Investment Environment & Securities Market

Unit 1
Investment Environment
& Securities Market
- By Prof. Suyog Chachad

Content
• 1.1 Introduction to Investments

• 1.2 Overview of Securities Market
• 1.3 Types of Securities and their Characteristics
• 1.4 Types of Trading Orders
• 1.5 Introduction to Security Analysis
1.1
INTRODUCTION
TO
INVESTMENTS
Investment
• What is Investment?
• The money you earn is partly spent and the rest saved for meeting future
expenses. Instead of keeping the savings idle you may like to use savings in
order to get return on it in the future. This is called Investment.
• Why should we invest?
• Earn return on your idle resources
• Generate a specified sum of money for a specific goal in life
• Make a provision for an uncertain future
Investment
• An investment is an asset or item that is purchased with the hope that it
will generate income or will appreciate in the future.
• In an economic sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth.
• In finance, an investment is a monetary asset purchased with the idea that
the asset will provide income in the future or will be sold at a higher price
for a profit. This includes the purchase of bonds, stocks or real
estate property.
• Additionally, the constructed building or other facility used to produce
goods can be seen as an investment.
Investment
• Characteristics • Objectives
• Return • Maximization of Return
• Risk • Minimisation of Risk
• Safety • Hedge against Inflation
• Liquidity
• Tax
Types of Investors
• Individual Investor
• Passive Investor
• Active Investor
• Institutional Investor
• Foreign Institutional Investors
• Domestic Institutional Investors
• Mutual Funds
• Investment Companies
• Banks & NBFC
• Insurance Companies
Investment Avenues
• Fixed Deposits & Recurring Deposits
• Provident Fund & Public Provident Fund
• Equity Shares
• Debt Instruments - Bonds & Debentures
• Mutual Fund Schemes (Equity, Debt, Hybrid, ETF, etc.)
• Money Market Instruments – Treasury Bills, Commercial Papers, Certificates of Deposits
• Govt. Investment Scheme - National Saving Certificates (NSC), Kisan Vikas Patra(KVP),
Sukanya Samridhi Yojana
• Life Insurance Traditional Investment Plan & Unit Linked Insurance Plan(ULIP)
• Pension Schemes – National Pension System, Atal Pension Yojana, Pension Plans of
Insurance Companies, etc.
• Real Estate & REITs
• Foreign / Crypto Currency, Rare Coins
• Art, Antique Goods, Artifacts, Rare Vintage Pieces,
• Precious Metals & Stones
Taxation on Investment Avenues
• Tax Saving - There are some deduction under section 80C, 80CCC, 80CCD,
80TTA for certain investments products.
• Maturity or withdrawal of investment may or may not be taxable. Taxes
applicable are as follows.
• Tax deducted at Source (TDS)
• Capital Gain Tax
• Short Term Capital Gain Tax (STCG Tax)
• Long Term Capital Gain Tax (LTCG Tax)
Products Deduction Period TDS or Taxable STCG TAX LTCG TAX
Income
Public Provident 80C 15 Years NA NA NA
Fund Upto 1.50 Lakh
Life Insurance 80C 5 – 40 Years If Maturity <10 NA NA
Investment Plan & Upto 1.50 Lakh years, then
ULIP taxable u/s
10(10(D))
Equity Oriented NA - NA Withdrawal < Withdrawal >
Mutual Funds 1Year,then 15% on 1Year,then 10% on
& Equity Shares Capital Gain Capital Gain ABOVE
Rs. 1 Lakh
ELSS 80C 3 years lock-in NA NA Withdrawal >
Upto 1.50 Lakh Period 1Year,then 10% on
Capital Gain ABOVE
Rs. 1 Lakh
Debt Oriented NA - - Withdrawal < 3 Withdrawal > 3 Year,
Mutual Funds Year, then then indexation will
taxation will be as be applied
per tax slab
Fixed Deposit 80C 7 days – 10 years Interest is fully NA NA

Regular & Tax Upto 1.50 Lakh & 5 Years for Tax taxable if annual
Saving FD Only for tax Saving FD interest crosses
saving FD Rs. 40,000/-
Products Deduction Period TDS or Taxable STCG TAX LTCG TAX
Income
Recurring NA 6 M -10 Year Interest is fully NA NA

Deposits taxable if annual
interest crosses
Rs. 40,000/-
National Saving 80C 5 years NA NA NA
Certificate Upto 1.50 Lakh
(NSC)
KISAN VIKAS NA Max. 124 Months Interest is fully NA NA
PATRA (KVP) & Lock in Period taxable
30 Months
Other Pension 80C Upto Age of 60 1/3 rd pension NA NA
Fund Upto 1.50 Lakh Years amount is tax
exempted. Rest is
converted into
annuities which is
taxable
National Pension 80CCD Upto Age of 60 40%pension NA NA
System Upto Rs. 50,000/- Years amount is tax
exempted. Rest is
converted into
annuities which is
taxable
Investment V/S Speculation v/s Gambling
Investor Speculator Gambler
Type of Person Conservative, Aggressive, Hedge Lottery Player,
Institutions, Most Funds Casino Visitors
Money Managers
Analysis Fundamental Technical Analysis, Luck, Gut,

Analysis & Gut Feeling & Probabilities
Valuations Experience
Risk Low to Medium Medium to High High to Very High

Holding Period Months to Decades Minutes to Months Quick
Avenues / Vehicles Bonds, Stocks, Bonds, Stocks, Lottery, Casino,
Real Estate, Real Estate, Race Track,
Currencies, Currencies, Playing Card
Commodities, etc. Commodities, etc. Games, etc.
1.2
OVERVIEW
OF
SECURITIES
MARKET
Securities Market
• The Securities Market refers to the markets for those financial instruments/
claims/ obligations that are commonly and readily transferable by sale.
• In other words, Securities Markets is a place where buyers and sellers of
securities can enter into transactions to purchase and sell shares, bonds,
debentures etc.
• E.g. Equity Shares, Bonds & Debentures, Derivatives
• It performs an important role of enabling corporates, entrepreneurs to raise
resources/funds for their companies and business ventures through public issues.
• It provide channels for reallocation of savings to investments and
entrepreneurship.
• The Securities Market has two interdependent and inseparable segments,
• New Issue Market/ Primary Market
• Secondary Market
• Regulator: SEBI
Primary Market
• Market for issuing and distributing the new securities to saver-lenders.
• Merchant Bankers & Investment Banks - Information and marketing specialists for newly
issued securities.
• The issuer of securities sells the securities in the primary market to raise funds for
investment and/or to discharge some obligation acting as borrower.
• Types of Issues:
• Public Issue
• Initial Public Offering (IPO) – Fresh Issue &/or Offer for Sale
• Further Public Offering (FPO) – Fresh Issue &/or Offer for Sale
• Rights Issue (Made to Existing Shareholders)
• Bonus Issue (Made to Existing Shareholders)
• Private Placement
• Preferential Issue (Made to selected Investors)
• Qualified Institutional Placement (QIP) (Made to Qualified Institutional Buyers (QIB))
• Fixed Price Issue v/s Book-Building Process Issue
• ASBA – Application Supported by Blocked Amount
Secondary Market
• Secondary Market refers to the Network or System for the subsequent sale and
purchase of securities.
• The secondary market enables those who hold securities to adjust their holdings in
response to charges in their assessment of risk and return & sometimes to meet their
liquidity needs.
• Market where existing securities can be exchanged
• Exchanges
• National Stock Exchange (NSE) (Founded in 1992)
• Bombay Stock Exchange (BSE) (Founded in 1875)
• Over-the-counter (OTC) markets

• Over-the-counter Exchange of India (OTCEI)
• The OTCEI is no longer a functional exchange as the same has been de-recognised by SEBI vide
its order dated 31 Mar 2015.
• E.g. Equity Market, Debt Market, F & O Market, Commodity Market

1.3
TYPES
OF
SECURITIES
Types of Securities
• Shares
• Ordinary Equity Shares
• Preference Shares (Hybrid of Bonds & Equity Shares), etc.
• Redeemable / Irredeemable, Convertible / Non-Convertible, Participating / Non-Participating, Cumulative /
non-Cumulative
• No Voting Shares / Differential Voting Rights (DVR) Shares
• ESOP v/s Sweat Shares
• Grey Market Shares
• Debt Instruments
• Money Market Instruments
• Treasury Bills, Certificates of Deposits, Commercial Papers, etc.
• Bonds & Debentures
• Government Securities, Savings Bonds, Corporate Bonds & Debentures, Public Sector Undertaking Bonds,
• Mutual Funds
• Equity Mutual Funds, Debt Mutual Funds, Hybrid Mutual Funds & Solution Oriented Schemes.
• Derivatives
• Types - Futures, Options
• Segments - Equity Shares, Indices
1.4
TYPES OF
TRADING
ORDERS
D-mat & Trading A/c
• De-Mat A/c
• Hold Securities like Shares, ETF, Mutual Fund, etc.
• Annual Maintenance Fees applicable
• Trading A/c
• Helps for transactions in Securities
• Buy our Sell
• Brokerage applicable
• Rolling Settlement
• T – Today or 1st day or Day of Trading
• T+1 – 2nd Day or Delivery Confirmation Day(Buy or Sell)
• T+2 – 3rd Day or Pay-In & Pay-Out Day
Types of Trading Orders
• Regular
• Holding Period
• Intraday(Margin Intraday Square-off - MIS) v/s Cash/Delivery/Cash-N-Carry (CNC) v/s
Overnight (Normal – Carry till Expiry)
• Entry – Exit (Buy/Sell)
• Limit Order v/s Market Order v/s Stop-Loss Orders – SL v/s SL-M
• Validity
• Day Order v/s IOC (Immediate or Cancelled) v/s VTD/VTM Valid Till Day or Minutes
• VTT (Valid Till Triggered) v/s GTT (Good Till Triggered)
• Miscellaneous Orders
• Cover Order(Add SL - Only intraday)
• Bracket Order (Add SL & Target – Only Intraday)
• AMO – After Market Order
• Iceberg
• Margin Trading & Impact Cost
1.5
INTRODUCTION
TO
SECURITY
ANALYSIS
Security Analysis
• Security analysis is the evaluation of a particular trading instrument, an investment
sector, or the market as a whole.
• It attempt to determine the future activity of an instrument, sector, or market.
• It is broadly classified into two Categories:
• Fundamental Analysis
• To arrive at a fair value of a company by evaluating all aspects of the business, along with the industry,
the market as a whole, and the domestic and global environment.
• Fundamental analysis concentrates on data from sources, including financial records, economic
reports, company assets, and market share.
• To conduct fundamental analysis on a public company or sector, investors and analysts typically
analyze the metrics on a company’s financial statements – balance sheet, income statement, cash
flow statement, and footnotes
• Technical Analysis
• Technical analysis focuses on the study of past and present price action to predict the probability
of future price movements.
• Technical analysts analyze the financial market as a whole and are primarily concerned with price
and volume, as well as the demand and supply factors that move the market.
• Charts are a key tool for technical analysts as they show a graphical illustration of a stock’s trend
with in a stated time period.

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Unit 1

- By Prof. Suyog Chachad

• 1.1 Introduction to Investments

Fixed Deposit 80C 7 days – 10 years Interest is fully NA NA

Recurring NA 6 M -10 Year Interest is fully NA NA

Analysis Fundamental Technical Analysis, Luck, Gut,

Risk Low to Medium Medium to High High to Very High

• Over-the-counter (OTC) markets

• E.g. Equity Market, Debt Market, F & O Market, Commodity Market

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