Investment and the Necessity of Investment
• The income you generate is partially utilized, while the
remainder is reserved for future expenditures. Rather than allowing your
savings to remain inactive, you might consider employing them to yield returns
in the future. This process is referred to as Investment.
• It is essential to invest in order to
1. generate returns on your dormant resources
2. accumulate a designated amount of money for a particular
objective in life
3. prepare for an unpredictable future
When to Commence Investing
• The earlier one begins investing, the more advantageous it
is. By initiating investments at an early stage, you provide your investments
with additional time to appreciate, thereby enhancing your income through the
accumulation of both the principal and the interest or dividends earned over
the years.
• The three fundamental principles for all investors are:
1. Begin investing early
2. Invest consistently
3. Focus on long-term investments rather than short-term
ones
Where to Allocate Investments
• One can invest in:
1. Tangible assets such as real estate, gold or jewelry,
commodities, etc.
2. Financial assets including fixed deposits with banks,
small savings instruments at post offices, insurance, provident, or pension
funds, as well as securities market-related instruments like shares, bonds, and
debentures.
Short and Long-Term Investment Options
• Short Term:
1. Savings Bank Account
2. Money Market or Liquid Funds
3. Fixed Deposits with Banks
• Long Term:
1. Post Office Savings
2. Public Provident Fund
3. Bonds
4. Mutual Funds
Before making an investment in a market
• It is prudent to familiarize oneself with the fundamentals
of the Stock Market prior to investing. We have gathered articles and tutorials
that cover the Basics of the Share Market. Additionally, this includes
explanations of Stock Market terminology and jargon commonly used by
individuals engaged in trading stocks and shares. Whether it pertains to the
Bombay Stock Exchange (BSE), National Stock Exchange (NSE), London Stock
Exchange (LSE), or New York Stock Exchange (NYSE), the trading terms are generally
similar.
Why Engage in Stock Market Trading
• 1. Unlike purchasing real estate and incurring a monthly
mortgage, you do not require a substantial amount of capital to begin earning
money.
• 2. Trading demands very little time compared to
establishing a traditional business.
• 3. It provides 'fast' cash and facilitates quick
liquidation (you can easily convert it to cash, unlike the process of selling a
property or a business).
• 4. Learning how to profit from the stock market is
relatively straightforward.
However, it is essential to have a solid understanding of
the basics. Failing to do so will result in wasted time and financial losses.
You must have a clear comprehension of every aspect of Investments, stock
options, Stock Trading, Companies, Shares, Dividends & Types of Shares,
Debentures, Securities, Mutual Funds, IPOs, Futures & Options, and the
components of the Share Market. This includes Exchanges, Indices, SEBI, Stock
Analysis – How to determine what to purchase?, Trading Terms (Limit Order, Stop
Loss, Put, Call, Booking Profit & Loss, Short & Long), and Trading
Options – Brokerage Houses, among others.
Stock Market Framework
• Primary market
• The stock market functions as a secondary market
• Trading stocks for listed corporations
• The progressive evolution of the stock market
Primary Market
• The
primary market serves as the platform for the sale of new securities. It offers
issuers, including both government and corporate entities, the opportunity to
raise funds to fulfill their investment needs and/or to meet certain
obligations.
• Securities
can be issued at face value, or at a discount or premium, and may take various
forms such as equity or debt. These securities can be issued in either the
domestic or international markets.
Why Companies need to issue shares to Public
• Typically,
most companies are established privately by their promoters. However, the
capital provided by the promoters, along with loans from banks and financial
institutions, may not suffice for the long-term establishment or operation of
the business. Consequently, companies seek public participation by inviting
contributions to their equity and issuing shares to individual investors.
• The
method of soliciting share capital from the public is through a 'Public Issue'.
In simple terms, a public issue represents an offer to the public to subscribe
to the share capital of a company. Once this process is completed, the company
allocates shares to the applicants in accordance with the rules and regulations
set forth by SEBI.
Secondary Market
• The
secondary market is defined as a marketplace where securities are traded after
their initial offering to the public in the primary market and/or after being
listed on the Stock Exchange. The majority of trading activity occurs in the
secondary market, which includes both equity and debt markets.
• The
distinction between the Primary and Secondary Markets is as follows:
In the
Primary Market, securities are made available to the public for subscription
with the aim of raising capital or funds.
The
Secondary Market serves as a trading venue for existing or pre-issued
securities among investors.
Equity Investment
• When you purchase a share of a company, you become a
shareholder in that entity. Shares are commonly referred to as Equities.
Equities possess the potential to appreciate in value over time. They also
contribute to the growth of your portfolio, which is essential for achieving
your long-term investment objectives. Research studies have demonstrated that
equities have outperformed most other investment types in the long run.
• Equities are regarded as the most challenging yet
rewarding compared to other investment alternatives.
• Research studies have shown that investments in certain
shares with a longer investment horizon have produced significantly higher
returns than any other investment.
• However, this does not imply that all equity investments
will guarantee similarly high returns. Equities are considered high-risk
investments, and one must analyze them thoroughly before committing funds.
Types of investors
• Speculators
• Hedgers
• Arbitragers
Important Jargons
o BSE Sensitive Index or SENSEX
o Bull Market
o Bear Market
o Delivery
o Intraday
o Dematerialization
o Long Buy
o Short Selling
o Stop Loss
o Portfolio
o Tick Size
o Averaging
o Booking Profit or Loss
o Crash - Curciuts
o Right Issue
o Stock bonus
o Stock Split
Jargons
SNP CNX NIFTY 50
Nifty CNX 100
Nifty Junior
Future Index
Future Contract
Margin
Premium
Discount
Market lot
Roll over
Options Call
Put
Long Positions
Short positions
Expiry