Investments

Stocks & Mutual Funds

What is a stock?

Share of ownership in a company It is also a security by the definition of

“Securities” according to the Securities Act 1956.

What is a stock exchange?

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.

Stock Exchanges in India

NSE BSE

Stock Exchanges in the US?

NSE-National Stock Exchange

More than 2000 listed stocks from different sectors.

Index : Nifty-comprises of 50 scripts from different sectors.

BSE:Bombay Stock Exchange

India’s oldest stock exchange. More than 4000 listed companies from

different sectors. Index:Sensex – 30 scripts from different

sectors.

Basic activities in stock market

Buying Selling

Either buy and then sell or Sell and then buy(????????????)

What governs stock prices??

Like for all other commodities and resources, stock prices are determined by demand and supply.

When does value of a commodity Increase? Decrease?

Study of price fluctuations

Factors which govern the demand and supply of shares are studied through two ways of analysis:

Fundamental analysis Technical analysis

Two ways of making money

Dividends– Buy and keep shares– When company makes profit , divided among

shareholders

Active Trading– Not interested in ownership– Buy and sell /sell and buy

What is an Index?

Collection of stocks of important companies which is a measure of how the stock market is performing.

NSE:Nifty BSE:Sensex US:DJIA,S&P 500,NASDAQ composite

Fundamental analysis

EPS PE ratio P/B ratio

If the PE ratio of a company is less , is the stock undervalued or overvalued? Would you buy or sell the stock?

Technical analysis

Support levels Resistance levels

Question: 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??

Interesting trivia(questions really!!)

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: 2nd richest man in the world)

Who is the author of THE INTELLIGENT INVESTOR , considered the first proponent of Value Investing?

Biggest difficulty in Stock Investing

Requires a lot of study and analysis by the individual investor in order to secure his capital and make profit

What if the investor does not have the time and aptitude to study the stock market??

The solution is………

Mutual Funds!!!!!!!!!

Funds collected from investors are pooled together by AMCs which allocate units to investors.

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.

Advantage of Mutual Funds

AMCs employ Fund Managers to manage your invested funds

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..

Mutual fund most suitable for the common man..

Flowchart of mutual fund

Types of mutual funds

Based on structure– Open ended schemes– Close ended schemes

Based on investment objective– Growth schemes– Income schemes– Balanced schemes

Two ways of investing in MFs

Either as a one time outright investment or Periodic investment (SIP)

SIP

Benefits– Power of compounding– Rupee cost averaging– convenience

Important terms related to MFs

NAV– market value of the assets of the scheme minus

its liabilities.

Load– Fee charged by AMC when an investor purchases

or redeems units.

Regulatory bodies

SEBI– Responsible for regulating stock market in India.

AMFI– Trade association of MFs.

Questions again…

DSP Merill Lynch was recently acquired by which AMC?

What is a ULIP? Which of the following schemes is more likely

to have an exit load?– Open ended schemes– Close ended schemes