Know the basics before taking your first step into the stock market world. View the presentation to learn more about the basic concepts of the share market such as dividends, stock split, auction, bonus, etc.
Learn the <a href="www.kotaksecurities.com/university/Equity1.html“ Title="Learn the basics of share market">basics of share market</a>,how to invest in Indian share market & various concepts involved in the stock market from the experts of India's largest stock broking firm - Kotak Securities. We also provide you the opportunity to stay updated with latest <a href="http://www.kotaksecurities.com/stock-market-news/mutual-fund/2010/mutual-fund-news/0" Title=Get the latest mutual fund news">mutual fund news</a> & share market happenings.
What are Dividends?
Simply put, dividends are profit sharing.
They are compensation for the investment made by the shareholder in the
Dividend is one very tangible benefit an investor enjoys because it is hard
cash in his hands.
Almost all investors prefer to receive some dividend as, it is a yearly
reminder that all is well with their money. They are not much concerned
about the exact extent by which the value of their investment has grown so
long as some growth is evident or rather a decline is not seen.
Finally, dividend is a way of letting us have our cake and eat it too. Not the
whole cake, just a piece out of it. The initial investment remains intact (it
even grows) and also gives us some money for enjoyment.
What is stock split?
A stock split is a decision by the company's board of directors to increase
the number of shares that are outstanding by issuing more shares to
The primary motive is to make shares seem more affordable to small
investors even though the underlying value of the company has not
changed. Thus a stock split is generally applied to shares considered
expensive in order to make them more attractive through the price which is
reduced due to the split.
The move is generally seen to improve the liquidity of the scrip as more
investors participate due to the smaller ticket size. It is also seen as a
sentiment booster since it expresses confidence on the part of the
management to distribute dividends on stock in the days to come.
What is share auction?
Auctions are conducted on the exchanges when, for some reason, shares
(physical or demat) are not delivered to the exchange on time.
Exchanges conduct auctions to penalize the party for defaulting on delivering
the shares on time, and thereby to protect the sanctity of settlements.
It is imperative that auctions are held so that pay-in and pay-out of shares take
place on time, in accordance with the settlement cycle of the respective
Why shares are auctioned?
Shares come under the hammer when they have been either delivered
short or found to be objectionable by the exchange. Based on the reasons
why shares qualify for auction, they have been categorized into two types:
A. Auction due to shortages
B. Auction due to objection
What are Bonus shares?
Share bonuses are an increase in the amount of shares of a company with the
new shares being given to shareholders.
For example, if a company was to issue a 5% share bonuses, it would increase the
amount of shares by 5% . If you owned 100 shares in the company, you'd receive
5 additional shares.
This, however, like the cash dividend, does not increase the value of the
What are Bonus shares?
The biggest benefit of share bonuses is that shareholders do not generally have to
pay taxes on the value of dividend.
Most share bonuses are in the 5% to 15% range.
Neither cash nor share bonuses changes the shareholder's net worth in the
Cash-rich firms favor cash dividends, while growing firms or firms seeking to
reduce their share prices may opt for share bonuses.
A share bonus is not taxable until sold. In contrast,
a cash dividend is always immediately taxable.
What is short selling?
Short-selling is the sale of shares that the seller does not own at the time of
It is a trading technique an investor uses to profit from the falling price of a
It is a tactic of selling a stock without owning it, with the view that the price is
likely to fall further and, hence, there is profit to be made by buying it back at a
It is considered a very risky technique as it involves precise timing and because
it goes against the overall direction of the market.
Supporters & critics of short selling
Supporters of short-selling, view the practice as a desirable and essential
feature of a securities market. They argue that in a weak market, short-covering
of positions taken at the beginning of a downturn, would arrest the declining
Critics of short-selling, on the other hand, are convinced that short-selling
poses potential risks and can easily destabilize the market directly or indirectly.
What are rolling settlements?
A rolling settlement implies that all trades have to settle by the end of the
Hence the entire transaction, where the buyer has to make payments for
securities purchased and seller has to deliver the securities sold, have to be
completed in a day.
In India, we have adopted the T+2 settlement cycle, which means that a
transaction entered into on Day 1 has to be settled on the Day 1 + 2
'T+2" here, refers to Today + 2 working days.
For instance, trades taking place on Tuesday are settled on Thursday.
What are Circuit filters & trading bands?
In order to check the volatility of shares, SEBI has come up with the
concept of Circuit Filters.
Under this, SEBI has specified the fixed price bands for different securities
within which they can move on a given day.
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