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Hello people...
I am Shradha
I am doing computer engineering..bt actually got so sick of it then g
radually my interest developed in Economi and now I love monitoring Share Markets, Global moves….
So ,here in this blog I am going to explain how Markets and Economy work both nationally and internationally….but firstly we will start with the basics of doing trading…So that the people who are completely unaware of how these works,they’l get some knowledge atleast…
I hope you all will like the idea and concepts….
Starting from the essentials and then I’ l move on to the daily updates………..
Firstly there comes MONEY MARKET-it refers to the short term instruments like Govt. Securities, Treasury Bills, Bonds etc. its held by RBI-Reserve Bank of India.
Secondly there is CAPITAL MARKET which is the market for long term funds but different from the money markets, it implies for the large amount of capital ,here the amount of funds are raised by Individuals, Companies, Financial Agencies.etc
For that u must know what a share market is….it can have many definitions
Like it’s a place where all the securities, derivatives of different-different companies are kept and traded at specific prices….
The stock market is one of the most important sources for corporation to raise amount of funds with them. This allows business to be traded publically and to move up additional capital for expansion by selling shares to public.
.Instruments of trading in stocks
There can be many ways through which one can invest money, but make sure you invest the one which you can afford to lose also because it considers a very sensitive matter sometimes.
So the methods are:-
1.Shares-first is shares that most of us know. Like in today’s modern financial world,share trading is done through DEMAT account where we can buy and sell shares in electronic form and trade on them online.
And the profit or losses are credited or deducted into our bank account respectively.
2. Stock options –its different from share trading as it gives an opportunity to the owner with two choices namely:-
i.Buy(call)-gives the buyer of the option the right but not the obligation to buy the underlying at the strike price.
ii.Sell(put)- gives the buyer of the option the right but not the obligation to sell the underlying at the strike price.
3.ESOPS-i.e Employee Stock Options- which are awarded by a Company to their Employees as a form of incentive compensation.
4.ETF-Exchange Traded Funds that is they are not like shares so that you can buy or sell them but rather they have some net asset value. It’s a combination of mutual funds and investment fund.
Gold ETF are the best examples-it’s like Gold in paper form to be precise it’s gold which is purchased on ETF in paper form but it contains underlying asset value of the amount of Gold purchased.
5. IPO-Initial Public Offer-These are the first lot of shares issued by a company to public in order to raise their funds. Whenever a company releases an IPO, it involves underwriters who sell shares to public.
Once listing is done, shares are issued it allows a company to have large volumes of capital for their future growth and the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of a suspension.
One more thing, Share Markets are been classifies into Primary Market in which finances are provided by issuing different types of securities to investors(IPO’s) and Secondary Market in which there is sale and purchase of shares in Stock Exchanges(Equity Shares, Convertible Bonds)
So those were some basics of mechanism of Share Market.Now let me tell you something about Indian Markets..
In India we have Stock Exchanges situated in Mumbai
1.Bombay Stock Exchange(BSE)- provides information on SENSEX
Sensex.. i.e. sensitive index it is called so because it gets its so indifferent and is calculated after every 10 seconds. It is calculated on account of 30 Indian Companies (BHEL,RELIANCE etc..) which are given 100 base points each and according to them it works.
2.National Stock Exchange(NSE)-provides information on NIFTY(younger brother of sensex you can say) because as SENSEX works on 100 base points, NIFTY works on 50 base points.
SENSEX and NIFTY are the indices for Indian Markets.
Market Regulator
SEBI-Securities and Exchange Board of India
It was set up by Government of India in 1992 so as to maintain Indian Markets, to keep in mind the benefit if investors, to maintain development in Economy in order to compete globally.
Now raises the question how these markets work, how they move….
See it depends like if the profits of a company increases, its reputation is good enough, it is doing trade growth is worth the effort,then automatically its shares will go up and vice-versa.
Like wise many factors are responsible as in:-
FII-Foreign Institutional Investors
Banks-Like the way they are holding all kind of rates…
All these are controlled by RBI(Reserve Bank of India) namely
1. CRR-Cash Reserve Ratio-It refers to the bank’s cash reserves which it has to keep with RBI in order to maintain to ensure bank’s liquidity (flow of money) and solvency.
2. SLR-Statutory Liquidity Ratio-It refers to the amount of gold along with some Corporate Bonds and Treasury Bills that RBI keeps with itself.
3. Repo Rate- Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate.So in order to inject liquidity into the system.
4. Reverse Repo Rate- Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. It can cause the money to be drawn out of the banking system thereby absorbing out the liquidity.
5. BPLR-Basic Prime Lending Rate-at which RBI lends money to other banks
6. PLR-Prime Lending Rate-the basic rate at which other banks lend money to customers.
So that’s all for now..i think my information must be useful….
U can post ur comments,queries and suggestions even..
N u can follow me on twitter,ctch me on facebook as well….
Hey thnks fr all ur comments….
So people…
Here we go further and now I l let you know that how you get the benefits and profits from Share Trading and Stocks…
1. Suppose you buy some company’s 500 shares and the very next day it increased by Rs.5
Then if u will sell it you will get a profit of Rs.2500 but there will be deduction of some taxes along with that…namely bank’s cost, STT(securities transaction tax which’s kept by Govt. as a part of deduction on our profit and earnings) and if you trading from a private bank’s trading account then their must be some hidden charges so you must clarify all the terms and conditions and if you operating from a Broking Firm then it has cut some part of your profit as their charges.
2. Dividends- are recompense made by a corporation to its shareholder members , or as a bonus or its like the amount company distribute among its investors after getting profits. It’s a fixed amount allocated per share which are given at a fixed schedule.
And there are many ways for the analysis of a particular stock.Like fundamentally i.e. which’s based on the Economic Status, Financial Reports, and Balance Sheet of the company.
Check for the EPS ratio i.e. earnings per share. See its concept is,
For example, companies A and B both earn Rs.100, but company A has 10 shares, so each share holder has in effect earned Rs.10.
On the other hand, if company B has 50 shares and they too have earned Rs.100 then each shareholder has earned Rs.2.
So by this calculate which one can provide you with more profit.
Second one would be PEG ratio-price earnings to growth ratio-as it symbolizes from the name it’s the relative mark between the stock price, the company’s EPS and its expected growth,
PEG = (P/E) / (projected growth in earnings)
Technically, the lower the PEG number, the less you pay for each unit of future earnings growth. So, to put it very simply, we are interested in stocks with a low PEG value, because it will be cheaper and not higher one (expensive)
And lower the PEG means higher is the intensification.
Thanks all for your support and ideas…
Like my friend Abhijeet suggested me to include a glossary to explain the meanings of words….
1.Government Securities-Government securities are sovereign securities which are issued by the Reserve Bank of India on behalf of Government of India, it issue bonds to raise money for spending on infrastructure projects or for their day-to-day expenditure.
When investors buy a bond, they are loaning their money for a certain period of time to the issuer (i.e. the govt.) usually at a fixed rate of interest. In return, bond holders get back the loan amount at maturity; plus interest payments at periodical interval.
For more clarity, I will explain by an example that how this works:-
A client purchases 7.40% GOI 2012 for face value(i.e. the printed value over which surcharge and other taxes are levied) of Rs. 10 lakhs.@ Rs.101.80, i.e. the client pays Rs.101.80 for every unit of government security(means per Govt. security) having a face value of Rs. 100/- The settlement is due on October 3, 2010. What is the amount to be paid by the client?
The last interest payment date for the current year is 3rd May 2010. The calculation would be made as follows:
Face value of Rs. 10 lacs.@ Rs.101.80%.
Therefore the principal amount payable is Rs.10 lacs X 101.80% =Rs.10,18,000
Last interest payment date was May 3, 2010 and settlement date is October 3, 2010. Therefore the interest has to be paid for 150 days (including 3rd May, and excluding October 3, 2010)
(28 days of May, including 3rd May, up to 30th May + 30 days of June, July, August and September + 2 days of October). Since the settlement is on October 3, 2010, that date is excluded,that is how payment is calculated with respect to time,
Interest payable = 10 lacs X 7.40% X 150 = Rs. 30833.33.
360 X 100
Total amount payable by client (by Govt.) =10,18,000+30833.33=Rs. 10,48,833.33
I think all of you must be aware with the term
NSC-National Saving Certificates-It’s a kind of certificate issued in almost all Indian Post Offices, against the amount of money paid. Its Rate of interest is 8% compounded half yearly. Its very beneficial as these Certificates can be pledged as security against a loan to banks/ Govt. Institutions. Moreover it is exempted from taxes after its maturity.
Mutual funds- They come to the rescue, allowing investors the opportunity to profit from India without in-depth knowledge of the Indian market. With a mutual fund from India, investors can pool their money with that of others and benefit from the market and investing expertise of a professional manager.
These funds offer liquidity and the opportunity to purchase and sell shares at prices related to their net asset values (NAVs). They do not have a fixed maturity date.
For investing in Mutual Funds:-
1. Go Online and look for different plans like we have different companies in India like Birla Sun Life Insurance Fund, CholaMandlam Mutual Fund, HDFC Mutual Fund, ING Vyasa Mutual Fund etc.
2. Exposure to Markets - All you must have seen in certain advertisements on Television….
“Mutual Funds are subjected to Market Risks.”
This statement implies that the client before getting these funds should perform an analysis because ultimately it’s their money which’s being invested.
For this we need an R & T agent that is Registrar and Transfer agents. An R&T agent typically acts as a third-party on behalf of a fund house. An R&T agent also helps investors with information and detail on new fund offers, dividend distributions or even maturity dates in case of FMPs (fixed maturity plans).
Now we come to the Taxes part….
What is Tax?
Tax is the amount of money which is deducted from our salary/income and deposited to the Government to raise funds for the development of country.
Its managed by IT(Income Tax Department of India).It issues a PAN number(permanent account number)to the one who’s either employed in job, doing some business in simple words who’s got income in anyway. But it’s not like the one who’s a student, a housewife they can’t get it. It’s a necessary part which works as an ID (identity proof) in many ways.
E.g. for opening bank account, for doing various money transactions…
It works in the manner if you doing any kind of money operations through a bank(say)then whatever activity you do like deposit, withdrawal, trading. All the details are forwarded to IT through your PAN card number (which is been given to bank while opening the account).
Now discussing about the various types of TAXES:-
1. Corporate Tax-Indian companies pay on their profits.
Tax other than corporate tax-paid by non-corporate assesses...like us
2. FBT(fringe benefit tax)-given to employees on business expenses like on their foreign trips, attending trade fairs and other business conferences held abroad.
3. STT(Securities Transaction Tax)-tax on profits of sale of shares held over a year(long term capital gains tax) ,that is the tax which is to be paid by share holder when he/she sells its shares.
4. Customs-if you got anything brought from overseas. Govt. fill its own coffers n protects Indian industry by charging heavy duty on those products.
5. Union excise duty-tax levied on goods manufactured in India.
6. Service tax-extra cost added on sell cost and other services taken. The objective behind levying service tax is to reduce the degree of intensity of taxation on manufacturing and trade without forcing the government to compromise on the revenue needs
7. MAT (Minimum Alternative Tax)-Indian companies pay 30% tax on profits as per the IT-act. If the company’s liability is less than 10% den it has to pay MAT of 15% on its booked profit (which is to be stated earlier in the balance sheet of the company that how much profit it produces on an average), and even if once they are unable to give good results, still they are bounded to pay the minimum tax specified.
8. VAT (Value Added Tax)-Govt. levy this on goods at point of sale based on difference b/w value output n input used in producing it.It avoids cascading of taxes as product passes through different stages of production/value addition.
9. GST (Goods and Services tax)-contains all indirect taxes levied on goods at both centre n state level. It’s is a part of the proposed tax reforms that center round evolving an efficient and harmonized consumption tax system in the country.
That does all for now please do tell me if further any other basics are required….
