Equity basics


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Equity basics

  1. 1. EquityBasicsIIFL Training Team
  2. 2. Ways of raising capital Equity – Owned Funds – Owner receives profit in the form of dividend Debt – Borrowed Funds – Borrower pays interest – Secured or unsecured IIFL Training Team
  3. 3. Debt Equity RatioDebt Equity Ratio = Debt Equity IIFL Training Team
  4. 4. Preference CapitalPreferential shareholders enjoy a preferential rightover equity shareholders with regards to: Receipt of dividend Receipt of residual funds after liquidation IIFL Training Team
  5. 5. Debentures A ‘Debenture’ is a legal contract where the company will pay the lender the initial amount (principal) and interest (rate of interest predefined at the beginning) after a pre defined period of time (maturity date) Types of Debentures – Convertible – Non Convertible IIFL Training Team
  6. 6. Venture capital Capital typically provided by investors for financing of new, growing or struggling businesses. High risk investments. Potential for above average returns Pooled investment vehicle IIFL Training Team
  7. 7. Limited company Liability limited to capital invested Protects personal assets of shareholders Types of limited companies – Private limited – Public limited IIFL Training Team
  8. 8. Segments of the capital market Primary market Secondary market IIFL Training Team
  9. 9. Primary market Primary market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt or hybrid IIFL Training Team
  10. 10. Secondary market Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange Provides liquidity to investors Majority of the trading is done in the secondary market IIFL Training Team
  11. 11. Initial Public Offering (IPO) Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public This paves way for listing and trading of the issuer’s securities IIFL Training Team
  12. 12. Pricing of an issue Fixed Price Price discovery through Book Building Process IIFL Training Team
  13. 13. Book building process Book building is basically a process used in IPOs for efficient price discovery Floor price and Cap price It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, within the price band The offer price is determined after the bid closing date IIFL Training Team
  14. 14. Index Number which measures the change in a set of values over a period of time Stock index represents the change in value of a set of stocks which constitute the index A good stock market index is one which captures the behavior of the overall equity market It has to be well diversified yet highly liquid IIFL Training Team
  15. 15. Importance of a market indexA market index is very important for its use as a barometer for market behavior as a benchmark portfolio performance an underlying for index futures and options IIFL Training Team
  16. 16. Circuit breakers An index based market-wide circuit breaker system applies at three stages of the index movement either way at 10%, 15% and 20% The breakers are triggered by movement of either S&P CNX Nifty or Sensex, whichever is breached earlier IIFL Training Team
  17. 17. Circuit breakersAs an additional measure of safety, individual scrip-wise price bands hasbeen fixed as below: Daily price bands of 2% (either way) on a set of specified securities Daily price bands of 5% (either way) on a set of specified securities Daily price bands of 10% (either way) on another set of specified securities Price bands of 20% (either way) on all remaining securities (including debentures, warrants, preference shares etc. which are traded on CM segment of NSE) No price bands are applicable on scrips on which derivative products are available or on scrips included in indices IIFL Training Team
  18. 18. Market timings Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the exchange in advance) The market timings of the equities segment are: – Normal market open : 09:00 hours – Normal market close : 15:30 hours – The closing session is held between 15.50 hours and 16.00 hours in NSE and 15.40 hours and 16.00 hours in BSE IIFL Training Team
  19. 19. Order management Entering Order Order Modification Order Cancellation IIFL Training Team
  20. 20. Entering order Active Order Passive Order Order Book Symbol IIFL Training Team
  21. 21. Types of order conditions Time Conditions Price Conditions Quantity Conditions IIFL Training Team
  22. 22. Time conditions DAY IOC - An Immediate or Cancel IIFL Training Team
  23. 23. Price conditions Limit Price/Order Market Price/Order Stop Loss (SL) Price/Order IIFL Training Team
  24. 24. Quantity conditions Disclosed Quantity (DQ) IIFL Training Team
  25. 25. Clearing and settlement Stock Markets follow a system of settling trades on T+2 basis, which means transactions done on Monday, are to be settled by Wednesday by way of giving securities or funds. Providing of securities or funds to Exchange / Clearing Corporation is called ‘Pay-In’. Receiving securities or funds from Exchange / Clearing corporation is called ‘Pay-Out’. IIFL Training Team
  26. 26. Clearing and settlement Sometimes trades don’t get settled because of short or bad delivery or company objection In such cases ,trade is settled through auction of securities If a trade remains unsettled even after auction, then Exchange carries ‘Close Out’ IIFL Training Team
  27. 27. Our brokerage rates Broking ServicesBrokerage (Cash)Intra-day 0.05%Delivery:(Normal) settlement 0.50%Trade to Trade and Z group scrip 0.75%Brokerage(Futures) 0.05%Brokerage(Options) 1% of PremiumMinimum Rs. 100/- per lotMinimum per share brokerage Rs.0.05Minimum Initial Margin Rs.10,000 IIFL Training Team
  28. 28. Regulatory charges Trading Cash (NSE & BSE) : 0.0037% on turnover Delivery (NSE & BSE) : 0.0037% on turnover Futures : 0.0037% on turnover Options : 0.0568% on premium IIFL Training Team
  29. 29. Stamp Duty Trading Cash (NSE & BSE) : 0.002% on turnover Delivery (NSE & BSE) : 0.01% on turnover Futures : 0.002% on turnover Options : 0.002% on premium IIFL Training Team
  30. 30. Service Tax and STT Service Tax is 10.30% on brokerage Securities Transaction Tax – For trading transactions in cash– 0.025% (Charged to seller only) – For delivery transactions – 0.125% (Charged to buyer and seller) – For trading transactions in ‘F n O’  Intra day – 0.017 % (Charged to seller)  For exercise – 0.125 % (Charged to seller) IIFL Training Team
  31. 31. Trader Terminal Investors get the facility to buy and sell stocks in NSE and BSE and Futures and Options through NSE Trader Terminal is for the dedicated day traders, who churn their portfolio on minor movements in the market, sometimes several times a day The Trader Terminal offers….. – lightning fast order execution – Monitoring of marked to market positions on a minute- to-minute basis – Intra-day charts, market gossip, price and volume information and much more IIFL Training Team
  32. 32. Thank You IIFL Training Team