Equity is an ordinary share issued by a company. The first public offer of securities by a company after its inception is known as an Initial Public Offering (IPO).

A share is one unit of ownership. For example if a company has issued 10,00,000 shares and a person owns 1000 of them, that means he owns 0.1% of the company.

• Right to share the profits of the company
• Right to control
• Right in liquidation

Secondary markets are also referred to as Stock Exchange. They are a part of capital markets. To state simply it is a place where the securities issued by the Government, public bodies and Joint Stock Companies are traded. In the case of India, the stock markets are regulated by the Securities & Exchange Board of India (SEBI).

Functions of the stock exchanges can be summarised as follows:

The basic function of the stock market is the creation of a continuous market for securities, enabling them to be liquidated, where investors can convert their securities into cash at any time at the prevailing market price.

This market is a nearly perfect competitive market as there are large number of buyers and sellers. Due to nearly perfect information, active bidding take place from both the sides. This ensures the fair price to be determined by demand and supply forces.

Corporates, Government and public bodies raise funds from the equity market. These securities are negotiable and transferable. They are traded and change hands from one investor to the other without affecting the long-term availability of funds to the issuing companies.

It helps in mobilising the surplus funds from individuals and institutions and channelises them to Corporates and Government bodies for more profitable ventures.

The performance of the stock markets reflects the boom and depression in the economy. It indicates the general state of the economy to all those concerned, who can take suitable steps in time. The Government takes suitable monetary and fiscal steps depending upon the state of the economy.

It is an answer to the question “how is the market doing?” It is representative of the entire stock market. Movements of the index represent the average returns obtained by investors in the stock market.

Stock indices reflect expectation about future performance of the companies listed in the stock market or performance of the industrial sector. They reflect the publicly available information on the economy, industrial sectors and companies as a whole. This is available as Fundamental and technical data. Investor sentiment also plays an important role in the stock market movement. When the index goes up, the market thinks that the future returns will be higher than they are at present and vice versa.

With Securities Laws (Second Amendment) Act, 1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:-

• a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;
• a contract which derives its value from the prices, or index of prices, of underlying securities

Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement entails paying/receiving the difference between the price at which the contract was entered and the price of the underlying asset at the time of expiry of the contract.

Options Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc.

Under Securities Contracts (Regulations) Act, 1956 options on securities has been defined as "option in securities" means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities;

An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price.

Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame.

As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract.

Derivative trading in India takes can place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organisation (SRO) and SEBI acts as the oversight regulator. The clearing & settlement of all trades on the Derivative Exchange/Segment would have to be through a Clearing Corporation/House, which is independent in governance and membership from the Derivative Exchange/Segment.

With the amendment in the definition of 'securities' under SC(R)A (to include derivative contracts in the definition of securities), derivatives trading takes place under the provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992.

Presently, SEBI has permitted Derivative Trading on the Derivative Segment of BSE and the F & O Segment of NSE.

Derivative products have been introduced in a phased manner starting with Index Futures Contracts in June 2000. Index Options and Stock Options were introduced in June 2001 and July 2001 followed by Stock Futures in November 2001.

The Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to Securities Contract (Regulation) Act, 1956 had recommended that the minimum contract size of derivative contracts traded in the Indian Markets should be pegged not below Rs. 2 Lakhs. Based on this recommendation SEBI has specified that the value of a derivative contract should not be less than Rs. 2 Lakh at the time of introducing the contract in the market.

Lot size refers to number of underlying securities in one contract. Additionally, for stock specific derivative contracts SEBI has specified that the lot size of the underlying individual security should be in multiples of 100 and fractions, if any, should be rounded of to the next higher multiple of 100. This requirement of SEBI coupled with the requirement of minimum contract size forms the basis of arriving at the lot size of a contract.

For example, if shares of XYZ Ltd are quoted at Rs.1000 each and the minimum contract size is Rs.2 lacs, then the lot size for that particular scrips stands to be 200000/1000 = 200 shares i.e. one contract in XYZ Ltd. covers 200 shares.

• Initial Margin - Based on 99% VAR and worst case loss over a specified horizon, which depends on the time in which Mark to Market margin is collected.
• Mark to Market Margin (MTM) - collected in cash for all Futures contracts and adjusted against the available Liquid Net Worth for option positions. In the case of Futures Contracts MTM may be considered as Mark to Market Settlement.

Initial Margin
Short Option Minimum Charge (Worst Scenario Loss +Calendar Spread Charges)
The worst scenario loss are required to be computed for a portfolio of a client and is calculated by valuing the portfolio under 16 scenarios of probable changes in the value and the volatility of the Index/ Individual Stocks. The options and futures positions in a client’s portfolio are required to be valued by predicting the price and the volatility of the underlying over a specified horizon so that 99% of times the price and volatility so predicted does not exceed the maximum and minimum price or volatility scenario. In this manner initial margin of 99% VAR is achieved. The specified horizon is dependent on the time of collection of mark to market margin by the exchange.

The initial margin is required to be computed on a real time basis and has two components:-

• The first is creation of risk arrays taking prices at discreet times taking latest prices and volatility estimates at the discreet times, which have been specified.
• The second is the application of the risk arrays on the actual portfolio positions to compute the portfolio values and the initial margin on a real time basis.

The initial margin so computed is deducted form the available Liquid Net Worth on a real time basis.

Mark to Market Margin
Options – The value of the option are calculated as the theoretical value of the option times the number of option contracts (positive for long options and negative for short options). This Net Option Value is added to the Liquid Net Worth of the Clearing member. Thus MTM gains and losses on options are adjusted against the available liquid net worth. The net option value is computed using the closing price of the option and are applied the next day.
Futures – The system computes the closing price of each series, which is used for computing mark to market settlement for cumulative net position. This margin is collected on T+1 in cash. Therefore, the exchange charges a higher initial margin by multiplying the price scan range of 3s & 3.5s with square root of 2, so that the initial margin is adequate to cover 99% VaR over a two days horizon.

MARGIN COLLECTION
Initial Margin - is adjusted from the available Liquid Networth of the Clearing Member on an online real time basis.
Marked to Market Margins-
Futures contracts: The open positions (gross against clients and net of proprietary / self trading) in the futures contracts for each member is marked to market to the daily settlement price of the Futures contracts at the end of each trading day. The daily settlement price at the end of each day is the weighted average price of the last half an hour of the futures contract. The profits / losses arising from the difference between the trading price and the settlement price are collected / given to all the clearing members.
Option Contracts: The marked to market for Option contracts is computed and collected as part of the SPAN Margin in the form of Net Option Value. The SPAN Margin is collected on an online real time basis based on the data feeds given to the system at discrete time intervals.
Client Margins
Clearing Members and Trading Members are required to collect initial margins from all their clients. The collection of margins at client level in the derivative markets is essential as derivatives are leveraged products and non-collection of margins at the client level would provided zero cost leverage. In the derivative markets all money paid by the client towards margins is kept in trust with the Clearing House / Clearing Corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilised towards the default of the member.
Therefore, Clearing members are required to report on a daily basis details in respect of such margin amounts due and collected from their Trading members / clients clearing and settling through them. Trading members are also required to report on a daily basis details of the amount due and collected from their clients. The reporting of the collection of the margins by the clients is done electronically through the system at the end of each trading day. The reporting of collection of client level margins plays a crucial role not only in ensuring that members collect margin from clients but it also provides the clearing corporation with a record of the quantum of funds it has to keep in trust for the clients.

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy.

The money thus collected is then invested by the fund manager in different types of securities. These could be:

• Shares
• Debentures
• Money Market Instrument

The quantum of investment in specific securities depend upon the scheme's stated objectives i.e. whether its income oriented/growth oriented/income cum growth oriented/ tax-saving savings. The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the considered to be most suitable investment for the common man as it offers an opportunity to invest in a diversified professionally managed basket of securities at a relative low cost.

However a Mutual Fund unit is not a share. It is an alternative savings product. It offers better prospects compared to fixed deposits/debentures/bonds. However, since the portfolio of a growth oriented fund includes substantial investments in equities, its exposure to market risk is higher than that of a bank deposit. But a well managed mutual fund can offer better returns than a fixed deposit, over a longer period of time.

Every Mutual Fund on behalf of the unit holders sets up an Asset Management Company (AMC) or assigns its fund to a AMC for managing its funds. The AMC invests on behalf of the unit holders, in line with the objectives of the respective schemes. Regular expenses like Custodial fees, Cost of dividend warrants, registrar fees, AMC Fee are borne by the individual schemes. However, these regular expenses cannot exceed 3 % of the assets of a scheme in a year.
Steps an Investor should take before Investing in a Mutual Fund Scheme:
Step I: Choosing the fund
Once the Investor decides to invest in a Mutual Fund scheme, the investor has to choose as to which fund he would be interested in. The investor can choose the fund on various criteria, but primarily these can be the following:

• The track record of performance of schemes over the last few years managed by the fund.
• How well the mutual fund is organized to provide efficient, prompt and personalized service.
• Degree of transparency as reflected in frequency and quality of the fund’s communications in the form of disclosures etc.

The investment objective of schemes is different. The investor has to identify the schemes depending on his requirement of funds to meet his day-to-day expenses or accumulate funds for purposes as buying a house or for the marriage of their children. Depending on this the investor will have to choose the schemes, i.e. whether he would like to go for scheme offering regular return or a scheme offering capital appreciation. However, the investor has to keep in mind the risk. For getting a steady return or for getting a superior return over the domestic bank deposits he may go in for an income scheme.

The investor also has to decide whether he can afford to keep his funds locked-in for a specific time period in case he decides to invest in close-ended schemes. Though investor’s in close-ended schemes are provided with an exit option through repurchase/listing on the stock exchange, but the market price in the stock exchange generally quote at a discount to the NAV of the scheme.

Investors investing in open-ended schemes have to check with the fund/broker/agent about the entry and exit load if any.

You can earn money from your investment in three ways.

First, a fund may receive income in the form of dividends and interest on the securities it owns. A fund will pay its shareholders nearly all of the income it has earned in the form of dividends.

Second, the price of the securities a fund owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors.

Third, if a fund does not sell but holds on to securities that have increased in price, the value of its shares (NAV) increases. The higher NAV reflects the higher value of your investment. If you sell your shares, you make a profit (this also is a capital gain).

Usually funds will give you a choice: the fund can send you payment for distributions and dividends, or you can have them reinvested in the fund to buy more shares, often without paying an additional sales load.

Classification of Mutual Funds:
Mutual Funds can be classified on two broad parameters. These can be:
A) On Liquidity

These do not have a fixed maturity. You deal directly with the Mutual Fund for your investments and redemption's. The key feature is liquidity. The investor can conveniently buy and sell his units at net asset value ("NAV") related prices after adjusting for any load if any.

Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close-ended schemes. The investor can invest directly in the scheme at the time of the initial issue and thereafter he can buy or sell the units of the scheme through the stock exchanges where they are listed. The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unitholder's expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows down.

Some close-ended schemes give you an additional option of selling your units directly to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor.

These combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.
B) Providing the Returns

Aims to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short-term decline in value for possible future appreciation.

These schemes are not for investors seeking regular income or needing their money back in the short-term.

Suitable for:

• Investors in their prime earning years
• Investors seeking growth over the long-term

Aims to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Nowadays funds are also offering schemes income-oriented schemes offering high liquidity. This essentially means, the investor can park their surplus funds in these schemes for a very short period of time to even a day and exit out of the scheme whenever he desires so. These schemes invest in money-market instruments.

Capital appreciation in such schemes may be limited.

• Retired people and other with a need for capital stability and regular income.
• Investors who need some income to supplement their earnings.

Aims to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls.
Suitable for:

• Investors looking for a combination of income and moderate growth.

Aims to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposits, commercial paper and inter- bank call money. Currently these schemes have got a lock-in-period of 14 days and three funds are offering these schemes. They are UTI, Kothari Pioneer MF, and IDBI MF.

Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market.

• Corporate and individual investors as a means to park their surplus funds for short period or awaiting & more favorable investment alternative.

These schemes offer tax rebates to the investors under tax laws as prescribed from time to time. This is made possible because the Government offers tax incentives for investment in specified avenues. For example, Equity Linked Saving Schemes (ELSS) and Pension Schemes.

Recent amendments to the Income Tax Act Provide further opportunities to investors to save capital gains by investing in Mutual Funds. The details of such tax saving are provided in the relevant offer documents.

• Investors seeking tax rebates.

This category includes index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50, of industry specific schemes (which invest in specific industries) or sectoral schemes (which invest exclusively in segments such as 'A' Group shares or initial public offerings).

Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index.

Any one scheme may not meet all your requirements for all time. The investor needs to invest his money in a judicious manner in different schemes to be able to get the combination of growth, income and stability.
Remember, as always, higher the return you seek higher the risk.
Suitable for:

• These are ideal for investors who have already decided to invest in a particular sector or segment.

By definition a money market fund is an open-ended mutual fund that invests in short-term debt instruments, most of which mature in less that a year. The investments usually have a maturity of less than 120 days, which greatly reduces the risk due to interest rates. Short-term debt instruments include commercial paper, government-backed securities, bank CD's and short-term debt of credit worthy corporation. Yields among the different funds vary due to differences in portfolio compositions, average maturity and fund expenses. As interest rates fluctuates so does interest income.
Advantages:

• Money market funds are great for emergency reserves. Most funds offer free check writing privileges, telephone redemptions.
• Dividends are normally higher than what you would receive for a bank savings account or CD.

• Money market funds are viewed as "safe" investments Money market funds only invest what investors have deposited, which creates safety in and of itself.

• For long time horizon, money market funds have minimally beaten the inflation rate. While it's great for emergency cash reserves it shouldn't be used for long-term investments.
• Money markets are associated with interest rate risk. Once the investment entities mature they may be re-invested at a lower rate of return.

Frequently Used Terms: Net Asset Value ("NAV"): Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
Sale Price: It is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.
Repurchase Price: The price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.
Redemption Price: Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.
Sales Load: It is a charge collected by a scheme when it sells the units. Also called, 'Front-end' load. Schemes that do not charge a load are called 'No Load' schemes.
Repurchase or 'Back-end' Load: It is a charge collected by a scheme when it buys back the units from the unit holders.

Interest is paid on monthly/quarterly/half yearly/yearly or on maturity basis and is sent either through cheque or ECS facility.

TDS is deducted if the interest on fixed deposit exceeds Rs.5000/- in a financial year.

No, at the end of deposit period principal is returned to the deposit holder.

• Avoid the unrated Company Deposit Schemes.
• Within a given rating grade, choose the company with a better reputation.
• Once you decide on a company, next choose the schemes that have given a better return. Unless you need income regularly, you should prefer cumulative to regular income option since the interest earned automatically gets reinvested at the same coupon rate giving upon better yields. It also gives you a lump-sum amount at one go.
• It is better to make shorter deposit of around 1 year to 3 years. This way you not only can keep a watch on the company’s rating and servicing but can also plan to have your money back in case of emergency.
• Check on the servicing standards of the company. You should not oblige companies that care little about investor services like promptly sending interest warrants or the principal cheque.
• Involve your reputed Financial planner / Investment Advisor like us for advice in all your transactions. Do not bypass and invest directly just to earn an extra incentive.
• For outstation investors, it is recommended to check whether the company accepts outstation cheques and makes payment through at par cheques.

Companies registered under Companies Act 1956, such as:

• Manufacturing Companies
• Non-Banking Finance Companies
• Housing Finance Companies
• Financial Institutions
• Government Companies

Company Fixed Deposits can be accepted by a Manufacturing Company having duration from 6 months to 3 years. Non-Banking Finance Company can accept deposit from 1 year to 5 years period. A Housing Finance Company can accept deposit from 1 year to 7 years.

The advantages of company Deposits from an investor’s point of view are:
1.Higher Interest Rates
Selected finance companies with highest credit rating are offering interest rates which is above what the banks pay for there deposits.
2. Variety of Deposit Schemes

Companies are free to design their own deposit schemes and most companies offer one of the following types:

• Monthly income deposits where interest is paid every month.
• Quarterly income deposits where interest is paid once in a quarter.
• Cumulative deposits where interest is accumulated and paid at the time of maturity.
• Recurring deposits similar to the recurring deposits of banks.
• Cash certificate schemes.

All Company deposits are unreserved. In other words, these deposits are not backed by any assets, specifically or generally charged.
Risk
There is no deposit insurance scheme with companies to protect as there is in the case of bank deposits up to Rs.1,00,000 per individual your deposit. If a company goes into liquidation the depositors as unsecured creditors of the company, rank only after secured lenders, like financial creditors of the company, institutions and banks.
This risk of default by a company is not a notional risk. There are several well-known companies, which have defaulted in repayment of deposits.
.

Notwithstanding the disadvantages discussed above, if you wish to invest the company deposits the following guidelines are suggested for your benefit:

COMPANIES YOU MUSTN’T INVEST IN
New companies which have yet to prove their financial and managerial expertise;
It is best to avoid private limited companies, and partnership firms. Such companies are under no obligation to publish their working results and it is therefore very difficult to judge their performance and ability to meet their obligations.
It is advised not to invest in:
1. Companies which offer interest higher than 15%
2. Companies which are not paying regular dividends to the shareholder
3. Companies whose Balance Sheet shows losses
4. Companies which are below investment grade (A or under) rating
5. Companies whose balance sheets show accumulated losses.
6. Companies with a poor liquidity position;
DO NOT RENEW YOUR DEPOSITS AUTOMATICALLY
Never renew your deposits automatically without first asking for a refund of the matured amounts. A timely refund establishes the credibility of the company in honoring its commitments.
CHECK CRISIL OR ICRA OR CARE RATING
Look for the CRISIL or ICRA or CARE rating. Invest only in highly rated companies
DIVERSITY YOUR DEPOSITS
Do not put all your money in any one company, no matter how sound it may be.

Bonds are fixed income securities for a fixed period of time.

1. Government of India Bonds
The Government of India (GOI) from time to time, issues bonds through RBI :
2. Fixed Rate Bonds
These Bonds carry fixed rate of interest which is declared at the time of issue and remains same till maturity.
3. Floating Rate Bonds
These Bonds carry interest rate which is linked to independent reference rates, independent index, commodities etc. and the rate is fixed for next period at the beginning of the period itself.
4. Deep Discount Bonds
This bond is issued at a discount to the face value. The face value is paid at the maturity. These bonds are also know as Zero coupon bonds or "Zeros".
5. Gilts
Fixed interest securities issued by the Government to raise money for public expenditure. In India these securities are issued by RBI on behalf of Govt. of India by auction process.
6. Corporate Debentures
The corporate debentures are issued by Indian companies, whether secured or unsecured, having maturity of 18 months and above. These are issued in certificate form and are transferable instruments.
7. Public Sector Bonds
These bonds are medium and long term obligations issued by public sector companies where the Government shareholding is 51% and more. Most of PSU bonds are in form of promissory notes transferable by endorsement and delivery. No stamp duty or transfer deed is required at the time of transfer of bonds transferable by endorsement.
8. Tax Saving Bonds
Tax saving bonds offer tax exemption under section 88.

The bonds will be held in Dematerialized form i.e. in ‘ Bond Ledger Account’. A certificate evidencing the investment held in the Bond ledger Account will be issued to the investor.

From the date of realization of Cheque / DD / Pay-Order or submission of Cash.

There are two options available:

1. Non – Cumulative Option, where interest is paid every half-yearly, on every 1st January and 1st July during the tenure of investment, or,
2. Cumulative option, where the payment is made at the end of the maturity date.
Interest can be credited directly to investor’s bank account by giving the ECS mandate.

A sole holder or a single surviving holder of the bonds can nominate one or more persons.

The bonds are not eligible as collateral for loans from banks, financial institutions and Non-banking Finance Companies.

Bonds are not transferable and cannot be tradable in the secondary market.
Checklist for applications:
1. Application form
2. Nomination form, if applicable
3. ECS Mandate form for direct credit of interest amount
4. Declarations forms, if any

It is the rate of interest which the issuer pays on the principal/paid up value of the Bond. It is fixed at the time of issuance of the bond.

Maturity is the point at which the term of investment ends and proceeds are paid out. Maturity Date is the date on which the Bond matures. Generally Bonds mature in a bullet form with a single repayment on single date. But some bonds have split or part redemptions with varying repayment dates.

It is average rate of return on bond if it is held to its maturity date and if all cash flows are reinvested at the same rate of interest.

It is the frequency of payment of interest on the bonds. It could be monthly, quarterly, semi annually, annual or cumulative at redemption.

The ease with which securities can be sold and converted into cash is called liquidity.

It is short term unsecured instrument issued by corporate bodies (both public and private) to meet short term requirement of working capital. Maturity varies between 3 months to one year. These can be issued to any individual, bank, company whether in India or abroad.

These instruments are issued by scheduled commercial banks excluding regional rural banks. These are unsecured, negotiable, promissory notes having maturity of 91 days to one year.

Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both.
In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer company can issue securities in the following manner:
      a.   100% of the net offer to the public through the book building route.
      b.   75% of the net offer to the public through the book building process and 25% through the fixed price portion.
      c.   Under the 90% scheme, this percentage would be 90 and 10 respectively.

Public constitutes of both Institutional and Non Institutional investors.
Institutional investors includes:
» Foreign institutional investors (FII’S)
» Mutual funds (MF’S)
» Public sector banks
» Private sector banks
» Domestics institutions (FI’S)
» OCB’s
» Corporates
» Non-Institutional includes:   Indian and NRI Investors

Nearly 1 month

Securities and Exchange Board Of India (SEBI) is the nodal authority for all capital market activities including public issues. All companies wishing to come out with an IPO has to file the draft offer document with SEBI through a merchant banker.

Judging the financial health and the expected cash flow of the company and together with various other factors, the merchant bankers and the issuer company decides the additional amount besides the face value. This additional amount is called the premium of the share.

The face value together with the premium is called the price of the share in a public issue.

Currency derivatives can be described as contracts between the sellers and buyers, whose values are to be derived from the underlying assets, the currency amounts. These are basically risk management tools in forex and money markets.
In the Indian Exchange traded currency futures, currently there is only trading Rupee- Dollar (INR- USD) currencies respectively. Other currencies will be brought in at the descretion of the regulator.

A currency forward contract that is standarised, exchange-traded and guranteed by the clearing corporation is called a currency futures. A large currecy market already exists. Currently, there is no options trading in the Currency segment on any exchange.

Send in an order to your broker member as you do with Capital markets futures trading.

It is exactly like a futures contract on derivative trading. A futures price F is traded on the screen. It pertains to the INR/USD exchange rate at a future date. If the spot price goes up, the futures buyer (the long) makes a profit at the expense of the futures seller (the short).
Give me an example.
Suppose we are standing on 1 August and suppose the INR/USD exchange rate is at Rs.44 a dollar. Suppose the futures price on the NSE screen is Rs. 45. The contract size is $1000. Think of this as a ‘market lot’. Suppose the contract expires on 31 August. The buyer of one futures contract makes a commitment to buy $1000 on 31 August at a price of Rs. 45 per dollar.
On 31 August, suppose the INR/USD exchange rate on the spot market is Rs. 43 a dollar. In this case, the buyer has made a loss of Rs. 2. Since the contract size is 1000, this means that the buyer pays Rs. 2000 to the seller.

Customers who wish to enter into a currency forward talk to bank. The bank quotes them a price. These contracts are bilateral contracts between two counterparties and therefore utilise credit limits. The credit rating of the client could impact the pricing they get from banks.The currency futures are as transparent and safe for customers as the NIFTY Futures Orders are matched by price time priority;customers can be sure they got best execution. All these features are lacking in the forward market, which is a non transparent OTC maket.

Data for the INR/USD exchange rate starts from 1 April 1993. It is a fairly low volatility product: the overall annualised volatility, from 9 April 1993 till 4 July 2008 was 4.36% per year.

When the numeric value of the INR/USD exchange rate goes up, this is a depreciation.conversely, when the numeric value of the exchange rate goes down, this is termed an appreciation because Indian consumers are able to buy foreign goods at a lower price measured in rupees.

No, most major exchange rates are considerably more volatile. The volatility of the Great Britian Pound (GBP) against the USD is 7.95% a year.

RBI trades extensively on the rupee-dollar market, aiming to reduce the movement of the rupee-dollar rate. If , as an extreme case, the volatility of the rupee-dollar rate were 0, then the rupee-yen volatility would be exactly the same as thatof the dollar-yen.

While the overall volatility is low at 4.36% per year, this volatility has not been fixed through time, and big movements do happen over short periods of time.
Big appreciations: In the 1% of weeks with a most extreme appreciation, an appreciation of more than 1.7% took place.
Big depreciations: In the 1% of weeks with a most extreme depreciation, a depreciation of more than 2% took place.
The frequency of these large changes is not what we would normally expect from a financial price with a volatility of 4.36% per year.

Does RBI make announcements about the date when the currency volatility changes? E.g. was there an announcement in March 2004 about an increase in volatility from 2% to 4.9%?
No.

RBI trades on both the currency forward and on the spot market. Daily data is not available. Monthly data is released, with a delay of two months. Intelligent guesswork can be done about RBI’s activities of the last two months, but there is no data.

Securities and Exchange Board of India (SEBI) is the regulatory body for the Indian Stock markets. SEBI has been established under Section 3 of SEBI Act to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

Composition
Some of the measures of SEBI

Composition
Chairman
Two members from amongst the officials of the Ministries of the Central Government dealing with Finance and Law
One member from amongst the officials of the Reserve Bank
Two other members appointed by the Central Government, who are professionals and interalia, have experience or special knowledge relating to the securities market.

Some of the measures include:
1. Regulating the business in stock exchanges and any other securities markets.
2. Registering and regulating the working of stockbrokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities market in any manner.
3. Registering and regulating the working of collective investment schemes, including mutual funds.
4. Promoting and regulating self-regulatory organizations.
5. Prohibiting fraudulent and unfair trade practices in securities market.

DP:
Dematerialisation (Demat) is the process by which a client can get physical certificates converted into electronic balances maintained in his account with the DP.

Features of Dematerialisation:

• Holdings in only those securities that are admitted for dematerialisation by National Securities Depository Ltd (NSDL) can be dematted.
• Structure of holding in the securities should match with the account structure of the depository account. Now shares in different order of names can also be dematted.

Only those holdings that are registered in the name of the account holder can be dematerialised. Physical shares which have not been transferred and are still there with a transfer deed cannot be dematted. Only a few companies have been given the permission to offer Transfer-cum-Demat. The list of these companies can be viewed in the ‘Scrips for Demat’ section.
Rematerialisation is the process by which a client can get his electronic holdings converted into physical certificates. The client has to submit the rematerialisation request to the DP with whom he has an account along with a Remat request form. The physical shares will be posted by the company directly to the clients.