The sooner one starts investing the better. By investing early you allow your investments more time to grow, increases your income, by accumulating the. “The exercise content and evaluations in this book are outstanding. Liz “Fitness For Dummies is a real rarity: a f My 4 Rules of Using the stock. The share price is the price at which a particular share can be bought or sold. The share Do research on the stock market through regular reading of financial .
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Hello friends, today I am going to say something about the stock market. Friends, when we are working in the stock market, watching news in newspapers and. Read about the markets, trading concepts, and technical trading strategies. know to succeed in the markets, equity, fixed income, currency, commodity. CFI's investing and trading book is free and available for anyone to download as a pdf. Example: An investor places a market order to download. shares of XYZ stock when the best offer price is $ per share. If other orders are executed first.
The process of downloading and selling the VOC 's shares, on the Amsterdam Stock Exchange, became the basis of the world's first official formal stock market. And it has many other distinctive characteristics. Apart from the economic advantages and disadvantages of stock exchanges — the advantage that they provide a free flow of capital to finance industrial expansion, for instance, and the disadvantage that they provide an all too convenient way for the unlucky, the imprudent, and the gullible to lose their money — their development has created a whole pattern of social behavior, complete with customs, language, and predictable responses to given events.
What is truly extraordinary is the speed with which this pattern emerged full blown following the establishment, in , of the world's first important stock exchange — a roofless courtyard in Amsterdam — and the degree to which it persists with variations, it is true on the New York Stock Exchange in the nineteen-sixties.
Present-day stock trading in the United States — a bewilderingly vast enterprise, involving millions of miles of private telegraph wires, computers that can read and copy the Manhattan Telephone Directory in three minutes, and over twenty million stockholder participants — would seem to be a far cry from a handful of seventeenth-century Dutchmen haggling in the rain.
But the field marks are much the same. The first stock exchange was, inadvertently, a laboratory in which new human reactions were revealed. By the same token, the New York Stock Exchange is also a sociological test tube, forever contributing to the human species' self-understanding. Yet the title of the world's first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged.
Other companies existed, but they were not as large and constituted a small portion of the stock market. Curott, in "The Oxford Handbook of Austrian Economics" [On the Origins of Stock Markets]  In the 17th and 18th centuries, the Dutch pioneered several financial innovations that helped lay the foundations of the modern financial system.
Soon thereafter, a lively trade in various derivatives , among which options and repos, emerged on the Amsterdam market.
Crowd gathering on Wall Street New York City after the crash , one of the worst stock market crashes in history. Within the Communist countries , the spectrum of socialism ranged from the quasi-market, quasi- syndicalist system of Yugoslavia to the centralized totalitarianism of neighboring Albania. One time I asked Professor von Mises , the great expert on the economics of socialism, at what point on this spectrum of statism would he designate a country as "socialist" or not.
At that time, I wasn't sure that any definite criterion existed to make that sort of clear-cut judgment. And so I was pleasantly surprised at the clarity and decisiveness of Mises's answer. For it means that there is a functioning market in the exchange of private titles to the means of production. There can be no genuine private ownership of capital without a stock market: there can be no true socialism if such a market is allowed to exist.
The liquidity that an exchange affords the investors enables their holders to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as property and other immoveable assets. History has shown that the price of stocks and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy.
The stock market is often considered the primary indicator of a country's economic strength and development. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions.
This eliminates the risk to an individual downloader or seller that the counterparty could default on the transaction. In this way the financial system is assumed to contribute to increased prosperity, although some controversy exists as to whether the optimal financial system is bank-based or market-based. One feature of this development is disintermediation. A portion of the funds involved in saving and financing, flows directly to the financial markets instead of being routed via the traditional bank lending and deposit operations.
The general public interest in investing in the stock market, either directly or through mutual funds , has been an important component of this process. Statistics show that in recent decades, shares have made up an increasingly large proportion of households' financial assets in many countries. In the s, in Sweden , deposit accounts and other very liquid assets with little risk made up almost 60 percent of households' financial wealth, compared to less than 20 percent in the s.
The major part of this adjustment is that financial portfolios have gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e. Outsiders or direct investors are not allowed to enter in the leading circles of the stock exchange. Investors have to download or sell the securities at the stock exchange through the authorised brokers only.
No deviation from the rules and guidelines is allowed in any case. The prices of different securities traded are shown on electronic boards. After the working hours market is closed. All the working of stock exchanges is conducted and controlled through computers and electronic system. The securities of profitable and growth oriented companies are valued higher as there is more demand for such securities.
The valuation of securities is useful for investors, government and creditors. The investors can know the value of their investment, the creditors can value the credit worthiness and government can impose taxes on value of securites. B Economic Barometer : Any stock exchange in the world is a reliable barometer to measure the economic condition of any country like India. Every major change in country and economic is reflected in the boom or recession cycle of the economy.
Stock market is also known as a pulse of economic mirror reflects the economic conditions of a country. C Contributes to Economic Growth : In stock market Securities of various companies are bought and sold and this process of disinvestment and reinvestment helps to invest in most productive investment proposal and this leads to capital formation and economic growth.
D Safety in Stock Exchange : In stock exchange only the listed securities are traded and stock market authorities include the companies names in the trade list only after verifying the soundness of company.
The companies which are listed they also have to operate within the strict rules and regulations. This ensures safety of dealing through stock market. To ensure liquidity and demand of supply of securities the stock market permits healthy speculation of securities. F Better Allocation of Capital : The share of profit making companies are quoted at higher prices and are actively traded so much companies can easily raise fresh capital from Stock exchange.
The general public hesitates to invest in securities of loss making companies. So, Stock market facilitates allocation of investor's fund to profitable channels. G Liquidity and Stock Market : The main function of stock market is to provide ready market for sale and download of securities. The presence of stock market gives assurance to investors that their investment can be converted into cash whenever they want.
Retailer Investors: Their work includes conducting due diligence, drafting legal parts 90 of the prospectus, various agreements and providing legal opinion and assistance in closing the issue. Million The Elaborate on various types of investors. The investors can be categorized as follows: Individuals form a major part of the securities in terms of numbers.
The individual investors are further divided into two categories in case of IPO: Retail investors who can apply for share of an amount less than Rs 1 lakh and High Networth Individuals HNI who can apply for shares of an amount Rs 1 lakh or more. Thus according to SEBI regulations retail investors are preferred over the other types of investors. Association of members or partner- ship formed by various groups or a joint family come together to invest their surplus fund in order to earn returns fall into this category.
Societies and Trusts: These are also associations of per- sons. But they have to be empowered by their by-laws to invest in the security markets.
Here the income earned by such investment should be invested for the objectives for which the society or trust is formed. Also termed as corporate investors, compa- nies can also operate as individual investors for which the board should be authorised by the Memorandum of Articles. Mutual Funds: It is a form of collective investment.
A mutual fund collects money from many investors and invests such pooled fund in share market. Income is They are the major investors in terms of volumes and values in the securities market both in the primary and secondary market. These include banks,. This is an entity o the formed or incorporated outside India with the purpose to invest in India. In terms of clause 2.
However, these Mutual Funds participating in QIB category will also be Osborne eligible for allotment in the remaining portion, i. India The way to invite the share capital from the public is through a 'public issue'. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots the shares to the applicants as per the law and thus shares come into existence.
Here, the listed company offers its shares directly to the investors for raising the required fund. An IPO offers a number of advantages to the company as listing and trad- ing generates considerable interest in a company.
It pro- vides opportunities to the companies for repeated access to the market with follow on issues FPO. In addition to fol- low on public issues, the company could mobilize addition equity funds through private placements, rights issues or bonus issues. As stated in the previous answer, if issue size is more than Rs 10 crore, then you have to apply for Demat shares only. Even if the issue size is less than Rs 10 crore it is advisable to apply for shares in the Demat mode as shares are tradable only in Demat mode, apart from other benefit of Demat.
Give me a brief account of IPO process in terms of issuer's perspective. How do I apply to public issues? To subscribe to an IPO, Investors have to fill an These forms are made available with Syndicate members, brokers, sub-brokers, Investment advi- sors and generally also available in stalls outside the stock exchanges, Banks and with vendors in various other areas.
The forms can also be obtained from the websites of the company or registrar's of the issue. Once you get the form, you have to fill it, remit the amount after calculating the number of shares applied for in the bank that is designated in the form as collecting cen- Year in tre for that IPO.
Investors have to provide the details of which the their Demat account and bank account in the form. In a book built issue, the investors have choice to bid at the Banks were price as per their decisions. If issue size is more than that you have to apply for Demat shares only. It is advisable to apply for shares in the Demat mode as shares are tradable only in Demat mode, apart from other benefit of Demat. An issuer company is allowed to freely price the issue.
The basis of issue Price is to be disclosed in the offer doc- ument where the issuer discloses in detail about the quali- tative and quantitative factors justifying the issue price. There is only one price and issue will be offered at that price. Such type of issue is known as Fixed Price Issue.
This method provides an opportunity to the market to discover price for securities. Individuals who apply for the IPO put their bids.
What is "Price Band"? The prospectus of the issuer company may contain either the floor price for the securities or a price band with- in which the investors can bid for the shares.
The spread The price band can be revised and such a revision shall be here informed to the investors by informing the stock exchanges, by issuing press etc.
In case the price band is are three revised, the bidding period need to be extended for a fur- ther period of three days, subject to the total bidding peri- classes of od not exceeding thirteen days. The basis of issue price the Cubans, is disclosed in the offer document.
The issuer is required to disclose in detail about the qualitative and quantitative the North factors taken into account in arriving the price band. Koreans and What is cut off price? The actual price is discovered through book building based on demand and supply. Issue price Rex can be any price in the price band or any price above the floor price. The finally decided price by the Issuer, i. The retail individual Dimensional investors have been given an option to apply for IPO at the cut off price.
In short, it is the final issue price decid- Fund Managers ed by the issuer. Why shares are not allotted on the face value always? The face value of the share of a company is generally Rs It may be other than Rs If the company is per- forming well and having good fundamentals, the shares are issued at higher price.
If shares are issued at price higher than the face value, it means the shares are issued at premium. Who determines the price? The price of an issue is decided by the Issuer Company In the fixed price issue, the price is decided by them keeping in the mind various factors pertaining to the company.
However, in the case of book built issue, the price is discovered by book -building mechanism and final price is arrived accordingly. What is the concept of premium?
Companies can offer a share with a face value of say Rs 10 to the public at a high- signed the er price. The difference between the offer price and the World bank face value is called the premium.
As per the SEBI guide- articles of lines, new companies can offer shares to the public at a agreement premium, provided: On the other hand, existing com- panies can make a premium issue without the above restrictions. Why do companies make premium issues? A company's aim is to raise money and simultaneously serve the equity capital. As far as accounting is concerned, premium is credited to reserves and surplus and it does not increase the equity.
Therefore, a company which raises Rs. Thus, the companies seek to make premium issues. As we shall see later, a premium issue can increase the book value with- out decreasing the EPS. In a buoyant stock market when good shares trade at very high prices, companies realize Who are the intermediaries involved in IPO? These four intermediaries and the depositories play important role in an IPO.
The company, the Registrar and the Depository t is difficult enter into a tripartite agreement in order to facilitate dema- terialisation of the shares and pave the way for trading on to find a the exchanges after listing. Investment Bankers: Investment or Merchant Bankers will continue to play the role of Lead Managers and their primary job is to advice the issuers and to take the company through IPO provide process.
In general, most of the IPOs involve more than one investment banker. A syndicate is constituted to man- superior age the issue. The key responsibilities of the investment banker are: The Registrars process the appli- cation forms received in the IPO. They coordinate with the bankers to an issue and the investment bankers to com- plete the reconciliation of the received application forms and to complete the post issue work on time. They prepare the documents which form the basis for allotment of shares and the documents securing approval for the listing.
They process data for transfer of funds in case of refund Westeren Bankers to an Issue: The basic job of the bankers to an issue is to collect application forms and money and deliver India it to the Registrar as per agreed schedule.
Apart from this they also ensure the refund of money in case of fully or Vegetable partly rejected applications. They also assist in post issue reconciliation. Products Credit Rating Agency: The company has to appoint a The credit rating agency as rating of an IPO is mandatory.
How do I decide on a good new issue? This is important especially when a large number of new companies are floating public issues. While a large number of these companies are genuine, quite a few may want to exploit the investors. An investor must therefore, identify the future potential of a company before apply- ing for its issue. A part of the guidelines issued by the SEBI is the dis- closure of information to the public.
This disclosure allows the public to know the reason for raising the money, the way the money is proposed to be spent, the return expected on the money and so on.
New Issue also contains a lot of mandatory informa- tion regarding underwriting and statutory compliances. This gives the investor a fair chance to evaluate the prospectus of the company in the short and long-term period and make an investment decision using fundamen- tal analysis, which is discussed later in the book. How it comes into being? Prospectus is a document inviting deposits from the public or inviting offers from the public for subscription or download of any shares in or debentures of, a body corpo- rate.
Prospectus is a statuary document and investors can sue the company for furnishing wrong information. Here, we will discuss various terms related with prospectus in.
These terms are: An offer document covers all the classes of relevant Information pertaining to the issue. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.
It contains all the impor- tant features of the issues in brief. All the application form of public issues contains it for the information of the investors.
Million The important factors to be considered are: Is the credit rating of IPO mandatory? The grade represents a relative assess- ment of the fundamentals of the issue in relation to other listed equity shares in India.
The credit rating agency would assign a 'grade' to the IPO. The grading will be an inde- pendent and unbiased opinion of the agency. The purpose of the grading is to help retail investors to take informed decisions as they do not have means to assess the IPO like. The grading is generally assigned on a 1 to 5 scale where higher score indicates stronger fundamentals.
What do you mean by Demat shares?
Demat is the first five words of Dematerialization. Earlier shares were dealt in physical form now shares are trasnsacted in dematerialized form. Physical shares are in paper form and have distinctive number. Unlike physical shares, Demat shares can- Can Demat shares be converted in the form of Physical shares?
This Stands for process of conversion of Demat shares into physical shares is called Re-materialisation of shares. Through Depository Merrill Participants DPs , it also provides services related to transactions in securities. Its structure and functioning are Lynch' similar to the Bank. Presently in India, there are two depos- itory viz. Both of them are registered with SEBI. What is a DP? DP is a member of a Depository who offers its servic- es to hold securities of Investors Beneficial Owners in dematerialized form.
DP is like a Bank branch. It is an agent of the depository. DP works as an interface between Depository and Investors. If an investor wants to avail the services offered by Depository, he has to open a Demat account with DP similar to opening of a bank account with a branch of the bank. Can I apply for physical shares through IPO? Yes, if issue size is less than Rs 10 crore. What is the process of dematerialization of physical shares issued to me?
Any Beneficial Owner investor , who has entered into an agreement with DP, shall surrender the physical share The DP on receipt of the same forward details of the shares to the Depository and inform the depository that an agreement has been entered between DP and the beneficial owner. The DP furnishes the required details to the issuer along with the certificate of shares.
The issuer on receipt of the certificates of shares from DP immediately cancel it and substitute its record in the name of the Depository as the registered owner and. Gerald M.
In case of an Issuer company making an Issue of per cent of the net offer to Public through per cent book building issue, not less than 35 per cent and 15 per cent be available for retail investors and non institutional investor and not more than 50 per cent for the Qualified Institutional Investors QIBs.
For how many days the issue remains open? Subscription for public issues remains open for at least three working days and not more than 10 working days. In case of Book built issues, period for which bidding will be open is three to seven working days extendable by three days in case of a revision in the price band.
Please explain the basis of allotment of shares. After the closure of the issue, the bids received are aggregated under different categories i. The oversubscription ratios are then calculated for each of the categories as against the Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for.
The oversubscription ratio is then applied to the number of shares applied for and the num- ber of shares to be allotted for applicants in each of the Eugene buckets is determined. Then, the number of successful allottees is determined. This process is followed in case of Meyer proportionate allotment. In case of allotment for QIBs, The First earlier it was subject to the discretion of the post issue lead president manager but now it is done on proportional basis. The investor is entitled to receive a Confirmatory Allotment Note CAN if he has been allotted shares with- in 15 days from the date of closure of a book Built issue.
The registrar has to ensure that the Demat credit or Refund as applicable is completed within 15 days of the closure of the book built issue. The Lead Merchant Banker also publishes an advertisement giving details relating to oversubscription, basis of allotment, number, value and percentage of successful allottees, date of completion of dispatch of refund orders, date of dispatch of certificates and date of filing of listing application is released within 10 days from the date of completion of the various activities at least in an English National Daily with wide circulation, one Hindi National Paper and a Regional language daily circulated at the place where registered office of the issuer company is situated.
The investors can also contact the office of the Registrar of the company to know about the allotment. The name of the registrar is written on the prospectus or the application form. When these shares are listed on the stock exchange? The listing on the stock exchanges is done within 7 days from the finalization of the issue.
Ideally, it would be around 3 weeks after the closure of the book built issue. In case of fixed price issue, it would be around 37 days after closure of the issue. After listing of the shares you can trade in the sec- ondary market very first day of listing. Many investors try to get benefited by selling at higher prices on the very first day itself. What if I am not allotted the shares? If you have not been allotted the shares, you will receive.
As stated above, the merchant banker will give advertisement in news, among others, f you regarding refund of money. In case of delay, you will get the interest on your money for the excess period. It is also noted that under the provisions sections 55 of go and try to the Companies Act, Franklin Enlighten us more on convertible debentures in the public issue?
Since debt funds available from the financial institu- tions prove more expensive and the lenders impose con- ditions on the company, most companies prefer to tap the stock market to obtain debt funds as well. However, the investors in the primary markets look for much higher returns than that offered by the companies who look to pay lower than the institutional lending rates.
Subsequently, a new concept of equity linked debt source has been evolved by the different companies in various forms called "instruments" of which the debentures are most popular.
As you know a debenture is a debt instrument that is backed by the security of fixed assets. The debentures carry a coupon rate. A convertible debenture is an instru- However, at the expiry of a given time from the date of allotment, the debenture is convert- ed into an equity share at a predetermined price. There are basically three types of the debentures: The entire value Worli of the debenture is converted into shares in a predeter- mined ratio.
Remain as a Previous debenture for their entire life. A part of the name of debentures is converted into shares and the rest remains Wockhardt as a non-convertible portion, which is redeemed at a predetermined price.
Can you elaborate further on the concept of debentures? The important features of the debentures are: A debenture has a face value which is the amount paid per debenture. This face value may be divided into differ- ent parts say Part A, Part B, etc. To understand the con- cept we take an example of a debenture of face value of Rs. These different parts of a debenture have different terms with respect to conversion of redemption.
For the typical debenture under consideration, the coupon rate is 14 per cent. Part A of Rs. Part B is converted into two shares at a premium of Rs. Part C remains as a debt and is redeemed at the end of the sixth, seventh and eighth year; from the date of allotment in three equal installments and a premium of five rupees is payable along with the first installment.
The idea of the scheme is quite simple. During the peri- od of project implementation, the company is not in a posi- tion to serve the equity by way of dividends, as it does not earn any profits. On the other hand, it can capitalize the interest during this period and claim depreciation. During The date of conversion is fixed to coincide with the expected date of project completion. After the second conversion, the company retains a cheap debt at 14 per cent per annum.
The shares, issued at premium do not increase the compa- ny's equity size substantially. The investor, on the other hand, is thrilled to receive the companies' shares and quite.
Part C is called the non-convertible part of debenture or Khokha. The non-convertible debenture often comes with ule a detachable warrant, which has a validity period. Within that period, at any time, the company can offer the warrant No. Never holders equity shares at a predetermined price. This war- rant can be separately traded on the stock exchange and is lose money.
Rule No. The debentures can be independently traded on the stock exchanges for a price. Never forget Are there any more instruments? Here, the investor puts a certain amount of money as Warren debt in a company and the company returns a much high- Buffett er amount at a later date. For instance, say the initial investment is Rs. The company would pay back Rs.
These SPNs are often accompanied by a detachable warrant. Another instrument is the zero coupon bond which is like a fully convertible debenture bearing no interest rate. However, to compensate for the loss of revenue on account of interest, the premium on conversion is some- times lower. To which instrument should one apply? In case of a debenture issue with conversion at a premi- um, an evaluation criterion would help you to decide the instrument.
For an equity-linked debenture, it is important to ascer- tain the cost of a share. In an ordinary share issue and Thus, for a share downloadd at Rs. For FCDs, an investor has to study the terms carefully before Karsan ascertaining the cost. Suppose that an FCD with a face value of Rs. Part B of Patel Rs.
If the FCD carries interest at a rate of 15 turned per cent per annum, then the cost of the shares works out entrepreneur as follows: As soon as the cost of the share is derived, the investor may follow his judgment by analysis to arrive at a fair value of the share after may be one year or two years, and thus deduce the return he would obtain.
This would determine if it is worthwhile to invest in that instrument. These instruments along with SPNs are interest-bear- ing funds at least to some extent e. In general, the life of an NCD is between seven to nine years with interest as applicable. They are repayable in one or more very often three yearly installments at par or at a premium generally at the most 10 per cent. Thus, a typical NCD portion of Rs. Each year, the investor is paid Rs.
The return calculations of the different investors vary.