MODULE-2

INVESTMENT AVENUES

1. What is meant by Investments

2.What do you understand by Investment Avenues?

3.Explain the essentials of an Investment

The essentials of an investment encompass key principles and considerations that investors should be mindful of when
making investment decisions. These essentials include:

1. Clear Investment Objectives: Define your investment objectives, such as capital appreciation, income
generation, wealth preservation, or a combination of these goals. Having clear objectives helps align
investment decisions with your financial goals.
2. Risk Tolerance: Assess your risk tolerance, which is your ability and willingness to withstand fluctuations in
investment values. Consider factors such as your investment horizon, financial situation, and comfort level
with market volatility.
3. Diversification: Diversify your investment portfolio across different asset classes, industries, geographical
regions, and investment vehicles. Diversification helps spread risk and minimize the impact of adverse events
on your overall portfolio performance.
4. Research and Due Diligence: Conduct thorough research and due diligence before making investment
decisions. Evaluate factors such as the financial health of companies, economic trends, industry prospects, and
the track record of investment managers or funds.
5. Costs and Fees: Consider the costs and fees associated with investments, including transaction costs,
management fees, and taxes. Minimizing costs can help improve investment returns over the long term.
6. Long-Term Perspective: Adopt a long-term perspective when investing. Avoid reacting to short-term market
fluctuations or noise and focus on the fundamental factors driving investment performance over time.
7. Regular Monitoring and Review: Monitor your investments regularly and review your portfolio periodically
to ensure it remains aligned with your investment objectives and risk tolerance. Make adjustments as needed
based on changes in your financial situation or market conditions.

4.Describe the necessity of investments.

Investments are necessary for several reasons:

1. Wealth Accumulation: Investments offer the opportunity to grow wealth over time. By allocating capital to
investment vehicles that generate returns, such as stocks, bonds, real estate, or mutual funds, individuals can
increase their net worth and achieve financial goals such as retirement savings, buying a home, or funding
education.
2. Preservation of Purchasing Power: Inflation erodes the purchasing power of money over time. Investing in
assets that outpace inflation helps preserve the value of savings and maintain purchasing power in the face of
rising prices.
 3. Income Generation: Many investments, such as dividend-paying stocks, bonds, rental properties, or
interest-bearing accounts, provide regular income streams. These income sources can supplement salaries or
other sources of income and contribute to financial stability.
4. Achievement of Financial Goals: Investments enable individuals to achieve specific financial goals, such as
buying a house, funding education, or traveling. By systematically investing over time and earning returns,
investors can accumulate the funds needed to realize their aspirations.
5. Diversification and Risk Management: Diversifying investments across different asset classes and industries
helps spread risk and reduce the impact of adverse events on the overall portfolio. By diversifying, investors
can mitigate the risk of loss associated with individual investments and achieve more consistent returns over
time.
6. Retirement Planning: Investments play a crucial role in retirement planning by providing a source of income
during retirement years. By saving and investing for retirement early in their careers, individuals can build a
nest egg that supports their desired lifestyle and financial needs in retirement.
7. Economic Growth and Development: Investments contribute to economic growth and development by
channeling capital into productive activities such as business expansion, infrastructure development, research
and development, and job creation. A thriving investment environment fosters innovation, entrepreneurship,
and economic prosperity for individuals and societies alike.

5.Explain the various investment avenues for a common investor.

1. Bank Deposits:
○ Meaning: Funds deposited with a bank, typically in savings accounts, fixed deposits, or recurring
deposits.
○ Risk Factor: Relatively low risk, especially for deposits insured by government schemes.
○ Income Tax Benefits: Interest earned on bank deposits is taxable as per the individual's income tax
slab.
2. Corporate Securities:
○ Meaning: Securities issued by corporations to raise capital, including stocks and bonds.
○ Risk Factor: Varies depending on the financial health of the company issuing the securities. Generally,
higher risk compared to government-backed investments.
3. Equity Shares:
○ Meaning: Ownership stakes in a company, representing a claim on its assets and earnings.
○ Risk Factor: Higher risk due to market volatility and company-specific factors.
4. Preference Shares:
○ Meaning: Shares that typically offer fixed dividends and priority over common shares in the
distribution of assets in case of liquidation.
○ Risk Factor: Lower risk compared to equity shares but higher risk than debt instruments.
○
5. Debentures:
○ Meaning: Debt instruments issued by corporations or governments, typically with a fixed interest rate
and maturity date.
○ Risk Factor: Moderate risk, depending on the creditworthiness of the issuer.
6. Bonds:
○ Meaning: Debt securities issued by governments or corporations, representing a loan from the investor
to the issuer.
○ Risk Factor: Varies depending on the issuer and type of bond. Government bonds are considered safer
than corporate bonds.

6.Explain Stock Market? What are the different types of Stock Markets

The stock market is a platform where investors can buy and sell ownership stakes in publicly traded companies. It
serves as a marketplace for the exchange of securities, primarily stocks and other equity instruments.
Primary Market:

● Definition: The primary market is where newly issued securities are bought and sold for the first time.
Companies issue new shares to raise capital for various purposes.

● Process: In the primary market, companies work with investment banks or underwriters to facilitate the
issuance of shares through initial public offerings (IPOs) [ It is the first time a company offers its shares to the
public for purchase on a stock exchange.] or follow-on public offerings (FPOs) [It occurs when a publicly
traded company issues additional shares to the public after its initial IPO]. Investors purchase shares directly
from the company at the offering price.

● Purpose: The primary market allows companies to raise capital to fuel growth and expansion, while investors
have the opportunity to participate in the early stages of a company's growth and potentially profit from future
stock price appreciation.

Secondary Market:

● Definition: The secondary market is where previously issued securities are bought and sold among investors
without the involvement of the issuing company. It is also known as the stock exchange.

● Process: In the secondary market, investors trade existing securities among themselves through stock
exchanges or over-the-counter (OTC) platforms. Prices of securities are determined by supply and demand
dynamics and can fluctuate based on market sentiment, economic conditions, and company performance.

● Purpose: The secondary market provides liquidity to investors by allowing them to buy and sell securities
easily. It also facilitates price discovery and reflects the collective assessment of investors regarding the value
of companies and their future prospects.

Global Stock Markets:

● Definition: Global stock markets refer to exchanges and trading platforms around the world where securities
are bought and sold by investors from different countries.
● Examples: Major global stock exchanges include the New York Stock Exchange (NYSE) and NASDAQ in the
United States, the London Stock Exchange (LSE) in the United Kingdom, the Tokyo Stock Exchange (TSE) in
Japan, and the Shanghai Stock Exchange (SSE) in China.
● Purpose: Global stock markets provide investors with access to a diverse range of investment opportunities,
allowing them to diversify their portfolios and capitalize on international economic growth and trends.

7.What is stock exchange? How it operates in trading and settlement.

A stock exchange is a regulated marketplace where securities, such as stocks, bonds, and derivatives, are bought and
sold by investors. It serves as an intermediary between buyers and sellers, providing a platform for trading securities
and ensuring fair and transparent transactions.

Operation in Trading:

1. Order Placement: Investors place buy or sell orders through brokerage firms or online trading platforms.
These orders specify the quantity of securities to be traded and the price at which the investor is willing to buy
or sell.
2. Order Matching: Stock exchanges match buy and sell orders based on price and time priority. When a buy
 order matches a sell order at the same price, a trade is executed, and the transaction is recorded.
3. Market Liquidity: Stock exchanges play a crucial role in providing liquidity to the market by facilitating the
continuous buying and selling of securities. This liquidity ensures that investors can enter and exit positions
easily without significantly impacting prices.
4. Price Discovery: The continuous trading activity on a stock exchange helps determine the market price of
securities through the interaction of supply and demand. This process of price discovery reflects the collective
assessment of investors regarding the value of securities.

Operation in Settlement:

1. Trade Confirmation: After a trade is executed, the stock exchange sends trade confirmation messages to the
brokerage firms and the clearinghouse.
2. Clearing: The clearinghouse acts as an intermediary between the buyer and seller to ensure the smooth
settlement of trades. It validates the trade details, verifies the availability of funds and securities, and calculates
the obligations of each party.
3. Settlement: Settlement involves the transfer of funds and securities between the buyer and seller to fulfill the
trade. In a T+2 settlement cycle (most common), securities are delivered to the buyer's account, and funds are
transferred to the seller's account two business days after the trade date.
4. Risk Management: Stock exchanges implement risk management mechanisms to mitigate counterparty risk
and ensure the integrity of the settlement process. These mechanisms include margin requirements, position
limits, and surveillance systems to monitor trading activity for irregularities.

8.What is a DEMAT Account? What is the purpose of a DEMAT Account?

A DEMAT account, short for "dematerialized account," is an electronic account used to hold and transact securities in
electronic form. It serves as a digital repository for various financial instruments such as stocks, bonds, mutual fund
units, exchange-traded funds (ETFs), and government securities.

Purpose of a DEMAT Account:

1. Secure Storage: A DEMAT account provides a secure and convenient way to hold securities in electronic
form, eliminating the need for physical share certificates. This reduces the risk of loss, theft, or damage
associated with paper-based certificates.
2. Easy Transferability: Securities held in a DEMAT account can be easily transferred between account holders
through electronic means. This simplifies the process of buying, selling, and transferring securities, facilitating
faster settlement and reducing paperwork.
3. Online Trading: A DEMAT account is essential for online trading in the stock market. It enables investors to
place buy and sell orders for securities through online trading platforms offered by brokerage firms or stock
exchanges.
4. Dividend and Interest Payments: Dividends, interest payments, and other corporate actions related to
securities held in a DEMAT account are credited directly to the account holder's bank account. This streamlines
the receipt of income from investments.
5. Portfolio Tracking: DEMAT accounts provide access to detailed statements and reports that enable investors
to track their investment portfolio, including holdings, transactions, and valuation. This helps investors monitor
their investments and make informed decisions.
6. Initial Public Offerings (IPOs) and Rights Issues: Investors need a DEMAT account to participate in IPOs,
rights issues, and other corporate actions where securities are allotted electronically. Shares allocated through
such offerings are credited directly to the investor's DEMAT account.

9.What are Depository and Depository Participants?

Depository: A depository is a centralized institution that holds securities (such as stocks, bonds, mutual fund units, etc.)
in electronic form on behalf of investors. It functions as a custodian for securities, facilitating their safekeeping,
transfer, and settlement. The primary role of a depository is to dematerialize physical securities into electronic form and
provide a secure infrastructure for their storage and transfer.

Depository Participants (DPs): Depository Participants (DPs) are intermediaries authorized by depositories to offer
depository services to investors. They act as the interface between investors and the depository, providing services
related to the opening, maintenance, and operation of DEMAT accounts, which are electronic accounts used to hold
securities in dematerialized form. DPs facilitate the process of dematerialization (conversion of physical securities into
electronic form), rematerialization (conversion of electronic securities into physical form), transfer of securities, and
other related services.

In summary, depositories are centralized institutions that hold securities in electronic form, while Depository
Participants are entities that provide depository services to investors, acting as intermediaries between investors and the
depository. Together, they play a crucial role in modernizing and streamlining the process of securities ownership,
transfer, and settlement.

10.What are the Investor Protection Measures?

Investor protection measures are regulatory safeguards and initiatives implemented by governments, regulatory
authorities, and financial institutions to safeguard the interests of investors and promote market integrity. These
measures aim to enhance transparency, fairness, and investor confidence in financial markets. Some common investor
protection measures include:

1. Regulatory Oversight: Government agencies and regulatory bodies, such as the Securities and Exchange
Commission (SEC) in the United States or the Securities and Exchange Board of India (SEBI), oversee
financial markets and enforce regulations to protect investors from fraudulent activities, market manipulation,
and unfair practices.
2. Disclosure Requirements: Listed companies are required to disclose timely and accurate information about
their financial performance, operations, risks, and other material developments to investors. This ensures
transparency and enables investors to make informed investment decisions.
3. Investor Education and Awareness: Governments, regulatory authorities, and financial institutions conduct
investor education programs and awareness campaigns to educate investors about financial products,
investment risks, and best practices. Financial literacy initiatives help investors make informed decisions and
avoid scams or fraudulent schemes.
4. Depository Insurance: Deposit insurance schemes, such as the Federal Deposit Insurance Corporation (FDIC)
in the United States or the Deposit Insurance and Credit Guarantee Corporation (DICGC) in India, provide
protection to bank depositors by guaranteeing the safety of their deposits up to a certain limit in case of bank
failure.
5. Regulation of Financial Institutions: Financial institutions, including banks, brokerage firms, investment
advisors, and mutual funds, are subject to regulatory oversight to ensure compliance with applicable laws,
regulations, and ethical standards. Regulatory frameworks help mitigate risks associated with financial services
and products.
6. Market Surveillance and Enforcement: Regulatory authorities monitor financial markets for suspicious
activities, insider trading, market manipulation, and other violations of securities laws. Enforcement actions,
such as fines, penalties, and legal sanctions, are imposed on individuals and entities found guilty of
misconduct.
7. Dispute Resolution Mechanisms: Investor grievance redressal mechanisms, such as arbitration, mediation,
and ombudsman services, provide avenues for resolving disputes between investors and financial
intermediaries in a timely and efficient manner.