Introduction to Stocks and Mutual Funds

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A very basic introduction to stocks and mutual funds for people who wish to invest in the stock market.

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Introduction to Stocks and Mutual Funds

  1. 1. Investments Stocks & Mutual Funds
  2. 2. What is a stock? <ul><li>Share of ownership in a company </li></ul><ul><li>It is also a security by the definition of “Securities” according to the Securities Act 1956. </li></ul>
  3. 3. What is a stock exchange? <ul><li>A stock exchange is an organization that provides a marketplace for either physical or virtual trading shares , bonds and warrants and other financial products where investors (represented by stock brokers ) may buy and sell shares of a wide range of companies. </li></ul>
  4. 4. Stock Exchanges in India <ul><li>NSE </li></ul><ul><li>BSE </li></ul><ul><li>Stock Exchanges in the US? </li></ul>
  5. 5. NSE-National Stock Exchange <ul><li>More than 2000 listed stocks from different sectors. </li></ul><ul><li>Index : Nifty-comprises of 50 scripts from different sectors. </li></ul>
  6. 6. BSE:Bombay Stock Exchange <ul><li>India’s oldest stock exchange. </li></ul><ul><li>More than 4000 listed companies from different sectors. </li></ul><ul><li>Index:Sensex – 30 scripts from different sectors. </li></ul>
  7. 7. Basic activities in stock market <ul><li>Buying </li></ul><ul><li>Selling </li></ul><ul><li>Either buy and then sell or </li></ul><ul><li>Sell and then buy(????????????) </li></ul>
  8. 8. What governs stock prices?? <ul><li>Like for all other commodities and resources, stock prices are determined by demand and supply. </li></ul><ul><li>When does value of a commodity </li></ul><ul><li>Increase? </li></ul><ul><li>Decrease? </li></ul>
  9. 9. Study of price fluctuations <ul><li>Factors which govern the demand and supply of shares are studied through two ways of analysis: </li></ul><ul><li>Fundamental analysis </li></ul><ul><li>Technical analysis </li></ul>
  10. 10. Two ways of making money <ul><li>Dividends </li></ul><ul><ul><li>Buy and keep shares </li></ul></ul><ul><ul><li>When company makes profit , divided among shareholders </li></ul></ul><ul><li>Active Trading </li></ul><ul><ul><li>Not interested in ownership </li></ul></ul><ul><ul><li>Buy and sell /sell and buy </li></ul></ul>
  11. 11. What is an Index? <ul><li>Collection of stocks of important companies which is a measure of how the stock market is performing. </li></ul><ul><li>NSE:Nifty </li></ul><ul><li>BSE:Sensex </li></ul><ul><li>US:DJIA,S&P 500,NASDAQ composite </li></ul>
  12. 12. Fundamental analysis <ul><li>EPS </li></ul><ul><li>PE ratio </li></ul><ul><li>P/B ratio </li></ul><ul><li>If the PE ratio of a company is less , is the stock undervalued or overvalued? Would you buy or sell the stock? </li></ul>
  13. 13. Technical analysis <ul><li>Support levels </li></ul><ul><li>Resistance levels </li></ul><ul><li>Question: </li></ul><ul><li>If support level for NIFTY on a given day is 4000 and resistance is 4400 , when would you buy to sell and sell to buy for profit?? </li></ul>
  14. 14. Interesting trivia(questions really!!) <ul><li>Who is known as the Oracle of Omaha and what is the name of the conglomerate holding company of which he is the chairman and CEO? (clue: 2 nd richest man in the world) </li></ul><ul><li>Who is the author of THE INTELLIGENT INVESTOR , considered the first proponent of Value Investing? </li></ul>
  15. 15. Biggest difficulty in Stock Investing <ul><li>Requires a lot of study and analysis by the individual investor in order to secure his capital and make profit </li></ul><ul><li>What if the investor does not have the time and aptitude to study the stock market?? </li></ul><ul><li>The solution is……… </li></ul>
  16. 16. Mutual Funds!!!!!!!!! <ul><li>Funds collected from investors are pooled together by AMCs which allocate units to investors. </li></ul><ul><li>AMCs use the pooled funds to trade in the stock market and divide the profits earned among the mutual fund investors in proportion to the units held by investors. </li></ul>
  17. 17. Advantage of Mutual Funds <ul><li>AMCs employ Fund Managers to manage your invested funds </li></ul><ul><li>Expertise and skill of the fund manager makes a big difference because it is his job to manage funds unlike the retail investor who has his own job to contend with.. </li></ul><ul><li>Mutual fund most suitable for the common man.. </li></ul>
  18. 18. Flowchart of mutual fund
  19. 19. Types of mutual funds <ul><li>Based on structure </li></ul><ul><ul><li>Open ended schemes </li></ul></ul><ul><ul><li>Close ended schemes </li></ul></ul><ul><li>Based on investment objective </li></ul><ul><ul><li>Growth schemes </li></ul></ul><ul><ul><li>Income schemes </li></ul></ul><ul><ul><li>Balanced schemes </li></ul></ul>
  20. 20. Two ways of investing in MFs <ul><li>Either as a one time outright investment or </li></ul><ul><li>Periodic investment (SIP) </li></ul>
  21. 21. SIP <ul><li>Benefits </li></ul><ul><ul><li>Power of compounding </li></ul></ul><ul><ul><li>Rupee cost averaging </li></ul></ul><ul><ul><li>convenience </li></ul></ul>
  22. 22. Important terms related to MFs <ul><li>NAV </li></ul><ul><ul><li>market value of the assets of the scheme minus its liabilities. </li></ul></ul><ul><li>Load </li></ul><ul><ul><li>Fee charged by AMC when an investor purchases or redeems units. </li></ul></ul>
  23. 23. Regulatory bodies <ul><li>SEBI </li></ul><ul><ul><li>Responsible for regulating stock market in India. </li></ul></ul><ul><li>AMFI </li></ul><ul><ul><li>Trade association of MFs. </li></ul></ul>
  24. 24. Questions again… <ul><li>DSP Merill Lynch was recently acquired by which AMC? </li></ul><ul><li>What is a ULIP? </li></ul><ul><li>Which of the following schemes is more likely to have an exit load? </li></ul><ul><ul><li>Open ended schemes </li></ul></ul><ul><ul><li>Close ended schemes </li></ul></ul>

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