Module: 1

Concept of Savings and Investment

Consumption
Consumption refers to the expenditure of the society on the purchase of consumer goods and services at
different level of income. Every household spends a part of its income on consumption and, sometimes, has to
spend all its income only on consumption. According to Keynes, the level of consumption will change with a
change in the level of income.

Keynes suggested that our disposable income which can be arrived at by deducing tax liabilities from
gross income influences our level of real consumption.

In mathematical terms,
C = f (Y)
Where
C stands for
consumption
Ystands for disposable
income.

Keynes also held the view that people tend to enhance their consumption level along with a rise in their
disposable income. However, the increase in disposable income is greater than the increase in consumption.
This hypothesis can be termed as our marginal propensity to consume and indicates a positive
correlation between these two variables.

For
Example:

If our income increases by one unit, our marginal propensity to consume increases by 0.8
units. Hence the remaining 0.2 units are used for savings.
Y=C+S

where

Y stands for disposable

income,
C stands for consumption
S stands for
savings.

It is also imperative to note here that propensity to consume and desire to consume are not similar in nature as
the former means effective consumption.

Both objective and subjective factors influence our consumption function. Tax policy, interest rate, windfall
profit and loss and holding of assets are some objective functions whereas subjective ones relate to motives of
foresight, precaution, avarice, and improvement amongst individuals.
 Savings

The concept of saving plays an important role in Finance. Saving is defined as the difference between income
and consumption. In plain words, savings refer to the excess of disposable income over consumption
expenditure. People also have a tendency of saving the excess part of their income but not the entire bulk.

From a national level, the unconsumed part of the entire nation’s income comprising of all its members can be
termed as National Savings.

Total domestic savings, on the other hand, can be defined as the summation of savings of the government, the
business sector, and households.

Investment

When you were a child, you probably kept your money in a piggy bank or some equivalent container in your
bedroom. You dropped coins or stuffed bills in the top and then shook them out of the bottom whenever you
needed a little cash. If you put every rupee of your allowance into your bank and did not spend it, over time you
might have saved a couple of thousand rupees, but the only money inside was money that you put in yourself.
Putting your money into a savings account at your local bank is not much different than keeping it in a piggy
bank at home. While a bank will pay you interest on the money in your account, interest rates on
savings accounts are low and the amount of money you have will increase at a very slow rate.

Investing: meaning

Investing refers to the act of using your money to buy some sort of financial product (or other item) in the hope
and expectation that the product will grow in value after you buy it. If the product does increase in value, sell it
for a profit. Some investments are meant to be held for a long time before they grow, such as money invest now
to use later when they retire. Other investments are more short-term; buy one now, hold it for a year or less,
and then sell it. Some people take the money they earn from these short-term investments and reinvest the
profits in another investment.

Investment is an activity that is undertaken by those who have savings. Savings can be defined as the excess of
income over expenditure. However, all savers need not be investors.
For example, an individual who sets aside some money in a box for a birthday present is a saver, but cannot be
considered an investor. On the other hand, an individual who opens a savings bank account and deposits some
money regularly for a birthday present would be called an investor.
The motive of savings does not make a saver an investor. However, expectations distinguish the investor from a
saver. The saver who puts aside money in a box does not expect excess returns from the savings. However, the
saver who opens a savings bank account expects a return from the bank and hence is differentiated as
an investor. The expectation of return is hence an essential characteristic of investment.

An investor earns/expects to earn additional monetary value from the mode of investment that could be in the
form of physical/financial assets (A bank deposit is a financial asset. The purchase of gold would be a physical
asset). Investment activity is recognised when an asset is purchased with an intention to earn an expected fund
flow or an appreciation in value.
An individual may have purchased a house with an expectation of price appreciation and may consider it as an
investment. However, investment need not necessarily represent purchase of a physical asset. If a bank
has advanced some money to a customer, the loan can be considered as an investment for the bank.
The loan instrument is expected to give back the money along with interest at a future date. The purchase of an
insurance plan for its benefits such as protection against risk, tax benefits, and so on, indicates an expectation in
the future and hence may be considered as an investment.

From the above examples it can be seen that investment involves employment of funds with the aim
of achieving additional income or growth in value. The essential quality of an investment is that it involves the
expectation of a reward. Investment, hence, involves the commitment of resources at present that have been
saved in the hope that some benefits will accrue from them in the future.

Types of Investments

Investments may be classified as financial investments or economic investments.

In the financial sense, investment is the commitment of funds to derive future income in the form of interest,
dividend, premium, pension benefits, or appreciation in the value of the initial investment. Hence, the purchase
of shares, debentures, post office savings certificates, and insurance policies are all financial investments. Such
investments generate financial assets. These activities are undertaken by anyone who desires a return and is
willing to accept the risk from the financial instrument.

Economic investments are undertaken with an expectation of increasing the current economy’s capital
stock that consists of goods and services. Capital stock is used in the production of other goods and services
desired by the society. Investment in this sense implies the expectation of formation of new and productive
capital in the form of new constructions, plant and machinery, inventories, and so on. Such investments generate
physical assets and also industrial activity. These activities are undertaken by corporate entities that participate
in the capital market.

Financial investments and economic investments are, however, related and dependent. The money invested in
financial investments is ultimately converted into physical assets. Thus, all investments result in the acquisition
of some asset, either financial or physical. In this sense, markets are also closely related to each other. Hence,
the perfect financial market should reflect the progress pattern of the real market since, in reality,
financial markets exist only as a support to the real market.

Elements of Investment:
Investing has been an activity confined to the rich people and business class in the past. This can be attributed
to the fact that availability of investible funds is a pre-requisite to deployment of funds. But today, we find that
investment has become a household word and is very popular with people from all walks of life. Some factors
that have made investment decisions increasingly important are:
The features of economic and financial investments can be summarised as return, risk, safety, and liquidity.

1. Return: All investments are characterised by the expectation of a return. In fact, investments are made
with the primary objective of deriving a return. The expectation of a return may be from income
(yield) as well as through capital appreciation. Capital appreciation is the difference between the sale
price and the purchase price of the investment. The dividend or interest from the investment is the
yield. Different types of investments promise different rates of return. The expectation of return
from an investment depends upon the nature of investment, maturity period, market demand, and so
on.

The purpose for which the investment is put to use influences, to a large extent, the expectation of return of
the investors. Investment in high growth potential sectors would certainly increase such expectations. The
 longer the maturity period, the longer is the duration for which the investor parts with the value of the
investment. Hence, the investor would expect a higher return from such investments.

 All investments are characterized by the expectation of a return. In fact, investments are made with the
primary objective of deriving a return.
 The return may be received in the form of yield plus capital appreciation.
 The difference between the sale price and the purchase price is capital appreciation.
 The dividend or interest received from the investment is the yield.
 The return from an investment depends upon the nature of the investment, the maturity period and a host
of other factors.
Return = Capital Gain + Yield (interest, dividend
etc.)
or
Net Return = Capital Return + Revenue
Return

Example: Investor purchases a share of Rs. 130, Face Value = Rs

10

Dividend rate 30% = (10*30%) = Rs 3

Sell the share for Rs 138

Solution: Capital return (138-130) = Rs

8

Revenue returns 3

Net return 11

2. Risk: Risk is inherent in any investment. Risk may relate to loss of capital, delay in
repayment of capital, non-payment of interest, or variability of returns. While some investments such
as government securities and bank deposits are almost without risk, others are more risky. The risk of
an investment is determined by the investment’s maturity period repayment capacity, nature of return
commitment, and so on.

The longer the maturity period, greater is the risk. When the expected time in which the investment has to
be returned is a long duration, say 10 years, instead of five years, the uncertainty surrounding the return flow
from the investment increases. This uncertainty leads to a higher risk level for the investment with longer
maturity rather than on an investment with shorter maturity.

Risk refers to the loss of principal amount of an investment. It is one of the major characteristics of
an investment
The risk depends on the following factors:

 The investment maturity period is longer; in this case, investor will take larger risk.
 Government or Semi Government bodies are issuing securities which have less risk.
 In the case of the debt instrument or fixed deposit, the risk of above investment is less due to their
secured and fixed interest payable on them. For instance debentures.
 In the case of ownership instrument like equity or preference shares, the risk is more due to
their
unsecured nature and variability of their return and ownership character.
 The risk of degree of variability of returns is more in the case of ownership capital compare to debt
capital.
 The tax provisions would influence the return of risk.
 Degree of risk must be considered in the investment process.
 Risk of an investment is to be analyzed from two different angles –
1) Safety of Principal
2) Stability of Return
Safety of Principal:- Principal amount of an investment should be safe. But it depends upon several
factors such as economic conditions, organization, earning stability of the organization etc.
For
example
Bonds issued by RBI are completely safe investment instead of Bonds of a private
sector.
Debenture holders are safe than Preferences shareholders PS are safe than equity shareholders (in the
case of liquidation of the company)
Stability of Return:- If returns are not stable, then the investment is termed as
risky.
For
example
Return (interest) from saving a/c. fixed deposits a/c, Bond & Debentures are stable than
expected.

3. Safety: The safety of investment is identified with the certainty of return of capital without
loss of money or time. Safety is another feature that an investor desires from investments.
Every investor expects to get back the initial capital on maturity without loss and without delay.
Investment safety is gauged through the reputation established by the borrower of funds. A highly
reputed and successful corporate entity assures the investors of their initial capital.
For example: investment is considered safe especially when it is made in securities issued by
the government of a developed nation.

4. Liquidity: An investment that is easily saleable or marketable without loss of money and without loss
of time is said to possess the characteristic of liquidity. Some investments such as deposits in unknown
corporate entities, bank deposits, post office deposits, national savings certificate, and so on
are not marketable. There is no well-established trading mechanism that helps the investors of these
instruments to subsequently buy/sell them frequently from a market. Investment instruments
such as preference shares and debentures (listed on a stock exchange) are marketable. The
extent of trading, however, depends on the demand and supply of such instruments in the market for
the investors. Equity shares of companies listed on recognised stock exchanges are easily
marketable. A well-developed secondary market for securities increases the liquidity of the
instruments traded therein.

Liquidity refers to the speed and ease with which an investment can be convertible into cash.
It is relationship between the time dimension and price dimension of the sale of an
investment. Different types of investments offer varying degree of liquidity. An investor has to build a
portfolio containing a good proportion of investments which have relatively higher degree of liquidity.
Money market investments > capital market investments > real estate
investments.
For eg. Money deposited in saving or fixed deposits in a bank is more liquid than investment made in
share or debentures.

5 Time: The (essential) important factor in investment is the time which offers several different
courses of action. Time period depends on the attitude of the Investor who follows a buy and hold
 strategy. As the time moves on, analysts believe that conditions change and Investors revaluate
expected return for each investment.
6. Tax shelter: Some Investments provide tax benefits whereas others do not. The investor can get the tax
benefit in the following manners:
(a) Initial tax benefit: An initial tax benefit refers to the tax relief enjoyed at the time of
Making investment.
(b) Continuing tax benefit: It represents the tax shield associated with the periodic returns from
the investment.
(c ) Terminal tax benefit: A terminal tax benefit refers to relief from taxation when an investment is
realized or liquidated.
7. Convenience: Convenience broadly refers to the case in which, the investment can be made and looked
after.
The questions which arise in connection to convenience are: -
 Can the investment be made readily?
 Can the investment be looked after easily?
It is obvious that the investor prefers only the convenient investment in terms of the
features of easily looked after and readily availability.
8. Inflation: Price inflation destroys the purchasing power of investments. Thrift is also panellized when
the net Interest after taxes received by the investor is less than the rise in the price level, leaving the
investor with less total purchasing power than he had at the time of saving. Inflation occurs generally in
unstable conditions like war or floods. However, in the last decade, it is also discernible in
peace conditions especially in developing countries because of huge government deficit financed
by bank credit.

Conclusion: An investor tends to prefer maximisation of expected return, minimisation of risk, safety of funds,
and liquidity of investments.

Types of investors

Investors can be classified on the basis of their risk bearing capacity. Investors in the financial market have
different attitudes towards risk and hence varying levels of risk-bearing capacity. Some investors are
risk averse, while some may have an affinity for risk. The risk bearing capacity of an investor is a
function of personal, economic, environmental, and situational factors such as income, family size, expenditure
pattern, and age.
A person with a higher income is assumed to have a higher risk-bearing capacity. Thus investor can
be classified as risk seekers, risk avoiders, or risk bearers.
A risk seeker is capable of assuming a higher risk while a risk avoider choose instruments that do not show
much variation in returns. Risk bearers fall in between these two categories. They assume moderate levels of
risk.

Investors can also be classified on the basis of groups as individuals or institutions.

Individual investors operate alongside institutional investors in the investment market. However, their
characteristics are different. Individual investors in any financial market are large in number, but in terms of
value of investment they are comparatively smaller.
Institutional investors, on the other hand, are organisations with surplus funds beyond immediate
business needs or organisation whose business objective is investment. Mutual funds, investment companies,
banking and non-banking companies, insurance corporations, and so on are organisations with large surplus
funds to be invested in various profitable avenues. While these institutional investors are fewer in
number compared to individual investors, their resources are much larger. Institutional investors engage
professional fund managers to carry out extensive analysis. Institutional investors and individual investors
combine to make the investment market dynamic.
Investment vs. Speculation

 Investment and speculation both involve the purchase of assets such as shares and securities, with an
expectation of return. However, investment can be distinguished from speculation by risk bearing
capacity, return expectations, and duration of trade.

 The capacity to bear risk distinguishes an investor from a speculator. An investor prefers low
risk investments, whereas a speculator is prepared to take higher risks for higher returns. Speculation
focuses more on returns than safety, thereby encouraging frequent trading without any intention of
owning the investment.

 The speculator’s motive is to achieve profits through price change, that is, capital gains are
more important than the direct income from an investment. Thus, speculation is associated with buying
low and selling high with the hope of making large capital gains. Investors are careful while
selecting securities for trading. Investments, in most instances, expect an income in addition to the
capital gains that may accrue when the securities are traded in the market.
 Investment is long term in nature. An investor commits funds for a longer period in the expectation of
holding period gains. However, a speculator trades frequently; hence, the holding period of securities is
very short.

 The identification of these distinctions helps to define the role of the investor and the speculator in the
market. The investor can be said to be interested in a good rate of return on a consistent basis over a
relatively longer duration. For this purpose the investor computes the real worth of the security before
investing in it. The speculator seeks very large returns from the market quickly. For a speculator, market
expectations and price movements are the main factors influencing a buy or sell decision. Speculation,
thus, is more risky than investment.
 In any stock exchange, there are two main categories of speculators called the bulls and bears. A bull
buys shares in the expectation of selling them at a higher price. When there is a bullish tendency in the
market, share prices tend to go up since the demand for the shares is high. A bear sells shares in the
expectation of a fall in price with the intention of buying the shares at a lower price at a future date.
These bearish tendencies result in a fall in the price of shares.
 A share market needs both investment and speculative activities. Speculative activity adds to the market
liquidity. A wider distribution of shareholders makes it necessary for a market to exist.

Investment Vs Gambling

Investment can also to be distinguished from gambling.Examples of gambling are horse race, card
games, lotteries, and so on. Gambling involves high risk not only for high returns but also for the
associated excitement.
Gambling is unplanned and unscientific, without the knowledge of the nature of the risk involved. It is
surrounded by uncertainty and a gambling decision is taken on unfounded market tips and rumours.In
gambling, artificial and unnecessary risks are created for increasing the returns.

Investment is an attempt to carefully plan, evaluate, and allocate funds to various investment outlets that offer
safety of principal and expected returns over a long period of time. Hence, gambling is quite the opposite of
investment even though the stock market has been euphemistically referred to as a “gambling den”.
The Dictionary.com web site says:

 Gamble: "To bet on an uncertain outcome, as of a contest. To take a risk in the hope of gaining an
advantage or a benefit."
 Invest: "To commit money or capital in order to gain a financial return."
 Here you are going to see the difference, let’s see about the difference between gambling and investing,

 Leverages: Investors are allocating money from their resources for the investment and this applies
mainly to assets to the equity market. Generally, gamblers are allocated their own money and bet for
entertainment.
 Price of asset: Gambling id based upon odds and bets are placed only on assumptions and at the same
time investor does not look at the price of the asset rather it looks at the asset itself to determine the
decision to allocate money now to get money back later on.
 Time horizon: Gambler placed a bet for immediate gain and on the other hand investors allocate money
for a particular asset for a longer period.
 Risk analysis: Investors do have long term risk and return perspective and also they will rely on the
fundamental analysis of financials. This can affect the price of the asset class and their decision to invest
in a particular asset. It is based upon the certain fundamental values associated with the asset.
 But the gambler risk entire capital on bet and relay mainly on luck and they are highest risk-takers and
ready to lose original investment also.
 Financial profile or funds availability: Investment is stock trading gambling, and their funds or looking
to create wealth and on the other hand gambling has wealth and looking to have fun.

Conclusion: Invest wisely after proper analysis of the company to secure hard money for fairly good
chances for the creation of wealth and gambling should be avoided, in most of the cases gambling is not
legal.
Meaning of Security Analysis

Investment is commitment of funds in the expectation of some positive rate of return. These funds are to be used
by another party, user of fund, for productive activity. It can be giving an advance or loan or contributing to the
equity (ownership capital) or debt capital of a corporate or non-corporate business unit. In other words,
investment means conversion of cash or money into a monetary asset or a claim on future money for a return.
This return is for saving, parting with saving or liquidity and lastly for taking a risk involving the uncertainty
about the actual return, time of waiting and cost of getting back funds, safety of funds, and risk of
the variability of the return.

Investment in capital market is made in various financial instruments, which are all claims on money. These
instruments may be of various categories with different characteristics. These are all called securities in
the market parlance. In a legal sense also, the Securities Contracts Regulation Act, (1956) has defined the
security as inclusive of shares, scrips, stocks, bonds, debentures or any other marketable securities of a like
nature or of any debentures of a company or body corporate, the Government and semi-Government body etc. It
includes all rights and interests in them including warrants, and loyalty coupons etc., issued by any of
the bodies, organisations or the Government. The derivatives of securities and Security Index are also included
as securities in the above definition in 1998.

Definition of security analysis:

For making proper investment involving both risk and return, the investor has to make a study of the alternative
avenues of investment– their risk and return characteristics and make proper projection or expectation of the
risk and return of the alternative investments under consideration. Investor has to tune the expectations to his
preferences of the risk and return for making a proper investment choice. The process of analysing the
individual securities and the market as a whole and estimating the risk and return expected from each of the
investments with a view to identifying undervalued securities for buying and overvalued securities for selling is
both an art and a science and this is called security analysis.
Security Analysis in both traditional sense and modern sense involves the projection of future dividend,
or earnings flows, forecast of the share price in the future and estimating the intrinsic value of a security based
on the forecast of earnings or dividends. Thus, security analysis in traditional sense is essentially an analysis of
the fundamental value of a share and its forecast for the future through the calculation of its intrinsic worth of
the share.

Meaning of Portfolio Management

A combination of such securities with different risk-return characteristics will constitute the portfolio of the
investor. Thus, a portfolio is a combination of various assets and/or instruments of investments. The
combination may have different features of risk and return, separate from those of the components.
The portfolio is also built up out of the wealth or income of the investor over a period of time, with a view to
suit his risk or return preferences to that of the portfolio that he holds. The portfolio analysis is thus an analysis
of the risk-return characteristics of individual securities in the portfolio and changes that may take place
in combination with other securities due to interaction among themselves and impact of each one of
them on others.

The traditional Portfolio Theory aims at the selection of such securities that would fit in well with the asset
preferences, needs and choices of the investor. Thus, a retired executive invests in fixed income securities for a
regular and fixed return. A business executive or a young aggressive investor on the other hand invests in new
and growing companies and in risky ventures. Modern Portfolio Theory postulates that maximisation of return
and or minimisation of risk will yield optimal returns and the choice and attitudes of investors are
only a starting point for investment decision and that rigorous risk return analysis is necessary for
optimisation of returns.

In risk return analysis, the attitudes and preferences of investors are taken into account as also their risk-return
trade off stemming from the analysis of individual securities. The return on portfolio is a weighted average of
returns of the individual stocks; and the weights are proportional to each stock ‟s percentage in the
total portfolio. Besides the stocks when put together in a basket may not give a total risk which is the
mathematical equivalent of total of risks of all the individual stocks, due to the simple reason that the risks of
some stocks may be compensated by the risks of other stocks or vice versa. The risks of some stocks can also be
accentuated by those of others in the portfolio. The modern portfolio theory states that the combined risk of a
portfolio may be greater or lesser than the sum of the risks of the components of individual securities.

Portfolio analysis includes selection of securities, portfolio construction, revision of portfolio, evaluation and
monitoring of the performance of the portfolio.
Primary market

The primary market is the doorway for corporate enterprises to enter the capital market. The issues of
new securities are offered to the public through the primary market. The issue is thus an open public offer to sell
the securities. The sale is made at a value predetermined by the firm issuing the security. Sometimes a road
show is conducted to feel the pulse of the public in fixing the value for a security. The securities have a face
value, which is the denomination in which it is divided. For instance, an instrument could have a face value of
Re 1, Rs. 5, Rs. 10, or Rs. 100 in India. This denomination determines the number of units of the security that
are offered to the public. The price at which the security is offered to the public is the offer price of the
instrument. This price could be equal to or greater or lesser than the face value. When the offer price is greater
than the face value, the offer is said to be at a premium. When the offer price is less than the face value, the
offer is at a discount. When the two prices are equal, the offer is at par.
Several intermediaries have sprung up to help corporate entities to offer their debt and equity instruments to the
public. Merchant bankers and underwriters are the major intermediaries who help to match the fund
requirement of corporate entities with the surplus fund position of public. The public is represented by both
individual investors and institutional investors. Sometimes, when the market is dominated by institutions, the
market is said to be institutionalised. Once the offer process of the securities to the public is
complete, the securities are listed in the markets. The corporate then has to comply with the specific regulations
of each local market in which its securities are listed.

Secondary market

The secondary market refers to the exchange of securities that have been listed through the primary market. The
price at which it is traded in the capital market is the market price of the instrument. It is the secondary market
that offers tradability to the financial instruments. The number of financial instruments participating in
the secondary market hence, cannot exceed the number of financial instruments recorded through the
primary market. The secondary market also comes under the regulatory authorities of the market and the main
role of the regulator in the secondary market is to safeguard the interest of players in the market. Both
individuals and institutions can take part in the secondary market. Brokers and depositories are the main
intermediaries in this market, who transact business on behalf of the investors. The brokers can appoint a
network of subbrokers to mobilise investors participation in the market. Depositories help in scripless
trading by holding investor accounts in electronic media.

Over a period of time, the secondary market has grown in size and in terms of efficiency. The secondary market
may be further sub-divided into the spot market and derivative market.

Relationship between the primary and secondary market

1. The primary/new issue market cannot function without the secondary market. The secondary market or the
stock market provides liquidity for the issued securities. The issued securities are traded in the
secondary market offering liquidity to the stocks at a fair price.

2. The new issue market provides a direct link between the prospective investors and the company.
By providing liquidity and safety, the stock markets encourage the public to subscribe to the new
issues. The marketability and the capital appreciation provided in the stock market are the major factors
that attract the investing public towards the stock market. Thus, it provides an indirect link between the
savers and the company.

3. The stock exchanges through their listing requirements, exercise control over the primary market.
The company seeking for listing on the respective stock exchange has to comply with all the rules and
regulations given by the stock exchange.
 4. Though the primary and secondary markets are complementary to each other, their functions and
the organisational set up are different from each other. The health of the primary market depends on the
secondary market and vice versa.

Differences between primary and secondary market

The difference between the primary and secondary market mainly relates to the nature of financing and the
organizations involved. The basic differences between the two types of market are as follows:
 The securities that are formerly issued in a market are referred to as primary market, whereas, when the
company gets listed on a recognized stock exchange for trading, then the stocks are traded in secondary
market.
 Primary market is also known as a new issue market and the secondary market is known as after issue
market. Depending upon the demand and supply of the securities traded the prices in the secondary market
vary. While in primary market the prices are fixed.
 The primary market provides financing to the new and the old companies for their expansion and
diversification while the secondary market does not provide financing to companies as they are not involved
in any transactions.
 In primary market the investors can purchase the shares directly from the company, whereas in secondary
market, the investors buy and sell the securities (shares and bonds) among themselves.
 In case of primary market, investment bankers do the selling. Conversely in secondary market, the broker
acts as an intermediary while the trading is done.
 In primary market, the company will gain from the sale of security. While in secondary market, investor
will gain from the securities.
 The securities in the primary market can only be sold once, while in secondary market it can be done an
infinite number of times.
 The amount that is received from the securities becomes the capital for company whereas; in case of
secondary market same is the income of investors.

Conclusion:

The two financial markets (primary market and secondary market) play a major role in the mobilization of
money in the country’s economy. The primary market encourages a direct interaction with the company and
the investor. While, secondary market is where brokers help out the investors to buy and sell the stocks
among other investors.

Process to buy Equity in secondary market:

The process to buy Equity in secondary market is very easy. The following procedure is followed while buying
or selling shares in the secondary market:
 Open demat account with a depository participant (DP).
 Open a trading account with a broker.
 Link your bank account with demat and trading account.
 The broker buys or sells the shares by executing orders on the electronic terminal provided by
the stock exchange.
 A contract note is issued by the broker detailing the value of shares purchased plus his brokerage
cost.
 The broker collects shares via settlement process (T+1) and makes payment on the behalf of
investor.
 Order gets executed on the final settlement date (T+2).