Capital Market & Portfolio Investment
INTRODUCTION
The term capital market broadly defines the place where various entities trade different financial instruments. These venues may include the stock market, the bond market, and the currency and foreign exchange markets. Most markets are concentrated in major financial centers including New York, London, Singapore, and Hong Kong.
Capital markets are composed of the suppliers and users of funds. Suppliers include households and the institutions serving them—pension funds, life insurance companies, charitable foundations, and non-financial companies—that generate cash beyond their needs for investment. Users of funds include home and motor vehicle purchasers, non-financial companies, and governments financing infrastructure investment and operating expenses. Capital markets are used to sell financial products such as equities and debt securities. Equities are stocks, which are ownership shares in a company. Debt securities, such as bonds, are interest-bearing IOU.
These markets are divided into two different categories: -
Primary Markets where new equity stock and bond issues are sold to investors and Secondary Markets, which trade existing securities. Capital markets are a crucial part of a functioning modern economy because they move money from the people who have it to those who need it for productive use.
A stock market, equity market or share market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical facility or discrete entity) of stocks (also called shares), which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately. Examples of the latter include shares of private companies which are sold to investors through equity crowdfunding platforms. Stock exchanges list shares of common equity as well as other security types, e.g. corporate bonds and convertible bonds.
STOCK EXCHANGE
A stock exchange is an exchange (or bourse) where stock brokers and traders can buy and sell shares of stock, bonds, and other securities. Many large companies have their stocks listed on a stock exchange. This makes the stock more liquid and thus more attractive to many investors. The exchange may also act as a guarantor of settlement. Other stocks may be traded "over the counter" (OTC), that is, through a dealer. Some large companies will have their stock listed on more than one exchange in different countries, so as to attract international investors.
Sample : govt stocks are good for long term (defence , energy - basic essential), so many pvt companies also good for long and short term. everything oriented in risk.
TRADE
Trade in stock markets means the transfer (in exchange for money) of a stock or security from a seller to a buyer. This requires these two parties to agree on a price. Equities (stocks or shares) confer an ownership interest in a particular company. Participants in the stock market range from small individual stock investors to larger investors, who can be based anywhere in the world, and may include banks, insurance companies, pension funds and hedge funds. Their buy or sell orders may be executed on their behalf by a stock exchange trader.
How to invest in share market?
Demat and Trading Accounts:
what you have to do to invest in the share market? Firstly, open a demat and trading account online with a broker and link your bank account with that. Opening demat account is a very simple and easy process. Once you have your demat and trading account, you can start investing in the Indian share market. It’s essential for you to be familiar with the stock exchanges and their functions. Stock exchange is where buying and selling of shares take place. The stock exchanges are regulated by SEBI (Securities and Exchange Board of India). The 2 important stock exchanges of India are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange).
goals: -
• Define your life goals
• Learn about financial assets
• Choose the respective asset as per your need
• Start investing regularly
• Fulfill your goals
Difference between NSE and BSE
- Founded in :- 1992, 1875
- Benchmark Index :- Nifty, Sensex
- Total companies in Index :- 50, 30
- Known as:- The largest stock exchange, The oldest stock exchange
- Number of listed companies :- 5000+, 1600+
- MD & CEO:- Mr. Ashish Kumar Chauhan, Mr. Vikram Limaye
- Trading volume :- Higher, Lower than NSE
National Stock Exchange (NSE) was founded in 1992 and is in Mumbai. Electronic trading platform was first introduced by the NSE. Nifty50: Nifty is the abbreviation of National Stock Exchange 50. It is the benchmark index of NSE comprising 50 stocks.
BSE (Bombay Stock Exchange) was founded in 1875 and is the oldest stock exchange in Asia. Sensex is the benchmark index of BSE and it is derived from the words sensitive and index. Sensex comprises of 30 stocks.
Sensex and Nifty are the face of the Indian as these either go up or down depending on various political and economic factors.
Key Financial Instruments Traded in Stock Market
• Shares/ Equity:
Equities or stocks or shares give you ownership of a company. You can buy or sell shares through a broker.
• Mutual funds:
Here, the money is pooled from many investors and then invested in various financial instruments. Investors are referred to as unit holders. Profit generated is distributed to unit holders in proportion to the units held by them.
• Bonds:
These are fixed income instruments also known as debt instruments by which government or a company borrows money from investors at an agreed interest rate for a specific tenure. These are less risky when compared to shares.
• Derivatives:
A derivative is a financial contract whose value is derived from an underlying asset. It can be used to mitigate a number of risks. Derivatives include forward, futures, options and swaps.
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Share market tips:
• It’s always better to do your own research before investing.
• It’s not wise to take decision based on rumors.
• Monitor your investments regularly so that you can eliminate the loss-making stocks.
• Patience is very essential for any investor.
• Take the help of research experts also before making an investment move.
• Always be updated with share market news.
LEVERAGED STRATEGIES
SHORT SELLING
In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market, betting that the price will fall. The trader eventually buys back the stock, making money if the price fell in the meantime and losing money if it rose. Exiting a short position by buying back the stock is called "covering". This strategy may also be used by unscrupulous traders in illiquid or thinly traded markets to artificially lower the price of a stock.
MARGIN BUYING
In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value.
Advantages of Investing in the Stock Market
• Investment Gains
• Dividend Income
• Diversification
• Ownership
PORTFOLIO INVESTMENT
Portfolio investments can span a wide range of asset classes such as stocks, government bonds, corporate bonds, Treasury bills, real estate investment trusts (REITs), exchange-traded funds (ETFs), mutual funds and certificates of deposit. Portfolio investments can also include options, derivatives such as warrants and futures, and physical investments such as commodities, real estate, land, and timber. The composition of investments in a portfolio depends on a number of factors. Some of the most important include the investor’s risk tolerance, investment horizon and amount invested. For a young investor with limited funds, mutual funds or exchange-traded funds may be appropriate portfolio investments. For a high net worth individual, portfolio investments may include stocks, bonds, commodities, and rental properties.
KEY TAKEAWAYS
• A portfolio investment is a diversified approach to investing that seeks a return.
• A portfolio investment is long-term and passive (buy-and-hold) strategy.
• Risk tolerance and time horizon are key factors in building any portfolio investment.
Why do companies get listed on exchanges?
1. Transparency and automated trading
2. Huge Reach
3. High transaction speed
Role of exchanges
1. Market where securities are traded
2. Responsible for evaluation of stock prices
3. Safeguards investors
4. Acts as barometer for a country’s economy
5. Broader range of investment avenues
CONCLUSION
An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. Though it is often said that stock market investment is risky with little effort you can earn regularly from the stock market. All you need is the right strategy and skills to choose the right stocks. Besides you should have ability to take risks and stay positive even at the bad times.
