What are equities?
Stocks or Equities are also called shares in common parlance. When you invest in a company's stock or buy its shares, you own part of a company. As a stockholder, you share a portion of the profit or loss that a company may make.
These can be very easily bought or sold, and their value changes very fast. You can invest in shares for either short-term gains (trading) or long-term gains (by receiving dividend pay outs by the company who issued the shares) which is otherwise called value-investing.While on the subject on stocks, it is good to know about dividends.A dividend is a sum of money paid to the shareholders of a corporation out of its earnings. This is usually determined by a company's directors.
Why should I choose stocks as an investment option?
Owning a stock gives you ownership of a company. When you buy a stock of a company, you become a stake holder and if the company does well, you earn money in the process by participating in its growth. Owning stocks of fundamentally strong companies lets your money work harder for you since they appreciate in value over a period of time while also offering rich dividends on a periodic basis.
Types of market
The market is a body in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy. The market can be split into two main sections: the primary and secondary market. The primary market is where new issues are first offered, with any subsequent trading going on in the secondary market.
The primary market deals with the issuance of new securities. A Company enters into the Primary Markets to raise capital. They issue new securities in the Exchange for cash from an investor. If the company is issuing securities for the first time, these are referred to as Initial Public Offers (IPOs).
The secondary market is where an investor can buy or sell previously issued securities and financial instruments such as stocks, bonds, options, and futures. The transactions may take place at the prevailing market price or at a price agreeable to both the buyer and seller. These markets are regulated by Securities and Exchange Board of India (SEBI).
What is a Stock Exchange?
A Stock Exchange provides a platform to trade stocks and other securities. A stock may be bought or sold only if the company is listed on an exchange. Thus it is the meeting place of the stock buyers and sellers. The major stock exchanges in India are the National Stock Exchange (NSE) & the Bombay Stock Exchange. The exchanges are regulated by the Securities & Exchange Board of India (SEBI).
Benefits of Online Trading
An online trading account brings the benefits of online investing and can be rewarding if you have sufficient knowledge of the markets. First, it gives you the freedom to trade from any place, whether you are at home or office, or on the move. You can buy or sell stocks using an e-broking account if you have access to the Internet. You do not have to call your broker to place an order. Another advantage is the speed associated with investment using an online broking account. Let's assume that you are tracking a stock exchange's website during trading hours, and you find that the price of a particular stock has fallen to the level at which you wanted to buy it. If you use the traditional mode of broking, you will call up your broker and place an order. The process may take a while, and before your broker punches his order, the stock's price may rise. But if with your e-broking account you can place the order almost instantly.
Here are a few more benefits:
1.Streaming quotes that help you tract the latest market movements
2.Self-execution and instant confirmation without any time lag
3.Complete control over trading decisions
4.Access to your account and related information on the Web
5.Convenience of trading from home or your office
6.Facility to view the historical charts
Key Financial Rations
The ratio analysis technique helps you understand a company's financial strength. Cross-sectional analysis compares financial ratios of several companies from the same industry and enables you to deduce the success, failure or progress of any business. Thus, a financial ratio measures a company's performance in a specific area and guides your judgment regarding which company is a better investment option. Some of the important ratios that an investor must know are:
Price-Earnings Ratio (P-E ratio)
It is a ratio obtained by dividing the price of a share of stock by Earnings per share (EPS) for a 12-month period
EPS (Earnings Per Share)
EPS gives an indication of the profitability of a company. It is calculated using the formula:
Companies need a surplus supply of current assets in order to meet their current liabilities. They generally pay their interest payments and other short-term debts with current assets. If a company has only illiquid assets, it may not be able to make payments on their debts. It is a type of Liquidity ratio
What are Derivatives?
The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.
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 Derivative includes:
• 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
Advatages of Investing in Derivatives
• Derivatives can be used to meet a variety of needs.
• Derivatives can help you reduce the cost of an underlying asset that you have purchased.
• Derivatives can be used as arbitrage tools (buying low in one market and selling high in the other market) and protect your securities against fluctuations in prices.
• Derivatives can be used effectively for hedging risk.
What is an IPO?
IPO stands for Initial Public Offering. It is the new offer of shares from a company. An IPO offers those shares to the public, which were initially held by the promoters or the private investors.
A Follow on Public Offer, commonly known as FPO is one where the company is already listed and comes out with additional offer for sale.
If the company is large and has been earning well, an IPO is a good buy, because upon listing the price is expected to rise.
IPOs are still fraught with risk. Sometimes, even if a company is well-regarded, for many reasons, its listing may not perform well.
What is the difference between a retail bid and a non-institutional bid?
There are 2 types of IPO bids, retail & non-institutional.
The maximum amount that an investor can apply in the retail category is upto Rs. 1 Lakh. If an investor wishes to apply for above Rs. 1 Lakh, the bid would be considered in the non-institutional category.
What is a Mutual Fund?
A Mutual Fund is a pool of money collected from investors (individual and corporate) with common objectives which is invested in equity shares, Government securities, Bonds, Call money markets etc. The investment manager invests the money collected into assets that are defined by the stated objective of the scheme
Why should i choose to invest in a Mutual Fund?
For retail investors who do not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer an excellent investment alternative. Mentioned below are a few benefits of investing in Mutual Funds: Professional Investment Management A team of professional fund managers manage the investments on behalf of the investors. Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access Diversification Mutual funds diversify the risk of the investor by investing in a basket of assets Low Cost A mutual fund enables you to participate in a diversified portfolio for as low an amount as Rs.5000 . Transparency You can track the investments that have been made on your behalf to know the sectors/scrips into which your money has been invested.
What is NAV?
NAV is the net asset value of the scheme. Simply put it reflects what the unit held by an investor is worth at current market prices.
How do i invest money in Mutual Funds?
You may invest in Mutual Funds through RSL. Our relationship managers can help you in choosing a Mutual Fund that meets your needs.
Anti Money Laundering Process
In response to the international community’s growing concern about the problem of money laundering and potential terrorist financing, many countries around the world are enacting or strengthening their laws and regulations regarding this subject. Anti Money Laundering Act,2002 was passed by Indian Parliament in the year 2002 and the Act became effective from 1st July, 2005. The Act specifies statutory duties for Banking companies, Financial Institutions and Intermediaries. The compliance with these duties is intended to supplement the law enforcement authorities activities, to detect proceeds derived from serious crimes and help to effectively prevent money laundering, terrorist financing, and recycling of illegally obtained money. The purpose of this policy is to establish the general framework for the fight against money laundering, terrorism, financial crimes and corruption. Reliance Securities is committed to examining its Anti - Money Laundering strategies, goals and objectives on an ongoing basis and maintaining an effective Anti - Money Laundering program for its business that reflects the best practices for a diversified, retail financial services firm.
Background of the Anti Money Laundering Act, 2002 (AMLA)
GLOBAL FRAMEWORK In response to mounting concern over money laundering world wide the G-7 Summit held in Paris in 1989 established a policy making body, having secretariat at Organisation for Economic Co-operation and Development (OECD), which works to generate the necessary political will to bring about national legislative and regulatory reforms to combat money laundering and terrorist financing. The World Bank and the IMF have also established a collaborative framework with the FATF for conducting comprehensive AML/CFT assessments of countries’ compliance with the FATF 40+8 Recommendations, using a single global methodology. India has been accorded ‘Observer’ status OECD Fast Facts: Established: 1961 Membership: 30 countries Budget: EUR 303 million (‘09) Secretariat staff: 2500 Publications:250 new titles/yr INDIAN FRAMEWORK The Prevention of Money Laundering Act, 2002 came into effect from 1st July 2005 Necessary notifications/ rules under the said Act were published in the Gazette of India on 1st July 2005 by the Dept of Revenue, Ministry of Finance, Government of India Subsequently, SEBI issued necessary guidelines vide circular no. ISD/CIR/RR/AML/1/06 dated 18th January 2006 to all securities market intermediaries registered under section 12 of the SEBI Act, 1992 Guidelines were issued in the context of recommendations made by the Financial Action Task Force (FATF) on anti-money laundering standards. SEBI issued master circular ISD/AML/Cir-1/2008 on December 19,2008 consolidating all the requirements/ obligations issued with regard to AML/ CFT till December 15, 2008
What is an ETF?
Exchange-Traded Funds (ETFs) are similar to Mutual Funds, but in addition they can be traded on stock exchanges directly. They are suitable for investors who like the easy diversification (and hence risk mitigation) offered by MFs, but at the same time want a faster encashable instrument. The most traded ETFs are Nifty BeEs, Gold BeEs and Liquid BeEs.
What type of an account do I need to trade in ETFs?
• A trading account with a broker
• A Demat Account
How are ETF transactions settled?
Transactions are settled only in Demat account with T+2 rolling settlement.