Fincail Market- Deifnition

8/14/2019 Fincail Market- Deifnition

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Definitions of various Financial instruments

1

It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raThe central or state government, corporations and similar institutions sell bonds

2 Stock Exchange

The Securities Contract (Regulation) Act, 1956 [SCRA] defines StockExchange as any body of individuals, whether incorporated or not, constituted for the purpose of assibusiness of buying, selling or dealing in securities.

3 Debt Instrument

Debt instrument represents a contract whereby one party lends money to another on pre-determinedinterest, repayment of principal amount by the borrower to the lender.

4 Debenture

debenture is used for instruments issued by private corporate sector.

5

A depository is like a bank wherein the deposits are securities (viz. shares,debentures, bonds, government securities, units etc.) in electronic form.

6 Index

An Index shows how a specified portfolio of share prices are moving in orderto give an indication of market trends. It is a basket of securities and theaverage price movement of the basket of securities indicates the indexmovement, whether upwards or downwards.

7 Derivative

Derivative is a product whose value is derived from the value of one or morebasic variables, called underlying. The underlying asset can be equity, index,foreign exchange (forex), commodity or any other asset.

8 Dematerialization

Dematerialization is the process by which physical certificates of an investorare converted to an equivalent number of securities in electronic form andcredited to the investors account with his Depository Participant (DP).

9 Securities

The definition of Securities as per the Securities Contracts Regulation Act

Bond

Depository


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(SCRA), 1956, includes instruments such as shares, bonds, scrips, stocks orother marketable securities of similar nature in or of any incorporatecompany or body corporate, government securities, derivatives of securities,units of collective investment scheme, interest and rights in securities,security receipt or any other instruments so declared by the CentralGovernment.

8

The regulator ensures that the market participants behave in a desired manner so that securitiesmarket continues to be a major source of finance for corporate andgovernment and the interest of investors are protected.

9

Securities and Exchange Board of India (SEBI) with statutory powers for(a) protecting the interests of investors in securities(b) promoting the development of the securities market(c)regulating the securities market. Its regulatory jurisdiction extends overcorporates in the issuance of capital and transfer of securities, in addition toall intermediaries and persons associated with securities market.

10 Participants

The securities market essentially has three categories of participants,namely, the issuers of securities, investors in securities and theintermediaries, such as merchant bankers, brokers etc.

11 Intermediary

The Broker is a intermediary

12 Primary Markets

The primary market provides the channel for sale of new securities. Primarymarket provides opportunity to issuers of securities; Government as well ascorporates, to raise resources to meet their requirements of investmentand/or discharge some obligation.

13 Face Value

The nominal or stated amount (in Rs.) assigned to a security by the issuer.

For shares, it is the original cost of the stock shown on the certificate; forbonds, it is the amount paid to the holder at maturity. Also known as parvalue In India every stock has now a face value of Rs 10/-For a debt security, face value is the amount repaid to the investor when the bond matures

(Note) The face value has nothing to do with at what price it is traded in the market that is the

premimum price that one pays for that percticular scrip

The Dividents are also calculated on the basis of the face value of the scrip.

Regulator

SEBI


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14 Premium and Discount in a Security Market

Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face ValueWhen a security is sold above its face value, it is said to be issued at aPremium and if it is sold at less than its face value, then it is said to beissued at a Discount.

15 Initial Public Offering (IPO)

When an unlisted company makes either afresh issue of securities or an offer for sale of its existing securities or bothfor the first time to the public. This paves way for listing and trading of theissuers securities.

16 Rights Issue

When a listed company which proposes to issue freshsecurities to its existing shareholders as on a record date. The rights arenormally offered in a particular ratio to the number of securities held prior tothe issue. This route is best suited for companies who would like to raisecapital without diluting stake of its existing shareholders.

17 Issue price

The price at which a company's shares are offered initially in the primarymarket is called as the Issue price. When they begin to be traded, themarket price may be above or below the issue price.

18 Market Capitalisation

The market value of a quoted company, which is calculated by multiplying

its current share price (market price) by the number of shares in issue iscalled as market capitalization

19 Book Building Process

Book Building is basically a process used in IPOs for efficient price discovery.It is a mechanism where, during the period for which the IPO is open, bidsare collected from investors at various prices, which are above or equal tothe floor price.

20 Offer Price

The offer price is determined after the bid closing date.that is after book bulding

21 Cut-Off Price?This issue price is called Cut-Off Price. The issuer and lead manager decides this afterconsidering the book and the investors appetite for the stock.This is the price after BB process is over.

22 floor price


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Floor price is the minimum price at which bids can be made.

23 Price Band

In a Book building issue, the issuer is required to indicate either the priceband or a floor price in the prospectus.

Price Band is decided by consulting different Merchant bankers.

24

The Registrar finalizes the list of eligible allottees after deleting the invalidapplications and ensures that the corporate action for crediting of shares tothe demat accounts of the applicants is done and the dispatch of refundorders to those applicable are sent.

25 Draft Offer document

Draft Offer document means the offer document in draft stage. The draftoffer documents are filed with SEBI, atleast 21 days prior to the filing of theOffer Document with ROC/SEs. SEBI may specify changes, if any, in thedraft Offer Document and the issuer or the lead merchant banker shall carryout such changes in the draft offer document before filing the OfferDocument with ROC/SEs.

26 Abridged Prospectus

Abridged Prospectus is a shorter version of the Prospectus and contains allthe salient features of a Prospectus. It accompanies the application form ofpublic issues.

27 Lock-in

Lock-in indicates a freeze on the sale of shares for a certain period of time.SEBI guidelines have stipulated lock-in requirements on shares of promotersmainly to ensure that the promoters or main persons, who are controllingthe company, shall continue to hold some minimum percentage in thecompany after the public issue.

28 Delisting of securities

The term Delisting of securities means permanent removal of securities of alisted company from a stock exchange. As a consequence of delisting, thesecurities of that company would no longer be traded at that stock

exchange.

29 American Depository Receipt

An American Depositary Receipt ("ADR") is a physical certificate evidencingownership of American Depositary Shares ("ADSs").

30 ADS

Registrar


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An American Depositary Share ("ADS") is a U.S. dollar denominated form ofequity ownership in a non-U.S. company. It represents the foreign shares ofthe company held on deposit by a custodian bank in the company's homecountry and carries the corporate and economic rights of the foreign shares,subject to the terms specified on the ADR certificate.

31 GDRs

Global Depository Receipts (GDRs) may be defined as a global financevehicle that allows an issuer to raise capital simultaneously in two ormarkets through a global offering.

The underlying shares correspondto the GDRs in a fixed ratio say 1 GDR=10 shares.

32 Contract Note

Contract Note is a confirmation of trades done on a particular day on behalfof the client by a trading member. It imposes a legally enforceablerelationship between the client and the trading member with respect topurchase/sale and settlement of trades.It also helps to settledisputes/claims between the investor and the trading member. It is aprerequisite for filing a complaint or arbitration proceeding against thetrading member in case of a dispute

33 Bonus Shares:

Shares issued by the companies to their shareholdersfree of cost based on the number of shares the shareholder owns.

34

Owners of these kind of shares are entitled to afixed dividend or dividend calculated at a fixed rate to be paidregularly before dividend can be paid in respect of equity share. Theyalso enjoy priority over the equity shareholders in payment ofsurplus

35 Bid Price

The Bid is the buyers price. It is this price that you need to know when you

have to sell a stock. Bid is the rate/price at which there is a ready buyer forthe stock, which you intend to sell.

36 Ask Price

The Ask (or offer) is what you need to know when you're buying i.e. this isthe rate/ price at which there is seller ready to sell his stock. The seller willsell his stock if he gets the quoted Ask price.

Preference shares:


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37 Commodity

FCRA Forward Contracts (Regulation) Act, 1952 defines goods as everykind of movable property other than actionable claims, money andsecurities.

At present, all goods andproducts of agricultural (including plantation), mineral and fossil origin areallowed for futures trading under the auspices of the commodity exchangesrecognized under the FCRA.

38

The Depository provides its services to investors through its agents calleddepository participants (DPs). These agents are appointed by the depositorywith the approval of SEBI.

39 ISIN

ISIN (International Securities Identification Number) is a uniqueidentification number for a security.

40 Custodian

A Custodian is basically an organisation, which helps register and safeguardthe securities of its clients.Besides safeguarding securities, a custodian also keeps track of corporateactions on behalf of its clients:

41 Rematerialisation

From Electronic form to physical form

42 Dematerialisation

From Physical form to electronic form

43 (Net asset value)

NAV per unit is simply the net value ofassets divided by the number of units outstanding. Buying and selling intofunds is done on the basis of NAV-related prices

44

A Load is a charge, which the mutual fund may collect on entry and/or exitfrom a fund. A load is levied to cover the up-front cost incurred by themutual fund for selling the fund.

Depository Participant (DP)

NAV

Load


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45

1 On the basic of objective

2 On the basic of Flexibiltiy

46 ETF

1 Think of an exchange-traded fund as a mutual fund that trades like a stock.Just like an index fund, an ETF represents a basket of stocks that reflect anindex such as the Nifty.

2 By owning an ETF, you get the diversification of an index fund plus theflexibility of a stock.

47

Dividend yield gives the relationship between the current price of a stockand the dividend paid by its issuing company during the last 12 months. Itis calculated by aggregating past year's dividend and dividing it by thecurrent stock price.

48

A stock split is a corporate action which splits the existing shares of aparticular face value into smaller denominations so that the number ofshares increase, however, the market capitalization or the value of sharesheld by the investors post split remains the same as that before the split.

49 Buy Back

A buyback can be seen as a method for company to invest in itself by buyingshares from other investors in the market. Buybacks reduce the number ofshares outstanding in the market. Buy back is done by the company withthe purpose to improve the liquidity in its shares and enhance theshareholders wealth.

50 Rolling Settlement

Under rolling settlement all open positions at the end of the day mandatorilyresult in payment/ delivery n days later. Currently trades in rolling

settlement are settled on T+2 basis where T is the trade day

51 Pay-in

Under rolling settlement all open positions at the end of the day mandatorilyresult in payment/ delivery n days later. Currently trades in rollingsettlement are settled on T+2 basis where T is the trade day

52 Pay-out

Classification of MF

open ended funds

closed ended funds

Dividend yield

Stock split


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Pay-out day is the day the securities purchased are delivered to the buyersand the funds for the securities sold are given to the sellers by theexchange.

53

54

56 Lot Size

Every Instrument in securities market is traded as per the lot which means the minimumQty of that instrument need to be taken. The Lot size depends on the Market and exchange typeSuppose in case of Cash Market (NSE and BSE) the Lot size is 1 which means any person can buyeven 1 or sell 1 stock.In case of comodity market different instrument has different lot sizeChana - 3650 now if an investor wants to buy/sell he needs to buy in the multiple of 3650In FAO market lot sizes are in multiples of 100 so the minimum contract is of 100 * LTP

57 Tick Size

It is the minimum prize that is to be changed at any interval suppose a tick size for a perticularinstrument is 0.05 now the minimum prize change is Rs 0.05 that will be registered no less than thatprize will be registered

58 NEAT System

The NEAT system supports an order driven market, wherein orders match on thebasis of time and price priority. All quantity fields are in units and prices are quotedin Indian Rupees. The regular lot size and tick size for various securities traded isnotified by the Exchange from time to time

Technical Ratios

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ising capital..

isting, regulating or controlling the

terms with regards to rate and periodicity of


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Financial Markets

The factors which govern these interest rates are mostly economy relatedand are commonly referred to as macroeconomic factors. Some of thesefactors are:

1 Demand for money2 Level of Government borrowings3 Supply of money4 Inflation rate5 The Reserve Bank of India and the Government policies which

determine some of the variables mentioned above

Various Short-term financial options available for investment?

Percentage Returns Liquidation1 Savings Bank Account 4-5% pa high2 Money Market or Liquid Funds 6-7% Very easy3 Fixed Deposits with Banks 8-8.5% pa Low

Various Long-term financial options available for investment?

1 Post Office Savings:

2 Public Provident Fund3 Company Fixed Deposits4 Bonds:5 Mutual Funds

% returns Bonus Liquidation

1 Post Office Savings: 8% PA

10% onPrincipalAmount oncompletionof 6 years

No if before 6 yearsthen No bonus and5% deduction on PriAmount


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2 Public Provident Fund 8% PA NA

3 Company Fixed Deposits 6-9% PA NA

4 Bonds: 6-9% PA NA

5 Mutual Funds NA

Who are the Regulators of Security Markets in India?

1 Department of Economic Affairs (DEA),2 Department of Company Affairs (DCA)3 Reserve Bank of India (RBI)4 Securities and Exchange Board of India (SEBI)

What are the Roles of SEBI?

1 Regulating the business in stock exchanges and any other securities markets

2 Registering and regulating the working of stock brokers, subbrokers3 Promoting and regulating self-regulatory organizations4 Prohibiting fraudulent and unfair trade practices5 Calling for information from, undertaking inspection, conducting

inquiries and audits of the stock exchanges, intermediaries, self regulatory organizations, mutual funds and other persons associatedwith the securities market.

A withdrawal ispermissible everyyear from the 7thyear of the date of

opening of theaccount and theamount of withdrawalwill be limitedto 50% of thebalance at credit atthe end of the 4thyear

Depends on thecompany The intresetis compounded andis paid monthly,3monthly,6 monthly or

yearly

No before theMaturity date.

Depends on theperiod of theInvestment


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What are different market Segments

1 Primary Market2 Secondary Market

What are different Market Types?

1 Cash Market2 Derivatives Market that means Future and Option Market3 Commodity Market

What are different kinds of issues?

1 Initial Public Offering (IPO)2 A follow on public offering (Further Issue)3 Rights Issue4 A Preferential issue

What is the main difference between offer of shares through book building and off

Price at which securities will be allotted is not known in case of offer ofshares through Book Building while in case of offer of shares through normalpublic issue, price is known in advance to investor. Under Book Building,investors bid for shares at the floor price or above and after the closure ofthe book building process the price is determined for allotment of shares.

Share through Book building Price is not known to the investor before the investor In case of BB process suppose a company has issueFor the shares having a face value of the share as Rs

then he will quote a higher price and hence the issueIn the case of BB the shares are allotted to the invest

Suppose a Person A has bided for 1000 shares at 15to A suppose company thinks that they should have abided at 140 for 1000 shares then company can issueThis is the job of a Registrar

Note:1 In India Any Retail investor cant bid for more than on2 Basis of Allotment should be completed with 15 days3As soon as the basis of allotment is completed, within

demat account /allotment advice and dispatch of refu

4 In case of the BB process the share price depend on5 It would take around 3 weeks after the closure of the

Normal Public issue The Price is known to the investor before hand.

The Minimum Number of days for which the bid should be open?


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The Book should remain open for a minimum of 3 days.

How Can companies in India raise foreign currency resources?

Indian companies are permitted to raise foreign currency resources

through two main sources: a) issue of foreign currency convertible bondsmore commonly known as Euro issues and b) issue of ordinary sharesthrough depository receipts namely Global Depository Receipts(GDRs)/American Depository Receipts (ADRs) to foreign investors

Suppose an Indian Company such as Infosys wants to raise capital from USThen company will issue ordinary shares (ADRs) to US investors.The company will issue the ADS in US denominations that is in dollars.like infy has a share price of Rs 2000 in India than in US the company can issue a ADS at 2000/4ADSs are issued by a depository bank, such as JPMorgan Chase BankNow the company can be listed in NYSE or NASDAQ and ADS can be traded in the same manner

The underlying shares correspondto the ADRs in a fixed ratio say 1 ADR=10 shares

What are different types of prefrentional shares that are present?

There are two different kinds of Pref Shares1 Cumulative Preference Shares:2 Cumulative Convertible Preference Shares:

Cumulative Preference Shares:A type of preference shares on whichdividend accumulates if remained unpaid. All arrears of preferendividend have to be paid out before paying dividend on equity

shares

Cumulative Convertible Preference Shares:

A type of preferenceshares where the dividend payable on the same accumulates, ifpaid. After a specified date, these shares will be converted intoequity capital of the company.

What are the Different types of Bonds?

There are basically of three types1 Zero Coupon Bond:2 Convertible Bond:3 Treasury Bills:

1 Zero Coupon Bond: Bond issued at a discount and repaid at a facevalue. No periodic interest is paid. The difference between the issueprice and redemption price represents the return to the holder. The


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1 Future Stock2 Option Stock3 Future Index4 Option Index5 Future Instrument

2 Financial derivatives, most of these contracts are cash settled.3 financial assets are not bulky and do not need special facility for storage.4 the concept of varying quality of asset does

not really exist as far as financial underlyings are concerned.

What is a diffrence in Bank and a Depositary?

There are two depositories in India which provide dematerialization ofsecurities. The National Securities Depository Limited (NSDL) and CentralSecurities Depository Limited (CSDL).

Advantages of depositary ?

1 Immediate transfer of securities2 No stamp duty on transfer of securities3 Elimination of risks associated with physical certificates such as bad

delivery, fake securities, etc.4 Reduction in paperwork involved in transfer of securities5 Reduction in transaction cost6 Ease of nomination facility7 Change in address recorded with DP gets registered electronically

with all companies in which investor holds securities eliminating theneed to correspond with each of them separately

Dividend yield

Dividend yield gives the relationship between the current price of a stockand the dividend paid by its issuing company during the last 12 months. Itis calculated by aggregating past year's dividend and dividing it by the


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current stock price.

Consider a company havingShare price: Rs. 360Annual dividend: Rs. 10Dividend yield: 2.77% (10/360)

A higher dividend yield has been considered to be desirable among investorsDividend yield therefore can be only one of the factors indetermining future performance of a company.

In short company should have 1 Higher Divedents2 Higher Divedent Yields

1 higher divedent yields Stock is underpriced2 lower divedent yields Stock is overerpriced

Why is Stock Split done?

If the value of the stock doesn't change, what motivates a company to splitits stock?

1 There are mainly two importantreasons. As the price of a security gets higher and higher, some investorsmay feel the price is too high for them to buy, or small investors may feel itis unaffordable. Splitting the stock brings the share price down to a moreattractive level

2 Splitting a stock may lead toincrease in the stock's liquidity, since more investors are able to afford theshare and the total outstanding shares of the company have also increasedin the market.

How is technical analysis is done ?

There are three major areas of the technical analysis that are involved

1 Industry Analysis

2 Corporate Analysis3 Finacial Analysis

1 Industry AnalysisCompanies producing similar products aresubset (form a part) of an Industry/Sector. For example, NationalHydroelectric Power Company (NHPC) Ltd., National Thermal PowerCompany (NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to


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the Power Sector/Industry of India. It is very important to see howthe industry to which the company belongs is faring. Specifics likeeffect of Government policy, future demand of its products etc. needto be checked. At times prospects of an industry may changedrastically by any alterations in business environment. For instance,devaluation of rupee may brighten prospects of all export oriented

companies. Investment analysts call this as Industry Analysis.

2 Corporate AnalysisHow has the company been faring over thepast few years? Seek information on its current operations,managerial capabilities, growth plans, its past performance vis--visits competitors etc. This is known as Corporate Analysis.

3 Finacial AnalysisIf performance of an industry as well as of thecompany seems good, then check if at the current price, the share isa good buy. For this look at the financial performance of the companyand certain key financial parameters like Earnings Per Share (EPS),P/E ratio, current size of equity etc. for arriving at the estimatedfuture price. This is termed as Financial Analysis.


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NilNil1 month but to get more returns than Money Marketneed to invest for more than 6 months

6 years 1000 300000 Yes 6 years

minimuminvestmentperiod

Min investmentperiod

MinimumInvestment

MaximumInvestment

Tax Benefitunder Sec 80 C

Period ofMaturity


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7 years 1000 NA 15 years

NA NA

1 year 1000 NA

Yes No Tax onInterest

6 months -

4years

The interestreceived is afterdeduction of

taxes. NO

Depends on

the company

There aredifferent type ofbonds somehave tax benfitsand somedoesn't have

The interestis paid afterthe maturityof the bond


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r of shares through normal public issue?

ids on the price during the book building process.shares in a price range of Rs 100-150

10 Now if the investor thinks that it is a discounted price

is over subscribed in the reverse case the issue is undersubscribed.rs according to the price he has bided

then it depends on the company to give how many shareslarge investor base then they will also give to B who has750 shares to A and 250 shares to B

lakh as an Individual this is the rule given by SEBI

from the issue close date.

2 working days the details of credit to

d order needs to be completed

he demand of the stock and the supply.ook built issue. for a company to be listed.


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ie $44.4 per ADS

as an American Comp

e

ot


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others may havee in an

e.

hold thosempany's

ocks

or other

ir profits


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Mutual Funds

What are the Important factors on which the functioning takes place?

1 NAV2 Fund Manager3 Entry Load4 Exit Load

56 On the basis of Flexibility7 Active Fund Management

NAV

NAV per unit is simply the net value ofassets divided by the number of units outstanding. Buying and selling intofunds is done on the basis of NAV-related prices.

The NAV of a mutual fund are required to be published in newspapers. TheNAV of an open end scheme should be disclosed on a daily basis and theNAV of a close end scheme should be disclosed at least on a weekly basis

Entry Load

A Load is a charge, which the mutual fund may collect on entry and/or exitfrom a fund. A load is levied to cover the up-front cost incurred by themutual fund for selling the fund. It also covers one time processing costs.the load that is levied on the investor when entering in the MF trade.Funds usually charge an entry load ranging between 1.00% and 2.00%

Exit Load

The load that is leived on the investor when he exit from the MFGeneraly MF companies charges Exit loads which vary between 0.25% and 2.00%.

No Load Fund

Some Companies doesnot charge any entry or Exit loads these funds are called the No Load funds.

Calculation of Investment in MF

Principal Amount 10000Current NAV 13 On the buy DateEntry Load 1%

Exit Load 0.50%Current NAV 15 On the Exit Date

Returns of a MF depends on the NAV change over a period of time

No of Units that investor will get on putting with NAV = 13Factor added because of entry Load= 0.13Net NAV for the investor = 13.13

On the basis of Objective


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No of units the investor will get = 761.61

On the Exit date = 15Factor because of exit Load= 0.08Net NAV for the investor = 14.93

The investor therefore receives 11367.1

Risks that are involved in MF are as follows

1 Market risk market is not doing very well than funds lose money2 Non-market risk Any indivisual company or the Indurstry is not doing well then3 Interest rate risk the bonds intrest rates are not doing well going into negatives.4 Credit risk In debt

Objective of the mutual fund.

Basically there are six types of MF they are

1

2

3

4

5

6

1 Equity Funds/ Growth Funds

Funds that invest in equity shares are called equity funds. They carrythe principal objective of capital appreciation of the investment overthe medium to long-term. They are best suited for investors who areseeking capital appreciation. There are different types of equity fundssuch as Diversified funds, Sector specific funds and Index basedfunds.

1(a) Diversified funds

These funds invest in companies spread across sectors. Thesefunds are generally meant for risk-averse investors who wanta diversified portfolio across sectors.

1(b) Sector fundsThese funds invest primarily in equity shares of companies ina particular business sector or industry. These funds are

Equity Funds/ Growth Funds

Tax Saving Funds

Debt/Income Funds

Liquid Funds/Money Market Funds

Gilt Funds

Balanced Funds


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targeted at investors who are bullish or fancy the prospects ofa particular sector.

1(c) Index fundsThese funds invest in the same pattern as popular market

indices like S&P CNX Nifty or CNX Midcap 200. The moneycollected from the investors is invested only in the stocks,which represent the index. For e.g. a Nifty index fund willinvest only in the Nifty 50 stocks. The objective of such fundsis not to beat the market but to give a return equivalent tothe market returns.

2 Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act.Opportunities provided under this scheme are in the form of taxrebates under the Income Tax act.

3 Debt/Income Funds

These funds invest predominantly in high-rated fixed-income-bearinginstruments like bonds, debentures, government securities,commercial paper and other money market instruments. They arebest suited for the medium to long-term investors who are averse torisk and seek capital preservation. They provide a regular income tothe investor.

4 Liquid Funds/Money Market Funds

These funds invest in highly liquid money market instruments. Theperiod of investment could be as short as a day. They provide easyliquidity. They have emerged as an alternative for savings and shorttermfixed deposit accounts with comparatively higher returns. Thesefunds are ideal for corporates, institutional investors and businesshouses that invest their funds for very short periods.

5 Gilt Funds

These funds invest in Central and State Government securities. Sincethey are Government backed bonds they give a secured return andalso ensure safety of the principal amount. They are best suited forthe medium to long-term investors who are averse to risk.

6 Balanced Funds

These funds invest both in equity shares and fixed-income-bearinginstruments (debt) in some proportion. They provide a steady returnand reduce the volatility of the fund while providing some upside for


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capital appreciation. They are ideal for medium to long-terminvestors who are willing to take moderate risks.

On the basis of Flexibility

1 Open-ended Funds2 Close-ended Funds

1 Open-ended Funds

These funds do not have a fixed date of redemption. Generally theyare open for subscription and redemption throughout the year. Theirprices are linked to the daily net asset value (NAV). From theinvestors' perspective, they are much more liquid than closed-endedfunds.

2 Close-ended Funds

These funds are open initially for entry during theIPO and thereafter closed for entry as well as exit. Thesefunds have a fixed date of redemption. One of the characteristics ofthe close-ended schemes is that they are generally traded at adiscount to NAV; but the discount narrows as maturity nears. Thesefunds are open for subscription only once and can be redeemed onlyon the fixed date of redemption. The units of these funds are listedon stock exchanges (with certain exceptions), are tradable and thesubscribers to the fund would be able to exit from the fund at anytime through the secondary market.

Different investment plans that Mutual Funds offer?

1 Growth Plan2 Dividend Plan

1 Growth Plan

A growth plan is a plan under a scheme wherein the returns frominvestments are reinvested and very few income distributions, if any,are made. The investor thus only realizes capital appreciation on the

investment.

2 Dividend Plan

Income is distributed from timeto time. This plan is ideal to those investors requiring regular income.


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Fund Offer document?

1 Invest ment objectives2 Risk factors and special considerations3 Summary of expenses4 Constitution of the fund

5 Guidelines on how to invest6 Organization and capital structure7 Tax provisions related to transactions8 Financial information

How the fund will invest or the investing style?

1 Active Fund investment2 Passive fund investment

1(a) Growth Investing Style

The primary objective of equity investment is to obtaincapital appreciation. A growth manager looks forcompanies that are expected to give above averageearnings growth, where the manager feels that theearning prospects and therefore the stock prices infuture will be even higher. Identifying such growthsectors is the

2(b) Value investment Style

A Value Manager looks to buy companies that theybelieve are currently undervalued in the market, butwhose worth they estimate will be recognized in themarket valuations eventually.


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Technical Ratios that are used to evaluate the

companys performance on the basis of the Annual Reports

They are Basically Clasified into 3 types.

1 Liquidity ratios2 Leverage/Capital structure ratio,3 Profitability ratios.

S No Name Type How it is calculated

1Current ratio Liquidity ratios Current Liabilities/Current Assets

2 Acid-test Ratio Liquidity ratios Current Liabilities/Quick Assets

3 Turnover Ratios: Liquidity ratios

4

5 .

6

7

Inventory TurnoverRatio

Liquidity ratios -->Turnover Ratio

AverageInventory/CostofGoodsSold

Debtors TurnoverRatio


Total Assets turnoverratio


AverageTotalAssets/Net.Sales

Fixed Assets turnoverratio


NetFixedAssets/Net.Sales


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8

9 Debt-Equity ratio Total Equity / Total Debt

10 Debt-Asset Ratio Total Assets / Total Debt

11 Interest Coverage ratio

12

13 Gross Profit Ratio (%) Profitability ratios: Net Sales / Gross Profit * 100

14 Net Profit Ratio (%) Profitability ratios: Net Sales / Net Profit * 100

15 Profitability ratios:





Leverage/Capitalstructure Ratios:





Earnings Before Interest andTaxes/Interest

Debt ServiceCoverage Ratio(DSCR)


Depreciation +OtherNoncashExpenditure +Interest on term loan + Profit after

Tax / Interest onTerm loanRepayment of term loan

Return on TotalAssets

Profit Before Interest And Tax /FixedAssets + CurrentAssets

Return on CapitalEmployed

Net ProfitAfterTax / TotalCapitalEmployed

Return onShareholders Equity

Net Profit AfterTax / AverageTotal

Shareholders Equity or NetWorth

Earnings Per Share(EPS):

Net Profit AvailableToTheShareholder / Numberof OrdinaryShares Outstanding

Price-earnings ratios =P/E Ratio Market Price per Share / EPS


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Remarks

The current ratio measures the ability ofthe firm to meet its current

short-term solvency The current ratiomeasures the ability of the firm to meet itscurrent liabilities from the current assets.Higher the current ratio, greater the short-term solvency

The acid-test ratio is a measurement offirms ability to convert its current assetsquickly into cash in order to meet itscurrent liabilities Generally speaking 1:1ratio is considered to be satisfactory..

Turnover ratios measure how quicklycertain current assets are converted intocash or how efficiently the assets are

employed by a firm.Where, the cost of goods sold meanssales minus gross profit. AverageInventory refers to simple average ofopening and closing inventory Higher theratio, more the efficient of inventorymanagement.

The ratio shows how many times accountsreceivable (debtors) turn over during theyear.Higher the debtors turnover, thegreater theefficiency of credit management.

Total Assets turnover ratio measures how

efficiently all types of assets areemployed.

Fixed Assets turnover ratio measuressales per rupee of investment in fixedassets. In other words, how efficientlyfixed assets are employed. Higherratio is preferred.


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Long term financial strength or soundnessof a firm is measured in terms of its abilityto pay interest regularly or repay principalon due dates or at the time of maturity.

Debt-Equity ratio reflects relative

contributions of creditors and owners tofinance the business.

Total debt comprises of long term debtplus current liabilities. The total assetscomprise of permanent capital plus currentliabilities.

Higher the interest coverage ratio better isthe firms ability to meet its interestburden. The lenders use this ratio toassess debt servicing capacity of a firm.

Financial institutions calculate

the average DSCR for the period duringwhich the term loan for the projectis repayable.

EPS measures the profit available to theequity shareholders per share, that is, theamount that they can get on every shareheld. It is calculated by dividing the profitsavailable to the shareholders by number ofoutstanding shares. The profits availableto the ordinary shareholders are arrived atas net profits after taxes minus preferencedividend

Fincail Market- Deifnition

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