded or over-the-counter); and their pay-off profile.
Derivatives may broadly be categorized as "lock" or "option" products. Lock products (such as
swaps, futures, or forwards) obligate the contractual parties to the terms over the life of the
contract. Option products (such as interest rate caps) provide the buyer the right, but not the
obligation to enter the contract under the terms specified.
Derivatives can be used either for risk management (i.e. to "hedge" by providing offsetting
compensation in case of an undesired event, a kind of "insurance") or for speculation (i.e.
making a financial "bet"). This distinction is important because the former is a legitimate, often
prudent aspect of operations and financial management for many firms across many industries;
the latter offers managers and investors a seductive opportunity to increase profit, but not
without incurring additional risk that is often undisclosed to stakeholders.
Along with many other financial products and services, derivatives reform is an element of the
Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. The Act delegated
many rule-making details of regulatory oversight to the Commodity Futures Trading
Commission and those details are not finalized nor fully implemented as of late 2012.
Derivatives are used by investors for the following:
 hedge or mitigate risk in the underlying, by entering into a derivative contract whose
value moves in the opposite direction to their underlying position and cancels part or all
of it out;
 create option ability where the value of the derivative is linked to a specific condition or
event (e.g. the underlying reaching a specific price level);
 obtain exposure to the underlying where it is not possible to trade in the underlying (e.g.,
weather derivatives);
 provide leverage (or gearing), such that a small movement in the underlying value can
cause a large difference in the value of the derivative;
 speculate and make a profit if the value of the underlying asset moves the way they
expect (e.g., moves in a given direction, stays in or out of a specified range, reaches a
certain level).
 Switch asset allocations between different asset classes without disturbing the
underlining assets, as part of transition management.
Common derivative contract types
Some of the common variants of derivative contracts are as follows:
1. Forwards: A tailored contract between two parties, where payment takes place at a
specific time in the future at today's pre-determined price.
2. Futures: are contracts to buy or sell an asset on or before a future date at a price
specified today. A futures contract differs from a forward contract in that the futures
contract is a standardized contract written by a clearing house that operates an exchange
where the contract can be bought and sold; the forward contract is a non-standardized
contract written by the parties themselves.
 3. Options are contracts that give the owner the right, but not the obligation, to buy (in the
case of a call option) or sell (in the case of a put option) an asset. The price at which the
sale takes place is known as the strike price, and is specified at the time the parties enter
into the option. The option contract also specifies a maturity date. In the case of a
European option, the owner has the right to require the sale to take place on (but not
before) the maturity date; in the case of an American option, the owner can require the
sale to take place at any time up to the maturity date. If the owner of the contract
exercises this right, the counter-party has the obligation to carry out the transaction.
Options are of two types: call option and put option. The buyer of a Call option has a
right to buy a certain quantity of the underlying asset, at a specified price on or before a
given date in the future, he however has no obligation whatsoever to carry out this right.
Similarly, the buyer of a Put option has the right to sell a certain quantity of an
underlying asset, at a specified price on or before a given date in the future, he however
has no obligation whatsoever to carry out this right.
4. Binary options are contracts that provide the owner with an all-or-nothing profit profile.
5. Warrants: Apart from the commonly used short-dated options which have a maximum
maturity period of 1 year, there exists certain long-dated options as well, known as
Warrant (finance). These are generally traded over-the-counter.
6. Swaps are contracts to exchange cash (flows) on or before a specified future date based
on the underlying value of currencies exchange rates, bonds/interest rates, commodities
exchange, stocks or other assets. Another term which is commonly associated to Swap is
Swaption which is basically an option on the forward Swap. Similar to a Call and Put
option, a Swaption is of two kinds: a receiver Swaption and a payer Swaption. While on
one hand, in case of a receiver Swaption there is an option wherein you can receive fixed
and pay floating, a payer swaption on the other hand is an option to pay fixed and receive
floating.
Swaps can basically be categorized into two types:
 Interest rate swap: These basically necessitate swapping only interest associated cash
flows in the same currency, between two parties.
 Currency swap: In this kind of swapping, the cash flow between the two parties includes
both principal and interest. Also, the money which is being swapped is in different
currency for both parties.

Some common examples of these derivatives are the following:

CONTRACT TYPES
UNDERLYING Exchange-trad Exchange-trade
OTC swap OTC forward OTC option
ed futures d options
DJIA Index Option Stock option
 on DJIA Index Back-to-back
future Warrant
Equity future Equity swap Repurchase ag
Single-stock fu Turbo warran
Single-share reement
ture t
option
Interest rate c
Option on
Eurodollar ap and floor
Eurodollar future Interest rate Forward rate a
Interest rate future Swaption
Option on swap greement
Euribor future Basis swap
Euribor future
Bond option
Credit defaul
Option on Bond t swap Repurchase ag Credit default
Credit Bond future
future Total return s reement option
wap
Foreign Currency futur Option on Currency sw Currency forw Currency opti
exchange e currency future ap ard on
Iron ore
WTI crude oil Weather derivativ Commodity
Commodity forward Gold option
futures e swap
contract
(Dow Jones Industrial Average-DJIA)
Economic function of the derivative market
Some of the salient economic functions of the derivative market include:
1. Prices in a structured derivative market not only replicate the discernment of the
market participants about the future but also lead the prices of underlying to the
professed future level. On the expiration of the derivative contract, the prices of
derivatives congregate with the prices of the underlying. Therefore, derivatives are
essential tools to determine both current and future prices.
2. The derivatives market relocates risk from the people who prefer risk aversion to
the people who have an appetite for risk.
The intrinsic nature of derivatives market associates them to the underlying Spot market.
Due to derivatives there is a considerable increase in trade volumes of the underlying
Spot market. The dominant factor behind such an escalation is increased participation by
additional players who would not have otherwise participated due to absence of any
procedure to transfer risk.
4. As supervision, reconnaissance of the activities of various participants becomes
tremendously difficult in assorted markets; the establishment of an organized form of
market becomes all the more imperative. Therefore, in the presence of an organized
derivatives market, speculation can be controlled, resulting in a more meticulous
environment.
5. Third parties can use publicly available derivative prices as educated predictions of
 uncertain future outcomes, for example, the likelihood that a corporation will default on
its debts.
In a nutshell, there is a substantial increase in savings and investment in the long run due to
augmented activities by derivative Market participant.

Primary Market
A market that issues new securities on an exchange. Companies, governments and other groups
obtain financing through debt or equity based securities. Primary markets are facilitated by
underwriting groups, which consist of investment banks that will set a beginning price range for
a given security and then oversee its sale directly to investors. Also known as "new issue
market" (NIM).
Primary market is a market wherein corporates issue new securities for raising funds generally
for long term capital requirement. The companies that issue their shares are called issuers and the
process of issuing shares to public is known as public issue. This entire process involves various
intermediaries like Merchant Banker, Bankers to the Issue, Underwriters, and Registrars to the
Issue etc .. All these intermediaries are registered with SEBI and are required to abide by the
prescribed norms to protect the investor.

The Primary Market is, hence, the market that provides a channel for the issuance of new
securities by issuers (Government companies or corporates) to raise capital. The securities
(financial instruments) may be issued at face value, or at a discount / premium in various forms
such as equity, debt etc. They may be issued in the domestic and / or international market.
Features of primary markets include:
 the securities are issued by the company directly to the investors.
 The company receives the money and issues new securities to the investors.

 The primary markets are used by companies for the purpose of setting up new ventures/
business or for expanding or modernizing the existing business
 Primary market performs the crucial function of facilitating capital formation in the economy

Factors to be considered to enter the primary market

FACTORS TO BE CONSIDERED BY THE INVESTORS

The number of stocks, which has remained inactive, increased steadily over the past few years,
irrespective of the overall market levels. Price rigging, indifferent usage of funds, vanishing
companies, lack of transparency, the notion that equity is a cheap source of fund and the
permitted free pricing of the issuers are leading to the prevailing primary market conditions.
Secondary Market
The Secondary market deals in securities previously issued. The secondary market enables those
who hold securities to adjust their holdings in response to charges in their assessment of risk and
return. They also sell securities for cash to meet their liquidity needs. The price signals, which
subsume all information about the issuer and his business including associated risk, generated in
the secondary market, help the primary market in allocation of funds.
This secondary market has further two components.
 First, the spot market where securities are traded for immediate delivery and payment.

 The other is forward market where the securities are traded for future delivery and
payment. This forward market is further divided into Futures and Options Market
(Derivatives Markets).
In futures Market the securities are traded for conditional future delivery whereas in option
market, two types of options are traded. A put option gives right but not an obligation to the
owner to sell a security to the writer of the option at a predetermined price before a certain date,
while a call option gives right but not an obligation to the buyer to purchase a security from the
writer of the option at a particular price before a certain date.

Major Players in the secondary market

There are different types of buyers and sellers in the market who act through authorised brokers
only. Brokers represent their clients who may be individuals, institutions like companies, banks
and other financial institutions, mutual funds, trusts etc.
 Client brokers - These do simple broking business by acting as intermediaries between
the buyers and sellers and they earn only brokerage for their services rendered to the
clients.
 Jobbers - They are also known as Taravaniwallas , they are wholesalers doing both
buying and selling of selected scrips. They earn from the margin between buying and
selling rates.
 Arbitragers- they buy securities in one market and sell in another. The profit for them is
the price difference.
 Bulls - These are the optimistic people who expect prices to rise and as a result keep on
buying. Also called ' Tejiwalas'
 Bears - These are the pessimistic people who expect the prices to fall and as a result keep
on selling. Also called 'Mandiwalas'
  Stags - They are those members who neither buy or sell securities in the market. They
simply apply for subscription to new issues expecting to sell them at higher prices later
when these issues are quoted on the stock exchange.
 Wolves - They are fast speculators. They perceive changes in the trends of the market
and trade fast and make a fast buck.
 Lame Ducks - These are slow bears who lose in the market as they sell securities without
having shares.
 Investors-Retail Investors, Institutional Investors,Foreign Institutional Investors
 Stock Exchange Members/ Brokers
Leading Stock Exchanges in India

1. Bombay Stock Exchange BSE

BSE is the leading and the oldest stock exchange in India as well as in Asia. It was
established in 1887 with the formation of "The Native Share and Stock Brokers'
Association". BSE is a very active stock exchange with highest number of listed securities in
India. Nearly 70% to 80% of all transactions in the India are done alone in BSE. Companies
traded on BSE were 3,049 by March, 2006. BSE is now a national stock exchange as the
BSE has started allowing its members to set-up computer terminals outside the city of
Mumbai (former Bombay). It is the only stock exchange in India which is given permanent
recognition by the government. At present, (Since 1980) BSE is located in the "Phiroze
Jeejeebhoy Towers" (28 storey building) located at Dalal Street, Fort, Mumbai. Pin code -
400021.

In 2005, BSE was given the status of a full fledged public limited company along with a
new name as "Bombay Stock Exchange Limited". The BSE has computerized its trading
system by introducing BOLT (Bombay On Line Trading) since March 1995. BSE is
operating BOLT at 275 cities with 5 lakh (0.5 million) traders a day. Average daily
turnover of BSE is near Rs. 200 crores.

2. National Stock Exchange NSE

Formation of National Stock Exchange of India Limited (NSE) in 1992 is one important
development in the Indian capital market. The need was felt by the industry and investing
community since 1991. The NSE is slowly becoming the leading stock exchange in terms of
technology, systems and practices in due course of time. NSE is the largest and most modern
stock exchange in India. In addition, it is the third largest exchange in the world next to two
exchanges operating in the USA.

The NSE boasts of screen based trading system. In the NSE, the available system provides
complete market transparency of trading operations to both trading members and the participates
and finds a suitable match. The NSE does not have trading floors as in conventional stock
exchanges. The trading is entirely screen based with automated order machine. The screen
provides entire market information at the press of a button. At the same time, the system
provides for concealment of the identify of market operations. The screen gives all information
which is dynamically updated. As the market participants sit in their own offices, they have all
the advantages of back office support, and facility to get in touch with their constituents.
1. Wholesale debt market segment,
2. Capital market segment, and
3. Futures & options trading.

3. Over The Counter Exchange of India OTCEI

The OTCEI was incorporated in October, 1990 as a Company under the Companies Act 1956. It
became fully operational in 1992 with opening of a counter at Mumbai. It is recognised by the
Government of India as a recognised stock exchange under the Securities Control and Regulation
Act 1956. It was promoted jointly by the financial institutions like UTI, ICICI, IDBI, LIC, GIC,
SBI, IFCI, etc.
The Features of OTCEI are :-
1. OTCEI is a floorless exchange where all the activities are fully computerised.
2. Its promoters have been designated as sponsor members and they alone are entitled to
sponsor a company for listing there.
3. Trading on the OTCEI takes place through a network of computers or OTC dealers
located at different places within the same city and even across the cities. These
computers allow dealers to quote, query & transact through a central OTC computer
using the telecommunication links.
4. A Company which is listed on any other recognised stock exchange in India is not
permitted simultaneously for listing on OTCEI.
5. OTCEI deals in equity shares, preference shares, bonds, debentures and warrants.

Stock Market Indicators

Definition of 'Market Indicators'
A series of technical indicators used by traders to predict the direction of the major financial
indexes. Most market indicators are created by analyzing the number of companies that have
reached new highs relative to the number that created new lows, also known as market breadth.
Some of the most common market indicators are: Advance/Decline Index, Absolute Breadth
Index, Arms Index and McClellan Oscillator. A general outlook on the market's direction is
useful for traders looking for strength in individual equities because they ensure that the broader
market forces are working in their favor.
Primary Indicators
Most investors rely on a few favorite stock market indicators, and new ones seem to pop up all
the time, but the two most reliable ones for determining the strength of the market are price and
volume. Most other stock market indicators are derived from price and volume data. So it stands
to reason that if you follow the price and volume action on the major market
indices each day, you will always be in sync with the current trend.
Using price and volume to analyze stock market trends, while incorporating historical stock
market data, should be all you need to discern th
That said, secondary indicators can also help clarify the picture.

Secondary Indicators

1.Advance/Decline Line
Plots the number of advancing shares versus the number of declining shares. At
times, a small number of larger weighted stocks may experience significant
moves, up or down, that skew the price action on the index. This line, and its
accompanying data, reveals whether a majority of stocks followed the direction of
the major indexes on that day.

2.Short Term Overbought — Oversold Oscillator

A 10-day moving average of the number of stocks moving up in price less the
number of stocks moving down in price (for a specific exchange). Stocks with
prices that did not change from the previous close are not included in this
calculation. Some investors may use this indicator to take a contrarian position
when the market has moved too in far in one direction over a short period of time.
3.10 Day Moving Average Up & Down Volume
Two 10-day moving average lines are presented to illustrate the volume of all
stocks on an exchange (AMEX, NASDAQ, NYSE) that are moving up or down in
price. Blue line: A 10-day moving average of the total volume of all stocks on an
exchange moving up in price. Pink line: A 10-day moving average of the total
volume of all stocks on an exchange moving down in price. When the two lines
cross, this may indicate a trend change in favor of whichever line is moving up.
4.10 Day Moving Average New Highs & New Lows
Two 10-day moving average lines are presented to illustrate stocks reaching new
highs and new lows, corresponding to their specific exchange (AMEX,
NASDAQ, and NYSE). Blue line: a 10-day moving average of the number of
stocks making new price highs. Pink line: a 10-day moving average of the number
of stocks reaching new price lows (based on prices at market close). When the
two lines cross, this may indicate a trend change in favor of whichever line is
moving up.

Types of stock market Indices

Stock Market index is a method to statistically measure the value of a batch of
stock. It is a tool to track an overall progress of the market and to compare the
returns on investments. There are several types of indexes (also called indices)
based on their calculation and need in the market, including
 price-weighted index,
 composite index,
 market-value weighted index or broad-based index.

 Price weighted index track changes in the stock market based on the per
share price of an individual stock. For example, suppose you have a
portfolio that consists of two stocks: Stock X worth $15 per share and
Stock Y worth $45 per share. A greater proportion of the index will be
allocated to $45 stock than to $15 stock which means $45 stock will be
two times higher than the $15 stock. Therefore, if index consists of these
two stocks, it would reflect a $45 stock as being 67 percent, while $15
would represent 33 percent. And it shows that a change in value of $15
stock will not affect
the index’s value as much as the other on

 Composite index is a combination of several indexes and averages. It

measures the performance of all the stocks in a stock market. The
composite index consists of a large number of factors which are averaged
together and form a product. This product represents an overall market and
is a useful tool to measure and track the changes in a price level to an
 entire stock market or sector. An example is a New York Stock Exchange
and NASDAQ Composite Index. This index provides a useful benchmark
to measure a performance of an investor’sYour PersonalFinancialportfol Mentor will
always advise you to hold a well diversified portfolio in order to
minimize the risk of your investment and this index will provide you a
reasonable basis to evaluate your portfolio.

 Market-value weighted index or a capitalization weighted index is a

stock exchange index in which higher weighting is given to shares of those
companies that have a
greater market capitalization.Let’s suppose you have a port $45 stock (Stock Y) and 20
million shares of $15 stock (Stock X). The Market Cap
(market capitalization) of ‘Stock X’ wil ‘Stock onlyY’be $will45million. Therefore, in a
market value weighted index,
Stock X represents 87 percent of the index value and Stock Y represents 13 percent.

 Broad-based index provide a snapshot of the entire stock market. It is used by most
investment professionals as a benchmark to compare their progress. Example of these
indexes is Wilshire 500 andS&P500.

Indices of Indian Stock Exchanges

View live indices of some of the major Indian Indices.
As on 18 Jul 14:55
Current
Name Change % Chg Open High Low
Value

S&P BSE Sensex 25,700.12 138.96 0.54 25,558.48 25,713.40 25,441.24

CNX Nifty 7,679.30 38.85 0.51 7,630.25 7,685.00 7,595.50

S&P BSE Smallcap 10,202.14 9.02 0.09 10,192.25 10,231.39 10,103.95

S&P BSE Midcap 9,271.89 -19.80 -0.21 9,271.47 9,295.51 9,197.03

S&P BSE 100 7,779.75 30.41 0.39 7,744.33 7,784.15 7,696.03

S&P BSE 200 3,140.36 9.79 0.31 3,127.84 3,141.90 3,108.30

S&P BSE 500 9,833.69 28.12 0.29 9,797.57 9,837.88 9,735.07

S&P BSE BANKEX 17,678.36 200.86 1.14 17,401.06 17,704.41 17,277.03

S&P BSE Capital Goods 15,997.41 104.04 0.65 15,838.81 16,025.73 15,702.47

S&P BSE Oil and Gas 10,808.63 -45.46 -0.42 10,837.99 10,837.99 10,710.07

S&P BSE Metals 13,307.79 -28.78 -0.22 13,286.70 13,335.31 13,095.26

S&P BSE IT 9,416.26 148.22 1.57 9,364.01 9,466.20 9,352.94

S&P BSE Auto 15,757.69 41.42 0.26 15,678.56 15,760.85 15,533.54

S&P BSE Healthcare 11,824.23 -24.83 -0.21 11,835.66 11,870.34 11,791.86

 S&P BSE FMCG 6,911.90 -11.11 -0.16 6,916.53 6,946.68 6,882.84

S&P BSE Realty 1,991.89 -7.02 -0.35 1,985.28 1,994.37 1,957.39

S&P BSE TECk 5,295.57 57.46 1.09 5,278.06 5,323.35 5,273.14

S&P BSE PSU 8,261.74 -47.69 -0.58 8,270.50 8,270.50 8,153.32

S&P BSE Consumer

8,550.31 -33.44 -0.39 8,884.05 8,885.72 8,479.60

Durables

S&P BSE Power 2,235.56 -22.37 -1.00 2,247.96 2,247.96 2,212.53

S&P BSE IPO 2,240.02 -6.69 -0.30 2,245.57 2,248.28 2,213.31

CNX Nifty Junior 16,417.65 16,261.15

CNXMidcap Index 11,020.35 10,911.05

-NSE
Nifty Midcap 50 3,221.55 3,185.40

CNX 100 7,624.40 30.45 0.40 7,581.15 7,629.35 7,543.15

CNX 500 6,197.55 18.10 0.29 6,167.45 6,199.55 6,135.25

Bank Nifty 15,444.75 175.70 1.14 15,169.00 15,463.15 15,089.30

CNX IT 9,965.75 146.00 1.47 9,944.85 10,019.20 9,944.85

CNX REALTY 253.80 -1.05 -0.41 252.65 254.10

-
0
.
2
-40.705 16,39

CNX INFRA 3,320.10 -4.55 -0.14 3,307.05

-
0
.
2
CNX ENERGY 9,630.80 -58.80 -0.61 9,652.95 9,652.95 -28.356 11,004.45 11,027

CNX FMCG 18,106.50 -35.60 -0.20 18,085.75

-23.35
CNX MNC 7,771.55 -42.35 -0.54 7,794.75 7,794.75 7,727.35

CNX PHARMA 8,816.05 -5.80 -0.07 8,829.70 8,845.15 8,770.25

CNX PSE 3,636.30 -27.25 -0.75 3,643.65 3,643.65 3,591.10

CNX PSU BANK 3,637.30 -31.05 -0.85 3,634.95 3,645.80 3,589.75

CNX SERVICE 9,349.80 85.40 0.91 9,264.30 9,357.55 9,237.40

CNX MEDIA 2,076.70 -15.55 -0.75 2,075.55 2,096.85 2,070.95

CNX METAL 3,359.60 -4.65 -0.14 3,345.15 3,366.30 3,303.30

CNX AUTO 7,000.65 19.05 0.27 6,948.40 7,001.55 6,896.90

INDIA VIX 15.10 0.14 0.93 14.96 15.53 12.98

SX40 15,022.67 0.00 0.00 15,022.67 15,022.67 15,022.67