Investing in Stock Market
Lecture : Basics of STOCK MARKET
Dr. Abhineet Saxena
WHAT IS A
STOCK
MARKET
It is a place where shares of
pubic listed companies are
traded
The stock market is the primary
source for any company to raise
funds for business expansions.
Circular Flow of Money
Benefits of investing in shares
•. Selling a share for more than you paid for it is known as Capital Gain.
•. Dividend is a cash reward given out to shareholders as part of the profit made by the company at the end of
each financial year.
WHY DO WE NEED STOCK MARKET ?
Bombay Stock Exchange National Stock Exchange
SENSEX 30 STOCKS
BULL AND BEAR MARKETS
Two of the basic concepts of stock market
trading are “bull” and “bear” markets.
The term bull market is used to refer to a
stock market in which the price of stocks is
generally rising.
This is the type of market most investors
prosper in, as the majority of stock investors
are buyers, rather than short-sellers, of stocks.
A bear market exists when stock prices are
overall declining in price.
• Having a “long” position in a security means that you own the security. Investors
maintain “long” security positions in the expectation that the stock will rise in value
in the future.
• The opposite of a “long” position is a “short” position. A "short" position is
generally the sale of a stock you do not own.
WHY STOCK IS THE
BEST INVESTMENT
Diversification
Compounding
Win the race against inflation
Powerful long-term investment
Tax benefits
Investing in Stock Market
Why Investment is important for
an individual?
Investment
Process
Investment Analysis Portfolio Portfolio
Policy Valuation
Construction Evaluation
- Investible fund - Market
- Intrinsic Value -Diversification
- Objectives - Industry - Appraisal
- Future Value - Selection and
- Knowledge - Company - Revision
allocation
The difference between Savings and Investment
Investing
Wealth Grows
Saving
Wealth does not grow
Life
Goals…
Building your home Marriage Children’s Education
Setting up a small business Buying agricultural land Retirement
…are also Financial
Goals
Building your home Marriage Children’s Education
Setting up a small business Buying agricultural land Retirement
Inflation 1 kg sugar
10 years ago Today 8 years from now
Rs.16 Rs.50 Rs.80
Inflation !! …. How does it affect us ???
Balance after
one Year
Money Deposited Saving Interest Rate 4 % Rs.104
Rs. 100
1 Kg = Rs 100 1 yrs Inflation After one year
7% 1 Kg = Rs 107
Inflation !! …. How does it affect us ???
Balance after
one Year
Money Deposited Saving Interest Rate 4 % Rs.104
Rs. 100 Short by Rs. 3/-
1 Kg = Rs 100 1 yrs Inflation After one year
7% 1 Kg = Rs 107
Inflation !! …. How does it affect us ???
Balance after
one Year
Rs.104 Very Important !!
Money Deposited Saving Interest Rate 4 %
Invest some portion
Rs. 100
of your saving in
Financial products
which can match or
beat inflation !!!
1 Kg = Rs 100 1 yrs Inflation After one year
7% 1 Kg = Rs 107
WHY SHOULD YOU
INVEST
Wealth creation
Retirement
Inflation
Tax benefits
Secondary income
Emergency savings
Long-term investments give higher returns
A monthly investment of Rs. 5000 at 8% p.a.
In 30 years
In 20 years
In 15 years
Investment
Rs. Value: Value: Value:
5000
per
Rs. 17.60 Rs. 30 lakh Rs. 75 lakh
month
lakh
Amount invested
Rs. 9 lakh Amount invested
12 lakh
Amount invested 18 lakh
Rule of 72
Delay in Investing can be Costly (example)
Amount Required:- 15,00,000 /-
Expected Return:- 8% p.a
Duration 20 Years
Goal: Children Education
For 20 Years (Delay by 3 Years) For 17 Years (Delay by 5 Years) For 15 Years
Investment per month Investment per month Investment per month
Rs. 2,546 /- Rs. 3,474 /- (928) Rs. 4,335 /- (1,789)
(Delay by 10 Years) For 10 Years (Delay by 15 Years) For 5 Years
Investment per month Investment per month
Rs. 8,200 /- (5,654) Rs. 20,415 /- (17,869)
Popular Asset Classes
• Equity • Gold
• Direct Equity • Physical Gold
• Equity Mutual Funds • Gold ETF
• Gold Mutual Funds
•Fixed Income
• Real Estate
• PPF
• EPF/VPF • Physical
• Fixed Deposits • Real Estate Mutual Funds
• Small Savings Investments
• Debt Mutual Funds
• Tax Free Bonds
Three Pillars of Investment
Safety Liquidity Return
Risk
Risk is an
investment’s chance of
producing a lower-
than-expected return or
even losing value.
Return
Return is the
amount of money
you earn on the
assets you’ve
invested, or the
investment’s
overall increase in
value.
POWER OF
DIVERSIFICATION
Diversification is a common investment
strategy that entails buying different
types of investments to reduce the risk of
market volatility.
WHAT IS DEMAT ACCOUNT?
A Demat Account(Dematerialised Account) is
an account that allows you to hold company
shares and securities electronically.
You can hold dematerialized securities such
as stocks, mutual funds, bonds, exchange-
traded funds (ETFs), etc. in a Demat Account.
Documents required for demat
account
Identity Proof
PAN card is mandatory (ensure your photo and signature on
the card are visible).
Address Proof (any one of these)
Passport, driving licence, voter ID, Aadhaar card, or bank
account statements for the last 3 months.
Income Proof (any one of these)
6 months bank statement, net worth certificate, 3 months
salary slips, Income Tax Return(ITR) statement, demat
holding statement, or holding report.
Documents required for Demat account:
Signature on white paper
Sign on a white paper and take a picture of it (the signature should match the one on your
PAN card).
Bank Proof (any one of these)
Cancelled cheque, passbook, bank account statements for the last 6 months.
Photograph
One passport size photograph is required.
Platforms for Online trading
• Zerodha • Groww
• Paytm Money
• IIFL Securities
• 5Paisa • ICICI Direct
• ProStocks • HDFC Securities
• Upstox
• Angel One
Settlement Cycle
A Settlement Cycle refers to a calendar
according to which all purchase and sale
transactions done on T Day are settled on a T+1
basis. T = Trading Day and +1 means 1
consecutive working days after T (excluding all
holidays).
Investing in Stock Market
Concept of Portfolio and its benefits
What is a Portfolio?
• It is a collection of a wide range of assets that are owned by
investors. The said collection of financial assets may also be
valuables ranging from gold, stocks, funds, derivatives, property,
cash equivalents, bonds, etc. Individuals put their money in such
assets to generate revenue while ensuring that the original equity
of the asset or capital does not erode.
• Depending on one’s know-how of the investment market,
individuals may either manage their portfolio or seek the
assistance of professional financial advisors for the same. As per
financial experts, diversification is a vital concept in portfolio
management.
What is a stock portfolio?
• A stock portfolio is a basket of equity stocks. A good stock portfolio
could have around 20 to 30 companies that investors believe would
give them good returns. The selection of such companies is often
based on the investor’s risk profile and growth expectations.
What is Portfolio Investment?
• An investment portfolio is an assortment of investable assets like
stocks, bonds, cryptocurrencies, etc. These are divided into a
proportion that caters to the investor’s risk propensity. It is a virtual
basket that considers the following:
• Your investment goals
• Your risk profile
• When do you want to encash the amount invested?
Portfolio asset allocation
characteristic line or security characteristic
line (SCL)
The characteristic line is part of a wider suite of security and
market performance assessment tools known as
Modern Portfolio Theory (MPT).
•A characteristic line indicates a security's systematic risk and rate of return.
•This line shows the security's performance versus the market's performance.
•The characteristic line is also referred to as the security characteristic line.
The CAPM was introduced by Jack Treynor (1961, 1962), William F. Sharpe (1964), John Lintner (1965a,b)
and Jan Mossin (1966) independently, building on the earlier work of Harry Markowitz on diversification
and modern portfolio theory. Sharpe, Markowitz and Merton Miller jointly received the 1990
Nobel Memorial Prize in Economics for this contribution to the field of financial economics. Fischer Black
(1972) developed another version of CAPM, called Black CAPM or zero-beta CAPM, that does not assume
the existence of a riskless asset. This version was more robust against empirical testing and was influential in
the widespread adoption of the CAPM.
clause 49
In corporate hierarchy two types of managements are envisaged:
i) companies managed by Board of Directors; and
ii) those by a Managing Director, whole-time director or manager subject to the control and guidance of the Board
of Directors i.e., he is liable to the Board of Directors and the function of the corporate.
•As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board should comprise
independent directors. In the case of a company with a non-executive Chairman, at least one-third of the board
should be independent directors.
•It would be necessary for chief executives and chief financial officers to establish and maintain internal controls
and implement remediation and risk mitigation towards deficiencies in internal controls, among others.
•Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock exchange in
the prescribed form. The clause also requires that there be a separate section on corporate governance in the annual
report with a detailed compliance report.
•A company is also required to obtain a certificate either from auditors or practicing company secretaries regarding
compliance of conditions as stipulated, and annex the same to the director's report.
•The clause mandates composition of an audit committee; one of the directors is required to be "financially
literate".
•It is mandatory for all listed companies to comply with the clause by 31 December 2005.
