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[TYPE THE COMPANY NAME]

INVESTMENT IN MUTUAL FUNDS AND
SHARES –PROS AND CONS
FINANCIAL MANAGEMENT
TO, PRATIMA TRIVEDI
12/...
TABLE OF CONTENTS
Table of Contents
ACKNOWLEDGEMENT .........................................................................
1.

INTRODUCTION ............................................................................................................
TABLE OF TABLE
Table 1.......................................................................................................
ACKNOWLEDGEMENT
We would like to express our special thanks of
gratitude to my Mam’m PRATIMA TRIVEDIwho
gave us the golden...
A.
I.

MUTUAL FUNDS

INTRODUCTION

Mutual funds are investment vehicles that pool money from many different
investors to i...
&Exchange Board of India (SEBI), which are the market regulator and also the
regulator for mutual funds.
Not everyone can ...
Besides, the Indian Mutual fund industry that started with traditional products like
equity fund, debt fund and balanced f...
Figure 2

Figure 3
The investor-wise pattern of asset-holding as well as investors accounts reveals
that individual invest...
investors in the age group 18-59 years are not aware of mutual funds or of
investing in mutual funds through Systematic In...
offered attractive tax adjusted rates of return. Mutual funds mobilized huge amount
of resources under liquid/money market...
The data reveals that the increase in revenue and profitability of the Mutual fund
industry has not been commensurate with...
As a temporary measure, banks were allowed to avail of additional liquidity
support exclusively for the purpose of meeting...
their careers to helping investors receive the best risk-return trade-off according to
their objectives.

 Liquidity.
Mut...
VIII.

DISADVANTAGES OF MUTUAL FUNDS

Although mutual funds can be beneficial in many ways, they are not for everyone.

 ...
 Cash Drag.
Mutual funds need to maintain assets in cash to satisfy investor redemptions and to
maintain liquidity for pu...
 SCHEME: SBI DYNAMIC BOND FUND (G)
Fund returns v/s Category average (Debt Long Term)

Figure 8

 ICICI Prudential Equit...
B.

INVESTMENT IN SHARES

1. INTRODUCTION
A unit of ownership that represents an equal proportion of a company's capital. ...
performance of the company, a unit of it now costs about N 48.oo This
implies that there is about 700% increment in the va...
-6.20%

-8.52%

-9.72%

34.32%

5.66%

17.97%

10.85%

HDFC Bank

694.00
-1.69%

630.65
8.19%

683.00
-0.10%

616.30
10.71...
Infrastructure
Table 3
BHEL

241.05
-28.92%

203.10
-15.63%

192.20
-10.85%

141.55
21.05%

140.45
22.00%

137.15
24.94%

...
5. REWINDING BACK TO THE STOCK MARKET
TRADING HISTORY OF INDIA
In the earlier days, stockbrokers kept scouting for 'natura...
7. POLICIES FOR SHARE MARKET
 Introduction to SEBI
The Government of India established the Securities and Exchange Board ...
o MID-CAP STOCKS
Mid-cap stocks are typically stocks of medium-sized companies. These are stocks
of well-known companies, ...
REFERENCES
www.moneycontrol.com
www.wikipeadia.com
www.rbi.com
www.moneycrashers.com

F.M

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Transcript of "Investment in shares and mutual fund"

  1. 1. [TYPE THE COMPANY NAME] INVESTMENT IN MUTUAL FUNDS AND SHARES –PROS AND CONS FINANCIAL MANAGEMENT TO, PRATIMA TRIVEDI 12/9/2013 REPORT BYPARITOSH SINGH FS35 PRAKRITI FS40 PANKAJ KUMAR SINGH FS34 ROMANSHU VARSHNEY FS64 RAJNEESH SHARMA FS44
  2. 2. TABLE OF CONTENTS Table of Contents ACKNOWLEDGEMENT ................................................................................................................................... 4 MUTUAL FUNDS ............................................................................................................................... 5 A. I. INTRODUCTION ............................................................................................................................ 5 II. ROLE OF MUTUAL FUNDS IN THE FLNANCIAI, MARKET ................................................... 5 III. MUTUAL FUNDS: STRUCTURE IN INDIA............................................................................. 5 IV. GROWTH IN MUTUAL FUND INDUSTRY ............................................................................. 6 IMPACT OF THE GLOBAL FINANCIAL CRISIS ...................................................................... 11 V. VI. GOVERNMENT POLICIES ...................................................................................................... 11 VII. ADVANTAGES OF MUTUAL FUNDS ................................................................................... 12  Diversification............................................................................................................................. 12  Expert Management. ................................................................................................................... 12  Liquidity. ..................................................................................................................................... 13  Convenience. ............................................................................................................................... 13  Reinvestment of Income. ............................................................................................................ 13  Range of Investment Options and Objectives. ............................................................................ 13  Affordability. .............................................................................................................................. 13 VIII. DISADVANTAGES OF MUTUAL FUNDS............................................................................. 14  No Control Over Portfolio. ......................................................................................................... 14  Capital Gains. .............................................................................................................................. 14  Fees and Expenses. ..................................................................................................................... 14  Over-diversification. ................................................................................................................... 14  Cash Drag.................................................................................................................................... 15 IX. SOME TOP MUTUAL FUND OF INDIAN MARKET ............................................................ 15  SCHEME: ICICI Prudential Focused Blue chip Equity Fund (G).............................................. 15  SCHEME: BIRLA SL INDIA GENNEXT (G) .......................................................................... 15  SCHEME: SBI DYNAMIC BOND FUND (G) ......................................................................... 16  ICICI Prudential Equity - Volatility Advantage Fund ................................................................ 16 B. F.M INVESTMENT IN SHARES.............................................................................................................. 17 Page 1
  3. 3. 1. INTRODUCTION .......................................................................................................................... 17 2. ADVANTAGES OF INVESTING IN SHARES ........................................................................... 17 i. Inflation Rate: ............................................................................................................................. 17 ii. Protected From The Eyes Of The Public: ................................................................................... 17 iii. Growth Rate: ........................................................................................................................... 17 iv. Dividend:................................................................................................................................. 17 v. Bonus Issues: .............................................................................................................................. 17 vi. Capital Appreciation: .............................................................................................................. 17 DISADVANTAGES OF INVESTING IN SHARES ..................................................................... 18 3. a. Crash In Share Prices: ................................................................................................................. 18 b. Liquidation: ................................................................................................................................. 18 c. Fraudulent Stock Brokers: .......................................................................................................... 18 EXAMPLES OF SHARES TRADED ON NSE ............................................................................. 18 4. Various sectors in Indian Stock Market and their performance .......................................................... 18 5. REWINDING BACK TO THE STOCK MARKET TRADING HISTORY OF INDIA ............... 21 6. STOCK MARKET MILESTONES ................................................................................................ 21 7. POLICIES FOR SHARE MARKET .............................................................................................. 22   Objectives of the Board were identified as: ................................................................................ 22  Different categories of share market ........................................................................................... 22  F.M Introduction to SEBI ................................................................................................................... 22 How can you qualify the market as bull or bear?........................................................................ 23 Page 2
  4. 4. TABLE OF TABLE Table 1......................................................................................................................................................... 18 Table 2......................................................................................................................................................... 19 Table 3......................................................................................................................................................... 20 Table 4......................................................................................................................................................... 20 Table 5......................................................................................................................................................... 20 TABLE OF FIGURE Figure 1 ......................................................................................................................................................... 7 Figure 2 ......................................................................................................................................................... 8 Figure 3 ......................................................................................................................................................... 8 Figure 4 ......................................................................................................................................................... 9 Figure 5 ....................................................................................................................................................... 10 Figure 6 ....................................................................................................................................................... 15 Figure 7 ....................................................................................................................................................... 15 Figure 8 ....................................................................................................................................................... 16 Figure 9 ....................................................................................................................................................... 16 F.M Page 3
  5. 5. ACKNOWLEDGEMENT We would like to express our special thanks of gratitude to my Mam’m PRATIMA TRIVEDIwho gave us the golden opportunity to do this wonderful project on the topic “INVESTMENT IN MUTUAL FUNDS AND SHARES-PROS AND CONS ”which also helped us in doing a lot of research and we come to know about so many new things. I am really thankful to you. We are making this project not only for marks but also to increase our knowledge … Thanking you. F.M Page 4
  6. 6. A. I. MUTUAL FUNDS INTRODUCTION Mutual funds are investment vehicles that pool money from many different investors to increase their buying power and diversify their holdings. This allows investors to add a substantial number of securities to their portfolio for a much lower price than purchasing each security individually. A mutual fund is set up in the form of a trust that has a Sponsor, Trustees, Asset Management Company (AMC). The trust is established by a sponsor(s) who is like a promoter of a company and the said Trust is registered with Securities and Exchange Board of India (SEBI) as a Mutual Fund. The Trustees of the mutual fund hold its property for the benefit of unit holders. An Asset Management Company (AMC) approved by SEBI manages the fund by making investments in various types of securities. The trustees are vested with the power of superintendence and direction over the AMC. They monitor the performance and compliance of SEBI regulations by the mutual fund. The trustees are vested with the general power of superintendence and direction over AMC. They manage the performance and compliance of SEBI Regulations by the mutual fund. II. ROLE OF MUTUAL FUNDS IN THE FLNANCIAI, MARKET The Indian financial institutions have played a dominant role in assets formation and intermediation contributed substantially in macroeconomic of country. In this process, Indian mutual funds have emerged as strong financial intermediaries and are playing a very important role in bringing stability to the financial system and efficiency to resource allocation Mutual funds have opened new vistas to investors and imparted much-needed liquidity to the system. III. MUTUAL FUNDS: STRUCTURE IN INDIA Mutual Funds in India follow a 3-tier structure. There is a Sponsor (the First tier), who thinks of starting a mutual fund. The Sponsor approaches the Securities F.M Page 5
  7. 7. &Exchange Board of India (SEBI), which are the market regulator and also the regulator for mutual funds. Not everyone can start a mutual fund. SEBI checks whether the person is ofintegrity, whether he has enough experience in the financial sector, his net worth etc. Once SEBI is convinced, the sponsor creates a Public Trust (the Second tier) as per the Indian Trusts Act, 1882. Trusts have no legal identity in India and cannot enter into contracts, hence the Trustees are the people authorized to act on behalf of the Trust. Contracts are entered into in the name of the Trustees. Once the Trust is created, it is registered with SEBI after which this trust is known as the mutual fund. IV. GROWTH IN MUTUAL FUND INDUSTRY The Indian Mutual fund industry has witnessed considerable growth since its inception in 1963. The assets under management (AUM) have surged to Rs 4,173 bn in Mar-09 from just Rs. 250 mn in Mar-65. In a span of 10 years (from 1999 to 2009), the industry has registered a CAGR of 22.3%, albeit encompassing some shortfalls in AUM due to business cycles. The impressive growth in the Indian Mutual fund industry in recent years can largely be attributed to various factors such as rising household savings, comprehensive regulatory framework, favorable tax policies, introduction of several new products, investor education campaign and role of distributors. In the last few years, household’s income levels have grown significantly, leading to commensurate increase in household’s savings. Household financial savings (at current prices) registered growth rate of around 17.4% on an average during the period FY04-FY08 as against 11.8% on an average during the period FY99-FY03. The considerable rise in household’s financial savings, point towards the huge market potential of the Mutual fund industry in India. Besides, SEBI has introduced various regulatory measures in order to protect the interest of small investors that augurs well for the long term growth of the industry. The tax benefits allowed on mutual fund schemes (for example investment made in Equity Linked Saving Scheme (ELSS) is qualified for tax deductions under section 80C of the Income Tax Act) also have helped mutual funds to evolve as the preferred form of investment among the salaried income earners. F.M Page 6
  8. 8. Besides, the Indian Mutual fund industry that started with traditional products like equity fund, debt fund and balanced fund has significantly expanded its product portfolio. Today, the industry has introduced an array of products such as liquid/money market funds, sector-specific funds, index funds, gilt funds, capital protection oriented schemes, special category funds, insurance linked funds, exchange traded funds, etc. It also has introduced Gold ETF fund in 2007 with an aim to allow mutual funds to invest in gold or gold related instruments. Further, the industry has launched special schemes to invest in foreign securities. The wide variety of schemes offered by the Indian Mutual fund industry provides multiple options of investment to common man. With a strong growth in the AUM of domestic Mutual fund industry, the ratio of AUM to GDP increased gradually from 4.7% in 2001 to 8.5% in 2009. The share of mutual funds in households’ financial savings also witnessed a substantial increase to 7.7% in 2008 as against 1.3% in 2001. Figure 1 F.M Page 7
  9. 9. Figure 2 Figure 3 The investor-wise pattern of asset-holding as well as investors accounts reveals that individual investors account for almost 96.75% of total investors account and contribute Rs 1552.8 bn which is 37.0% of the total net assets as on March 31, 2009. The comparatively lower share of net assets of individual investors in total net assets is mainly because of lower penetration of mutual fund as an investment instrument among working population (age group 18-59 years). A majority of F.M Page 8
  10. 10. investors in the age group 18-59 years are not aware of mutual funds or of investing in mutual funds through Systematic Investment Plan (SIP). However, take up of mutual fund as an investment opportunity by individual investors, particularly in Tier 2 and Tier 3 towns, is expected to increase in the near future. Corporate/institutions sector on the other hand, though account for only 1.2% of the total number of investors’ accounts in Mutual funds industry contributes as much as 56.3% to the total net assets of the industry as on March 31, 2009. Despite a rise in net FII inflows in the domestic mutual funds, FIIs constitute a very small percentage of investors’ accounts (0.0003%) and contribute Rs 49.83 bn to the total net assets (1% of total net assets of the Indian Mutual fund industry as on March 31, 2009). Figure 4 The net resource mobilization of domestic mutual funds which registered strong growth in FY2000 due to the tax incentives announced in the Union Budget for FY2000, witnessed a sharp decline in FY01. The decline in resource mobilization in FY01 was primarily due to the bearish trend in the domestic stock markets and problems in UTI. The resource mobilization continued to remain at low level up to FY05. In FY05 resource mobilization by mutual funds declined by almost 95.3% on account of redemption pressures on income, gilt and equity-linked saving schemes subsequent to shift of resources in favor of small saving schemes that F.M Page 9
  11. 11. offered attractive tax adjusted rates of return. Mutual funds mobilized huge amount of resources under liquid/money market schemes & growth/equity oriented schemes, while resource mobilization under debt schemes experienced sharp fall due to change in interest rate scenario. While, the resource mobilization by mutual funds witnessed strong growth during FY06-FY07 and in the period Apr-Aug 07 due to buoyant capital market conditions, the eruption of sub-prime mortgage crisis during Sep-07 and consequent volatility witnessed in the domestic stock markets led to decline in resource mobilization. The net resource mobilization of mutual funds turned negative as there was a net outflow of Rs 282.97 bn during FY09 as against a net inflow of Rs 1,538.01 bn during FY08. The uncertain conditions in stock markets coupled with redemption pressures from banks and corporates amidst tight liquidity conditions resulted in significant outflows during the months of Jun-08 (Rs 392.3 bn), Sep-08 (Rs 456.5 bn) and Oct-08 (458 bn). This led the RBI to announce various liquidity augmentation measures to provide liquidity support to mutual funds through banks. With the easing of overall liquidity conditions, net resource mobilization by mutual funds again turned positive between the periods Dec-08 to Feb-09. Further, with liquidity conditions remaining comfortable and stock markets registering strong gains, the net resource mobilization by mutual funds grew considerably during the first quarter of FY10. Figure 5 F.M Page 10
  12. 12. The data reveals that the increase in revenue and profitability of the Mutual fund industry has not been commensurate with the AUM growth in past few years. The increased expenditure on marketing, distribution and administration exerted upward pressure on the operating expenses, thereby impacting AMC’s margins. The operating expenses as a percentage of AUM rose from 41 basis points in FY04 to 113 basis points in FY08. V. IMPACT OF THE GLOBAL FINANCIAL CRISIS Deepening of the global financial crisis during September 2008, which resulted in liquidity crunch world-over, had dampening impact of the Indian Mutual fund industry. With the drying up of credit inflows from banks and external commercial borrowings route, mutual funds witnessed redemption pressure from corporates. Although the mutual funds promised immediate redemption, their assets were relatively illiquid. Besides, mutual funds faced problems such as maturity mismatches between assets & liabilities of mutual funds, shift from mutual funds to bank deposits in view of the comparatively higher interest rates being offered by banks and freezing up of money markets due to lack of buyers for assets like certificates of deposits of private sector banks. During Apr-Sep 08, net mobilization of funds by mutual funds declined sharply by 97.7% to Rs 24.8 bn due to uncertain conditions prevailing in the domestic stock markets. The redemption pressures witnessed by mutual funds led to net outflows under both the income/debt-oriented schemes and growth/equity-oriented schemes. Further, the AUM of Mutual fund industry contracted by 20.7% from Rs 5,445.4 bn as on August 31, 2008 to Rs 4,319.0 bn as on October 31, 2008. During the same period, liquid and debt schemes which contribute more than 65% to the total AUM witnessed a decline of 19% in AUM. VI. GOVERNMENT POLICIES The RBI decided to conduct a special 14 day repo at 9% per annum for a notified amount of Rs 200 bn from October 14, 2008 with a view to enable banks to meet the liquidity requirements of mutual funds. Scheduled Commercial Banks (SCBs) and All India term lending and refinancing institutions were allowed to lend against and buy back CDs held by mutual funds for a period of 15 days. F.M Page 11
  13. 13. As a temporary measure, banks were allowed to avail of additional liquidity support exclusively for the purpose of meeting the liquidity requirements of mutual funds to the extent of up to 0.5% of their net demand and time liabilities (NDTL). Accordingly on November 1, 2008, it was decided to extend this facility and allow banks to avail liquidity support under the LAF through relaxation in the maintenance of SLR to the extent of up to 1.5% of their NDTL. This relaxation in SLR was provided for the purpose of meeting the funding requirements of NBFCs and mutual funds. The borrowing limit prescribed in Regulation 44(2) of SEBI (Mutual Fund) Regulations, 1996 was enhanced from 20% of net asset of the scheme to 40% of net asset of the scheme to those mutual funds who approached SEBI. This enhanced borrowing limit was made available for a period of six months and could be utilized for the purpose of redemptions/ repurchase of units. In order to moderate the exit from close ended debt schemes and in the interest of those investors who choose to remain till maturity and with a view to ensure that the value of debt securities reflects the current market scenario in calculation of NAV, the discretion given to mutual funds to mark up/ mark down the benchmark yields for debt instruments of more than 182 days maturity was enhanced from 150 basis points to 650 basis points. VII. ADVANTAGES OF MUTUAL FUNDS  Diversification. Mutual funds spread their holdings across a number of different investment vehicles, which reduces the effect any single security or class of securities will have on the overall portfolio. Because mutual funds can contain hundreds or thousands of securities, investors aren’t likely to be fazed if one of the securities doesn’t do well.  Expert Management. Many investors lack the financial know-how to manage their own portfolio. However, non-index mutual funds are managed by professionals who dedicate F.M Page 12
  14. 14. their careers to helping investors receive the best risk-return trade-off according to their objectives.  Liquidity. Mutual funds, unlike some of the individual investments they may hold, can be traded daily. Though not as liquid as stocks, which can be traded intraday, buy and sell orders are filled after market close.  Convenience. If you were investing on your own, you would ideally spend time researching securities. You’d also have to purchase a huge range of securities to acquire holdings comparable to most mutual funds. Then, you’d have to monitor all those securities. Choosing a mutual fund is ideal for people who don’t have the time to micromanage their portfolios.  Reinvestment of Income. Another benefit of mutual funds is that they allow you to reinvest your dividends and interest in additional fund shares. In effect, this allows you to take advantage of the opportunity to grow your portfolio without paying regular transaction fees for purchasing additional mutual fund shares.  Range of Investment Options and Objectives. There are funds for the highly aggressive investor, the risk averse, and the middleof-the-road investor – for example, emerging markets funds, investment-grade bond funds, and balanced funds, respectively. There are also life cycle funds to ramp down risk as you near retirement. There are funds with a buy-and-hold philosophy and others that are in and out of holdings almost daily. No matter your investing style, there’s bound to be a perfect fund to match it.  Affordability. For as little as $50 per month, you can own shares in Google (NASDAQ: GOOG), Berkshire Hathaway (NYSE: BRK.A), and a host of other expensive securities via mutual funds. At the time of this writing, a share of Berkshire Hathaway costs over $119,000 a share. F.M Page 13
  15. 15. VIII. DISADVANTAGES OF MUTUAL FUNDS Although mutual funds can be beneficial in many ways, they are not for everyone.  No Control Over Portfolio. If you invest in a fund, you give up all control of your portfolio to the mutual fund money managers who run it.  Capital Gains. Anytime you sell stock, you’re taxed on your gains. However, in a mutual fund, you’re taxed when the fund distributes gains it made from selling individual holdings – even if you haven’t sold your shares. If the fund has high turnover, or sells holdings often, capital gains distributions could be an annual event. That is, unless you’re investing via a Roth IRA, traditional IRA, or employer-sponsored retirement plan like the 401k.  Fees and Expenses. Some mutual funds may assess a sales charge on all purchases, also known as a “load” – this is what it costs to get into the fund. Plus, all mutual funds charge annual expenses, which are conveniently expressed as an annual expense ratio – this is basically the cost of doing business. The expense ratio is expressed as a percentage, and is what you pay annually as a portion of your account value. The average for managed funds is around 1.5%. Alternatively, index funds charge much lower expenses (0.25% on average) because they are not actively managed. Since the expense ratio will eat directly into gains on an annual basis, closely compare expense ratios for different funds you’re considering.  Over-diversification. Although there are many benefits of diversification, there are pitfalls of being overdiversified. Think of it like a sliding scale: The more securities you hold, the less likely you are to feel their individual returns on your overall portfolio. What this means is that though risk will be reduced, so too will the potential for gains. This may be an understood trade-off with diversification, but too much diversification can negate the reason you want market exposure in the first place. F.M Page 14
  16. 16.  Cash Drag. Mutual funds need to maintain assets in cash to satisfy investor redemptions and to maintain liquidity for purchases. However, investors still pay to have funds sitting in cash because annual expenses are assessed on all fund assets, regardless of whether they’re invested or not. IX. SOME TOP MUTUAL FUND OF INDIAN MARKET  SCHEME: ICICI Prudential Focused Blue chip Equity Fund (G) Fund returns v/s Category average (Large Cap) Figure 6  SCHEME: BIRLA SL INDIA GENNEXT (G) Fund returns v/s Category average (Diversified Equity) Figure 7 F.M Page 15
  17. 17.  SCHEME: SBI DYNAMIC BOND FUND (G) Fund returns v/s Category average (Debt Long Term) Figure 8  ICICI Prudential Equity - Volatility Advantage Fund Figure 9 F.M Page 16
  18. 18. B. INVESTMENT IN SHARES 1. INTRODUCTION A unit of ownership that represents an equal proportion of a company's capital. It entitles its holder (the shareholder) to an equal claim on the company's profits and an equal obligation for the company's debts and losses. 2. ADVANTAGES OF INVESTING IN SHARES There are several benefits derived from investment in shares. Below are some of them: i. Inflation Rate:Inflation rate is higher than commercial banks interest rate but lower than equity price appreciation. ii. Protected From The Eyes Of The Public:Nobody knows your worth except you tell him/her. In other investments, people can easily look at the assets of the business or your property (real estate) and come up with approximate worth of it. iii. Growth Rate:The rate of growth is far beyond the bank interest rate. iv. Dividend:This is cash reward given to shareholders as part of the profit made by the company at the end of each financial year. It is declared at the annual general meeting (AGM) of the company. The larger the units of your shareholding, the more money you receive at the end of each financial year. There are companies that have yearly dividend policy. Your financial adviser should be able to tell you some of them. v. Bonus Issues:This is free shares given to existing shareholders of a company. Sometimes, company declares bonus instead of dividend or both. For instance, in the third quarter of the year 2007, First Bank of Nigeria declared one-for-one bonus. This means a unit for every unit you already hold. For example, a man who holds 100,000 units previously will be given an additional 100,000 units free after the declaration of the First Bank bonus making the values of his shares 200,000 units. vi. Capital Appreciation:Price of shares move up or down responding to the forces of demand and supply. For instance, few months ago there was a high demand of the shares of Benue Cement Company of Nigeria which traded for about N6.00 per share. Due to scarce nature of it and the good F.M Page 17
  19. 19. performance of the company, a unit of it now costs about N 48.oo This implies that there is about 700% increment in the value of the stock. If you had bought N50, 000 units of the shares at N6.00 per share, it means that you spent 300,000.00 buying the shares. Now, that it costs N48.00 per share, if you are to self your shares, your returns would be 48x50,000,which is equal to 2.4 million naira. Thus your capital has appreciated from N300, 000.00 to 2.4 millionaires. Indeed stock business has the potential of making you a millionaire overnight. 3. DISADVANTAGES OF INVESTING IN SHARES The benefits of investing in share are many but there are few pitfalls to avoid.These include: a. Crash In Share Prices:Due to one reason or the other, sometimes share prices drop so much. A discerning investor should know what to do at any point in time. b. Liquidation:Sometimes companies go into liquidation thereby eroding the investments of ordinary shareholders. For example, some banks in Nigeria that did not meet up with the N25 billion minimum capitals as directed by the central Bank of Nigeria (CBN) died with investors’ money. You must be vigilant to watch over your investment if you consider it important to you. c. Fraudulent Stock Brokers:some stockbrokers are unfaithful to their clients. They may collect your money when there is perceived information that the shares of a particular company is a good one and instead of making the transactions in your name may divert the money for their selfish interest, may be use it to make their own investments. When the company has closed her book, they may call you for refund or may embezzle your money like that. You must be careful in selecting your stockbroker. 4. EXAMPLES OF SHARES TRADED ON NSE Various sectors in Indian Stock Market and their performance Banks Table 1 Axis Bank F.M 1365.35 1399.90 1418.60 953.40 1212.00 1085.55 1155.30 1,280.65 Page 18
  20. 20. -6.20% -8.52% -9.72% 34.32% 5.66% 17.97% 10.85% HDFC Bank 694.00 -1.69% 630.65 8.19% 683.00 -0.10% 616.30 10.71% 668.05 2.13% 637.65 7.00% 661.20 3.19% 682.30 ICICI Bank 1135.05 0.68% 1106.35 3.29% 1153.60 -0.94% 959.00 19.16% 1080.25 1029.70 5.79% 10.98% 1067.90 7.01% 1,142.75 Bank of Baroda 791.60 -13.79% 730.15 -6.53% 674.50 1.18% 488.55 39.69% 642.30 6.25% 607.60 12.32% 644.60 5.87% 682.45 Bank of India 294.10 -25.11% 314.75 -30.02% 294.15 -25.12% 145.00 51.90% 230.70 -4.53% 213.70 3.07% 217.20 1.40% 220.25 PNB 822.45 -27.41% 809.25 -26.23% 774.85 -22.95% 446.45 33.72% 559.90 6.63% 517.60 15.34% 549.75 8.59% 597.00 SBI 2307.25 -19.31% 2166.20 -14.05% 2049.15 -9.14% 1633.25 13.99% 1809.60 1760.10 2.88% 5.78% 1821.50 2.21% 1,861.80 HCL Tech 625.55 80.18% 755.75 49.14% 747.60 50.76% 1016.40 10.89% 1084.85 3.89% 1063.10 6.02% 1086.55 3.73% 1,127.10 Infosys 2338.50 42.25% 2966.45 12.14% 2427.50 37.04% 3020.85 10.12% 3305.90 0.63% 3347.35 -0.62% 3353.50 -0.80% 3,326.60 Mindtree 686.05 98.13% 874.45 55.44% 819.10 65.94% 1034.85 31.35% 1378.25 -1.38% 1409.65 -3.58% 1391.15 -2.29% 1,359.25 TCS 1282.40 55.95% 1557.80 28.38% 1471.85 35.88% 1987.55 0.62% 2091.75 -4.39% 1989.55 0.52% 2004.60 -0.23% 1,999.95 Tech Mahindra 881.90 89.90% 1079.45 55.14% 925.10 81.03% 1358.55 23.27% 1572.95 6.47% 1659.50 0.92% 1698.10 -1.38% 1,674.70 IT Table 2 F.M Page 19
  21. 21. Infrastructure Table 3 BHEL 241.05 -28.92% 203.10 -15.63% 192.20 -10.85% 141.55 21.05% 140.45 22.00% 137.15 24.94% 156.05 9.80% 171.35 GMR Infra 19.80 7.32% 19.45 9.25% 20.95 1.43% 15.36 38.35% 23.20 -8.41% 21.65 -1.85% 20.45 3.91% 21.25 JaiprakashAsso 104.55 -47.11% 74.25 -25.52% 66.75 -17.15% 37.95 45.72% 47.70 15.93% 46.60 18.67% 53.80 2.79% 55.30 Glenmark 430.85 21.88% 505.20 3.94% 579.10 -9.32% 528.80 -0.70% 520.15 0.95% 509.05 3.15% 515.90 1.78% 525.10 Lupin 593.50 44.54% 598.15 43.42% 753.50 13.85% 839.00 2.25% 873.75 -1.82% 846.45 1.35% 855.45 0.28% 857.85 Ranbaxy Labs 510.75 -14.94% 400.80 8.40% 378.80 14.69% 444.50 -2.26% 407.90 6.51% 415.50 4.56% 421.70 3.02% 434.45 Bajaj Auto 1951.10 -0.03% 1974.60 -1.22% 1748.40 11.56% 1911.45 2.04% 2078.25 -6.15% 1935.05 0.80% 1974.75 -1.23% 1,950.50 Hero Motocorp 1823.35 15.10% 1646.50 27.46% 1642.95 27.74% 1928.95 8.80% 2106.25 -0.36% 1998.20 5.03% 2050.60 2.35% 2,098.70 M&M 930.00 1.69% 878.35 7.67% 989.55 -4.43% 771.10 22.65% 898.50 5.26% 933.15 1.35% 945.60 0.02% 945.75 Maruti Suzuki 1481.25 14.64% 1422.05 19.41% 1587.20 6.99% 1290.25 31.61% 1616.00 5.08% 1647.60 3.07% 1677.40 1.23% 1,698.10 Pharmaceuticals Table 4 Auto Table 5 F.M Page 20
  22. 22. 5. REWINDING BACK TO THE STOCK MARKET TRADING HISTORY OF INDIA In the earlier days, stockbrokers kept scouting for 'natural' sites to conduct their trading activities, shifting from one set of Banyan trees to another. As the number of brokers kept increasing and the streets kept overflowing, they simply had no choice but to relocate from one place to another. Finally in 1854, trading in India found a permanent address, Dalal Street, now synonymous with the oldest stock Exchange in Asia, The Bombay Stock Exchange. With a heritage that goes back to over 130 years, BSE was the first stock exchange in the country to be granted permanent recognition under the Securities Contract Regulation Act, 1956. The exchange has played a pioneering role in the development of the Indian Securities Market - one of the oldest in the world. After India gained independence, the BSE formulated a comprehensive set of guidelines adopted by the Indian Capital markets. Even today, the BSE Sensex remains one of the parameters against which the robustness of the Indian Economy and finance is measured. The trading scenario in India then underwent a paradigm shift in 1993, when NSE or National Stock Exchange was recognized as a Stock Exchange. Within just a few years, trading on both the exchanges shifted from an open outcry system to an automated trading environment. Today, the Indian Securities market successfully keeps pace with its global counterparts through the use of modern day technology. 6. STOCK MARKET MILESTONES 1875: BSE established as 'the native Share and Stock Brokers Association' 1956: BSE became the first stock exchange to be recognized under the Securities Contract Act. 1993: NSE recognized as a stock exchange. 2000: Commencement of Internet trading at NSE. 2000: NSE commences derivatives trading (Index futures) 2001: BSE commences derivatives trading F.M Page 21
  23. 23. 7. POLICIES FOR SHARE MARKET  Introduction to SEBI The Government of India established the Securities and Exchange Board of India, the regulatory body of stock markets in 1988. Within a short period of time, SEBI became an autonomous body through the SEBI Act passed in 1992, with defined responsibilities that cover both development & regulation of the market while also giving the board independent powers. Comprehensive regulatory measures introduced by SEBI ensured that end investors benefited from safe and transparent dealings in securities.  Objectives of the Board were identified as: o To protect the interests of investors in securities o To promote the development of Securities Market o To regulate the Securities Market SEBI has contributed to the improvement of the Securities Market by introducing measures like capitalization requirements, margining and establishment of clearing corporations that reduced the risk of credit Today, the board continues on its two-fold mission of integrating the Securities Market at the National level and also diversifying the trading products to increase the number of traders (including banks, financial institutions, insurance companies, Mutual Funds, primary dealers etc) transacting through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD has been a real landmark.  Different categories of share market o SMALL-CAP STOCKS The stocks of small companies that have the potential to grow rapidly are classified as small-cap stocks. These stocks are the best option for an investor who wishes to generate significant gains in the long run; as long he does not require current dividends and can withstand price volatility. Generally companies that have a market Capitalization in the range of up to 250 Crores are small cap stocks F.M Page 22
  24. 24. o MID-CAP STOCKS Mid-cap stocks are typically stocks of medium-sized companies. These are stocks of well-known companies, recognized as seasoned players in the market. They offer you the twin advantages of acquiring stocks with good growth potential as well as the stability of a larger company. Generally companies that have a market Capitalization in the range of 250-4000 crores are mid cap stocks o LARGE-CAP STOCKS Stocks of the largest companies (many being blue chip firms) in the market such as Tata, Reliance, ICICI are classified as large-cap stocks. Being established enterprises, they have at their disposal large reserves of cash to exploit new business opportunities. The sheer volume of large-cap stocks does not let them grow as rapidly as smaller capitalized companies and the smaller stocks tend to outperform them over time. Investors, however gain the advantages of reaping relatively higher dividends compared to small- and mid-cap stocks while also ensuring the long-term preservation of their capital.  How can you qualify the market as bull or bear? Bull and Bear markets signify relatively long-term movements of significant proportion. Hence, these runs can be gauged only when the market has been moving in its current direction (by about 20% of its value) for a sustained period. One does not consider small, short-term movements, lasting days, as they may only indicate corrections or short-lived movements. F.M Page 23
  25. 25. REFERENCES www.moneycontrol.com www.wikipeadia.com www.rbi.com www.moneycrashers.com F.M Page 24

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