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Any complete guide for beginners in stock trading?
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42 Answers
Tejas Khoday
Tejas Khoday, Free Investment Zone, Co-Founder at FYERS
Answered Mar 7, 2016 � Author has 2.7k answers and 7.3m answer views
Reading and collecting information from different sources goes a long way in
understanding the stock markets. I had a senior in my career as a professional
trader who always criticized the idea of changing and evolving. He got phased out
very soon as he relied only on his gut instinct and basic technical knowledge which
was considered awesome at the time.

Anyways, to get knowledge in technical analysis, read:

Japanese candlestick charting techniques

The Encyclopedia of Chart Patterns
To gain an understanding on how successful traders approach the markets, read:

How to make money trading derivatives

More Money Than God
Inside the House of Money
Always trade with the best trading platform as it helps you trade/invest better.
Check out:Fyers One | Best Charting Software | Online Trading in India

Check out the youtube videos for quick reference:

Trading is a very interesting and challenging environment. There are several ways
to improve In my opinion, traders need to keep a few crucial things in mind:

Always stay with the trend - If you're trying to square off position within a few
hours or minutes, it does not make any sense to try calling a top or bottom. What
generally happens is that by trying to call a turn in the markets, you end up
losing. The reason is, shorter time frames don't have much respect for levels. They
get easily breached if there is momentum.
Gauge the short term trend - If a stock has been falling in the last few days,
consider shorting it instead of being contrarian and buying it hoping for it to
turn around. short term trends can last for a few months too.
Trade the popular sentiment if there's a news reaction - If there are unexpected
announcements, trade with the natural expectation of a crowd. For example, if there
is a sudden announcement that import duties on steel are hiked by let's say 50%,
buy steel stocks. Because everyone may not have bought into it yet.
Have a top-down approach - A bottom Up approach can work too. But if you're looking
for a sustainable strategy, always follow the overall market sentiment. For
example, it would be considered wrong if you go long in a banking stock with good
results when the Bank Nifty is collapsing on itself. It's best avoided.
Look for momentum - Momentum is what you should be looking for intra-day. If a
stock is range bound, your chances of timing the fluctuations are not sleak. Also,
it increases the number of entry and exits.
Use a GOOD trading platform - It's extremely important to be equipped to have a
trading terminal which has good charting features and other advanced features. This
always pays off. Try to keep the low or get one for FREE! We have a great trading
platform that you can use for free: Fyers One | Best Charting Software | Online
Trading in India
Search for Positive Risk-Reward - Avoid taking trades where the gain is less than
how much you can lose, unless you feel the probabilities of winning trades are
higher with a skewed risk-reward ratio. This automatically eliminates most of the
trades which once looked appealing.
Make a list of substitute stocks - Let's say you missed out a trade in ICICI due to
your late discovery, you could still go long in Yes Bank/Axis Bank if you think
there's a macro movement in the private banking space.
Many More - There are several more things to keep in mind. They cannot be fully
listed down.
Our brokerage rates are:

Equity: 0.1% or Rs 100 (whichever is lower)

Futures: 0.01% or Rs 100 (whichever is lower)
Options: Rs 10 or Rs 100 (whichever is lower)
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Related QuestionsMore Answers Below
How do I get into stock trading? Is there a beginners guide? How does investing
Finance: Which is the best way to learn about stocks?
What is stock trading? I am a beginner.
What was your best stock trade ever?
What stock would you buy right now?
Ask New Question
Surya Kamal
Surya Kamal, AlgorithmicTrader,
Answered Nov 5, 2015 � Author has 418 answers and 987k answer views
I hope your aware of the fact that market is all about pure randomness. so if your
really serious into trading, the hours you put your eyes infront of the trading
terminal will pay you the rewards to understand better about market dynamics than
anything else
Some of the books which you may found useful are:-
1. The Little Book That Still Beats The Market by Joel Greenblatt

I usually recommend this book to anyone who wants to learn stock investing.
However, I strongly believe that both new and old investors will benefit from the
wisdom shared in the book. Greenblatt explains the logic and the irrationality of
the markets using such a simple language that even a school going kid should be
able to understand it.
2. Beating The Street by Peter Lynch
The celebrated Peter Lynch of the Fidelity Magellan fund demonstrates how a basic
layman using common sense can actually beat the experts from Wall Street. Just
like most other books I like it is written in very simple and easy to understand
language. I plan on reading this book again very soon. Usually this is the second
book I recommend to people.

3. The Little Book That Builds Wealth by Pat Dorsey

This is the type of book that I fall in love with. Easy to read, small and has a
world of information. Don�t be fooled by the gimmicky title of the book as I rate
it within the 3 best books on investing I ever read. The book explains the concept
of sustainable competitive advantage (aka economic moat) that brings superior

4. The Little Book of Value Investing by Christopher H. Browne

Another brilliant book on value investing from the little book, big profits
series. Explains the concept of value investing crisply. A great book by a great

5. Market Wizard Series by Jack D. Schwager

There are four books in this series. Each of them are filled with interviews with
some of the best traders and investors. From Ray Dalio to Joel Greenblatt to Paul
Tudor Jones, Mr Schwager has interviewed them all. And these are not the typical
interviews that we read. Each of them have very insightful and deep questions and

6. Common Stocks and Uncommon Profits by Philip A. Fisher

Phil Fisher can be considered as one of the gurus of fundamental investing. Many
great investors in the world have mentioned him as an influence. His strategy of a
holistic approach to fundamental due diligence by not only looking at a company
but also studying the suppliers, customers and competitors has become the gold
standard in the equity analysis world.

7. You Can Be a Stock Market Genius by Joel Greenblatt

The ultimate guide to special situation (mergers, acquisitions, spin-offs,

divestitures) investing. Greenblatt outdoes himself with this book and proves
clearly that the efficient market hypothesis is a myth even in the highly
developed markets. Special situations very often lead to irrationality in
valuation and these can be exploited by the clever investor.

8. The Essays of Warren Buffet by Warren Buffet

This is a compilation of the letters Warren Buffet wrote to his shareholders. The
letters have been organized according to category. The reader will clearly
understand why this man is one of the richest people in the world.

9. Best practices for Equity Research Analysts by James Valentine

Hands down the best book on equity research. Short, compact and highly practical
guide for both buy and sell side analysts. A must read for all investors in my
opinion. It might be a bit hard to apply in real life but the book title clearly
mentions that these are the �best practices�.

10. Margin of safety by Seth A. Klarman

Another excellent book on value investing. The author shows with theory, logic
and practical examples why investment fads are pretty much always bogus. The best
way to make money is to have a strong disciplined fundamental analysis approach.

Then open your demat account. I believe you should go through all these phases:-
Learning phase

First thing first, let's learn by doing - If you are planning to start with Rupees
X, set aside half of it. You will need that ones you lose the other half in the
learning phase.

Read S.S.Grewal's book - Profitable investments in the Stock market (I don't

remember the exact name)

Learn the basics of technical analysis - read up about MACD, RSI, ADX and Moving
averages. Especially moving averages.

Learn about Japanese candlesticks from Steve Nison's videos

Fall in love with Page on and ChartInk Live/End of Day NSE BSE
Technical Charts

Moving averages - learn about the moving average crossover system

Make a list of not more than 30 blue chip companies and not less than 15. Start
following them everyday. Look at their charts EVERYDAY.

Trading Journal - this is the secret weapon. Trade some virtual money for a couple
of months. Note down your imaginary trades in a journal. At the end of 6 months or
so, see how you did. Trading is like any other sport. You get better with practice.
Your trading journal is your practice ground.

Doing phase

Open a demat account and start trading.

Get emotional and forget whatever you have learnt and lose one half of your money.

Back to learning phase

Learn from your mistakes.

Start trading with the other half.

Develop a strategy (it's done easier than you think) and stick to it. It will get
boring, but as long as it's profitable, stick to it.

Money printing phase

Make money; pass on some to me.

Spend 30% of your profits, pamper yourself; save 20% for a rainy day; reinvest 30%
into the market; donate 20% for a great cause.
Happy Trading
Source:- quora
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Pratik Parthe
Pratik Parthe, Post graduate in finance specializing in stock markets
Updated Feb 25, 2017 � Author has 897 answers and 1.6m answer views
I suggest you to go through this answer where I�ve explained about trading basics,
how to choose a broker, how to trade and how to make smart investments. I hope this
will be useful.


Researching and Choosing Stock:

1. Perform a technical analysis: Technical analysis is an attempt to understand

market psychology or, in other words, what investors as a whole feel about a
company as reflected in the stock price. Technical analysts are normally short-term
holders, concerned about the timing of their buys and sells.If you can detect a
pattern, you might be able to predict when stock prices will fall and drop. This
can inform you about when to purchase or sell certain stocks.

Technical analysis makes use of moving averages to track security prices. Moving
averages measure the average price of the security over a set of period of time.
This helps traders more easily identify trends.

2. Identify patterns: Patterns identified in a technical analysis include

identifiable price boundaries in the market price of a stock. The high boundary,
which the stock rarely surpasses, is known as the "resistance." The low boundary,
which the stock rarely dips below, is called "support." Identifying these levels
can let a trader know when to buy (at resistance) and when to sell (at support).

Some specific patterns are also detectable in stock charts. The most common one is
known as "head and shoulders." This is a peak price then drop, followed by a taller
peak then drop, and finally followed by a peak similar in height to the first. This
pattern signals that an upwards price trend will end.

There are also inverse head and shoulders patterns, which signify the end to a
downward price trend.

3. Understand the difference between a trader and an investor: An investor seeks to

find a company with a competitive advantage in the market place that will provide
sales and earning growth over a long period. A trader seeks to find companies with
an identifiable price trend that can be exploited in the short-term. Traders
typically use technical analysis to identify these price trends. In contrast,
investors typically use another type of analysis, fundamental analysis, because of
its focus on the long term.

4. Learn about different orders traders make: Orders are what traders use to
specify the trades that they would like their brokers to make for them. There are
numerous different types of orders that a trader can make.

For example, the simplest type of order is a market order, which purchases or sells
a set number of shares of a security at the prevailing market price. In contrast, a
limit order buys or sells a security when its price reaches a certain point.

For example, placing a buy limit order on a security would instruct the broker to
only purchase the security if the price fell to a certain level. This allows a
trader to specify the maximum amount he or she would be willing to pay this way, a
limit order guarantees the price the trader will pay or be paid, but not that the
trade will occur.

Similarly, a stop order instructs the broker to buy or sell a security if the price
rises above or falls below a certain point. However, the price that the stop order
will be filled at is not guaranteed (it is the current market price).

There is also a combination of stop and limit orders called a stop-limit order.
When the price of the security passes a certain threshold, this order specifies
that the order become a limit order rather than a market order (as it does in a
regular stop order).

5. Understand short selling: Short selling is when a trader sells shares of

security that they do not yet own or have borrowed. Short selling is typically done
with the hope that the market price of the security will fall, which would result
in the trader having the ability to purchase the security shares for a lower price
than they sold them for in the short sale. Short selling can be used to make a
profit or hedge against risk, however it is very risky. Short selling should only
be done by experienced traders who understand the market thoroughly.

For example, imagine that you believe that a stock currently trading at $100 per
share is going to decrease in value in the coming weeks. You borrow 10 shares and
sell them at the current market price.

You are now "short," as you have sold shares that you didn't own and will
eventually have to return them to the BROKER a few weeks, the price of the stock
has indeed fallen to $90 per share. You purchase your 10 shares back at $90 and
return them to the lender.

This means that you sold shares, that you didn't have, for $1,000 total and have
now replaced them for $900, netting yourself a $100 profit. However, if the price
rises, you are still responsible for returning the shares to the lender. This
potentially unlimited risk exposure is what makes short selling so risky.


Choosing a Brokerage Partner:

1. Interview online brokers: Don�t rely on a tip from a friend or neighbor. The
right brokerage service can make the difference between financial success and
failure. Before choosing an online brokerage, ask about details like pricing and
the available investment choices. Find out about the customer service they provide
and whether or not they offer resources for education and research. Finally, find
out about their security practices.

2. Decide which brokerage tools are important to you: I trade with FYERS(online
stockbroking firm) which is one of the finest discount stockbroking firms in India.
You can start your trading account with them. Depending on the amount of experience
you have, you may require different levels of service from an online brokerage
service. Some services offer personal advice, which may be beneficial to beginners.

3. Work with a discount service if you have more experience: If you can do all of
the research yourself and don�t need personal advice from a broker, then consider
working with a discount online brokerage. You can start with a smaller sum of
money. Also, you have access to more investment choices. In addition to stocks,
other investment choices may include options, mutual funds, exchange-traded funds,
fixed income funds, bonds, certificates of deposit and retirement accounts.


Learning to Trade Stocks:

1. Educate yourself about financial performance indicators: Read the news and
financial websites. Listen to podcasts or watch online investment courses. Join a
local investment club to learn from more experienced investors. Books to read
include "The Intelligent Investor" by Benjamin Graham (Harper Business, 200), "What
You Need to Know Before You Invest" by Rod Davis (Barron's Educational Series,
2003), "The Art and Science of Technical Analysis" by Adam Grimes (Wiley, 2012) and
"Contrarian Investment Strategies" by David Dreman (Free Press, 2012).

2. Practice with an online stock simulator: An online stock simulator is a fantasy

market game that simulates online trading. Using these allows you to practice your
skills with zero risk. Many come with tutorials and forums to discuss investing
strategies. However, keep in mind that simulators don't reflect the real emotions
of trading and consequently are best used to test theoretical trading systems.

3. Trade penny stocks: Many companies offer stocks that are traded for a very low
cost. This gives you an opportunity to practice leveraging the market without much
risk. Penny stocks are usually traded outside the major stock exchanges. They are
generally traded on the over-the-counter-bulletin-board (OTCBB) or through daily
publications called pink sheets.


Making Smart Investment Decisions:

1. Decide what you can afford to trade: Begin slowly until you learn to make smart
decisions about what to trade Only trade with what you can afford to lose. Once you
start making profits from your stocks, you can reinvest the profits. This process
helps your portfolio to grow exponentially. You can also trade with borrowed money
using a margin account, allowing you to potentially magnify your returns. However,
this incurs equally magnified risk and may not be for most traders, even those with
high risk tolerances.

2. Diversify your portfolio: Realize that stock trading is an unreliable source of

money; what was profitable today may not be tomorrow. Diversifying your trading
portfolio means choosing different kinds of securities in order to spread out your
risk. Also, invest in different kinds of businesses. Losses in one industry can be
offset by gains in another. Consider investing in an electronically traded index
fund (ETF). These are a good way to diversify because they hold many stocks, and
they can be traded like regular stocks on the market.Note again that trading is
separate from investing. Investing involves holding the same securities for long
periods of time to build value slowly. Trading, also known as speculation, relies
on quick trades and exposes the trader to more risk.

3. Approach trading like a job: Invest time in your research. Keep yourself abreast
of the latest financial news. If you don�t have time to do the research yourself,
consider investing in more ETFs in order to spread your risk. Or, you may have to
enlist the help of a professional broker instead of trying to do the work yourself.

4. Make a plan: Think through your investment strategies and strive to make smart
decisions. Decide ahead of time how much you plan to invest in a company. Set
limits on how much you are willing to lose. Establish percentage drop or increase
limits. These automatically schedule orders to buy or sell once the stock has
dropped or risen by a certain percentage. Two commonly-used automatic orders are
"stop loss" and "stop limit" orders. Stop loss orders immediately trigger a sell
order when the price of the security falls below a certain point. Stop limit
orders, on the other hands, still trigger a sell order when the price falls below a
certain point, but also will not fill the order below a certain price. This means
that the price of the stock could continue to fall below your order is filled with
a stop loss order, but the stop limit order will prevent you from taking too much
of a loss on a sale. Instead, your order will go unfilled until the price rises to
your established limit.

5. Buy low: Resist the temptation to buy well-performing stocks when the price is
high. Do a technical analysis of the stock�s performance. Try to detect a pattern
in how the price swings, and predict when the stock price will drop. Try to get in
on the stock when the price is at its support level.

6. Trust your research: If you see a stock plunge, don�t sell out of fear of losing
your investment. If possible, leave your investment intact. If your research is
correct, your goal price point may still be reached. Bailing on a stock during a
downward turn can end up costing you a lot in unrealized profits when the stock
begins to climb again.

7. Minimize costs: Brokerage fees can undermine your returns. This is especially
true if you participate in day trading. Day traders quickly buy and sell stocks
throughout the day. They hold the stocks for less than one day, sometimes for only
seconds or minutes, looking for opportunities to make quick profits. Day trading or
any strategy in which you are frequently buying and selling your securities can get
expensive. For every transaction, you may be charged transaction fees, investment
fees and trading activity fees. These fees add up quickly and can significantly cut
into your losses. Day trading can be very punishing and difficult for inexperienced
traders; 99% of non-professional day traders lose money and eventually quit the
market.Instead of executing a high volume of trades, minimize your cost to brokers
and other middlemen by making long-term investments in companies in which you

Visit Book-Shelf to get a reference material on stock market trading.

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Vishal Kamal
Vishal Kamal, Technical Analyst since 2009
Answered Jun 1, 2016 � Author has 129 answers and 58.1k answer views
Stocks Basics: Introduction

Wouldn't you love to be a business owner without ever having to show up at work?
Imagine if you could sit back, watch your company grow, and collect the dividend
checks as the money rolls in! This situation might sound like a pipe dream, but
it's closer to reality than you might think.
As you've probably guessed, we're talking about owning stocks. This fabulous
category of financial instruments is, without a doubt, one of the greatest tools
ever invented for building wealth. Stocks are a part, if not the cornerstone, of
nearly any investment portfolio. When you start on your road to financial freedom,
you need to have a solid understanding of stocks and how they trade on the stock

Over the last few decades, the average person's interest in the stock market has
grown exponentially. What was once a toy of the rich has now turned into the
vehicle of choice for growing wealth. This demand coupled with advances in trading
technology has opened up the markets so that nowadays nearly anybody can own

Despite their popularity, however, most people don't fully understand stocks. Much
is learned from conversations around the water cooler with others who also don't
know what they're talking about. Chances are you've already heard people say things
like, "Bob's cousin made a killing in XYZ company, and now he's got another hot
tip..." or "Watch out with stocks--you can lose your shirt in a matter of days!" So
much of this misinformation is based on a get-rich-quick mentality, which was
especially prevalent during the amazing dotcom market in the late '90s. People
thought that stocks were the magic answer to instant wealth with no risk. The
ensuing dotcom crash proved that this is not the case. Stocks can (and do) create
massive amounts of wealth, but they aren't without risks. The only solution to this
is education. The key to protecting yourself in the stock market is to understand
where you are putting your money.

It is for this reason that we've created this tutorial: to provide the foundation
you need to make investment decisions yourself. We'll start by explaining what a
stock is and the different types of stock, and then we'll talk about how they are
traded, what causes prices to change, how you buy stocks and much more.

Stocks Basics: What Are Stocks?

The Definition of a Stock

Plain and simple, stock is a share in the ownership of a company. Stock represents
a claim on the company's assets and earnings. As you acquire more stock, your
ownership stake in the company becomes greater. Whether you say shares, equity, or
stock, it all means the same thing.

Being an Owner
Holding a company's stock means that you are one of the many owners (shareholders)
of a company and, as such, you have a claim (albeit usually very small) to
everything the company owns. Yes, this means that technically you own a tiny sliver
of every piece of furniture, every trademark, and every contract of the company. As
an owner, you are entitled to your share of the company's earnings as well as any
voting rights attached to the stock.

A stock is represented by a stock certificate. This is a fancy piece of paper that

is proof of your ownership. In today's computer age, you won't actually get to see
this document because your brokerage keeps these records electronically, which is
also known as holding shares "in street name". This is done to make the shares
easier to trade. In the past, when a person wanted to sell his or her shares, that
person physically took the certificates down to the brokerage. Now, trading with a
click of the mouse or a phone call makes life easier for everybody.

Being a shareholder of a public company does not mean you have a say in the day-to-
day running of the business. Instead, one vote per share to elect the board of
directors at annual meetings is the extent to which you have a say in the company.
For instance, being a Microsoft shareholder doesn't mean you can call up Bill Gates
and tell him how you think the company should be run. In the same line of thinking,
being a shareholder of Anheuser Busch doesn't mean you can walk into the factory
and grab a free case of Bud Light!

The management of the company is supposed to increase the value of the firm for
shareholders. If this doesn't happen, the shareholders can vote to have the
management removed, at least in theory. In reality, individual investors like you
and I don't own enough shares to have a material influence on the company. It's
really the big boys like large institutionalinvestors and billionaire entrepreneurs
who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big
deal. After all, the idea is that you don't want to have to work to make money,
right? The importance of being a shareholder is that you are entitled to a portion
of the company's profits and have a claim on assets. Profits are sometimes paid out
in the form of dividends. The more shares you own, the larger the portion of the
profits you get. Your claim on assets is only relevant if a company goes bankrupt.
In case of liquidation, you'll receive what's left after all the creditors have
been paid. This last point is worth repeating: the importance of stock ownership is
your claim on assets and earnings. Without this, the stock wouldn't be worth the
paper it's printed on.

Another extremely important feature of stock is its limited liability, which means
that, as an owner of a stock, you are not personally liable if the company is not
able to pay its debts. Other companies such as partnerships are set up so that if
the partnership goes bankrupt the creditors can come after the partners
(shareholders) personally and sell off their house, car, furniture, etc. Owning
stock means that, no matter what, the maximum value you can lose is the value of
your investment. Even if a company of which you are a shareholder goes bankrupt,
you can never lose your personal assets.

Debt vs. Equity

Why does a company issue stock? Why would the founders share the profits with
thousands of people when they could keep profits to themselves? The reason is that
at some point every company needs to raise money. To do this, companies can either
borrow it from somebody or raise it by selling part of the company, which is known
as issuing stock. A company can borrow by taking a loan from a bank or by issuing
bonds. Both methods fit under the umbrella of debt financing. On the other hand,
issuing stock is called equity financing. Issuing stock is advantageous for the
company because it does not require the company to pay back the money or make
interest payments along the way. All that the shareholders get in return for their
money is the hope that the shares will someday be worth more than what they paid
for them. The first sale of a stock, which is issued by the private company itself,
is called the initial public offering (IPO).

It is important that you understand the distinction between a company financing

through debt and financing through equity. When you buy a debt investment such as a
bond, you are guaranteed the return of your money (the principal) along with
promised interest payments. This isn't the case with an equity investment. By
becoming an owner, you assume the risk of the company not being successful - just
as a small business owner isn't guaranteed a return, neither is a shareholder. As
an owner, your claim on assets is less than that of creditors. This means that if a
company goes bankrupt and liquidates, you, as a shareholder, don't get any money
until the banks and bondholders have been paid out; we call this absolute priority.
Shareholders earn a lot if a company is successful, but they also stand to lose
their entire investment if the company isn't successful.

It must be emphasized that there are no guarantees when it comes to individual
stocks. Some companies pay out dividends, but many others do not. And there is no
obligation to pay out dividends even for those firms that have traditionally given
them. Without dividends, an investor can make money on a stock only through its
appreciation in the open market. On the downside, any stock may go bankrupt, in
which case your investment is worth nothing.

Although risk might sound all negative, there is also a bright side. Taking on
greater risk demands a greater return on your investment. This is the reason why
stocks have historically outperformed other investments such as bonds or savings
accounts. Over the long term, an investment in stocks has historically had an
average return of around 10-12%.

Stocks Basics: Different Types Of Stocks

There are two main types of stocks: common stock and preferred stock.

Common Stock
Common stock is, well, common. When people talk about stocks they are usually
referring to this type. In fact, the majority of stock is issued is in this form.
We basically went over features of common stock in the last section. Common shares
represent ownership in a company and a claim (dividends) on a portion of profits.
Investors get one vote per share to elect theboard members, who oversee the major
decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returns
than almost every other investment. This higher return comes at a cost since common
stocks entail the most risk. If a company goes bankrupt and liquidates, the common
shareholders will not receive money until the creditors, bondholders and preferred
shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company but usually
doesn't come with the same voting rights. (This may vary depending on the company.)
With preferred shares, investors are usually guaranteed a fixed dividend forever.
This is different than common stock, which has variable dividends that are never
guaranteed. Another advantage is that in the event of liquidation, preferred
shareholders are paid off before the common shareholder (but still after debt
holders). Preferred stock may also be callable, meaning that the company has the
option to purchase the shares from shareholders at anytime for any reason (usually
for a premium).

Some people consider preferred stock to be more like debt than equity. A good way
to think of these kinds of shares is to see them as being in between bonds and
common shares.

Stocks Basics: How Stocks Trade

Most stocks are traded on exchanges, which are places where buyers and sellers meet
and decide on a price. Some exchanges are physical locations where transactions are
carried out on a trading floor. You've probably seen pictures of a trading floor,
in which traders are wildly throwing their arms up, waving, yelling, and signaling
to each other. The other type of exchange is virtual, composed of a network of
computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between

buyers and sellers, reducing the risks of investing. Just imagine how difficult it
would be to sell shares if you had to call around the neighborhood trying to find a
buyer. Really, a stock market is nothing more than a super-sophisticated farmers'
market linking buyers and sellers.
Before we go on, we should distinguish between the primary market and the secondary
market. The primary market is where securities are created (by means of an IPO)
while, in the secondary market, investors trade previously-issued securities
without the involvement of the issuing-companies. The secondary market is what
people are referring to when they talk about the stock market. It is important to
understand that the trading of a company's stock does not directly involve that

The New York Stock Exchange

The most prestigious exchange in the world is the New York Stock Exchange (NYSE).
The "Big Board" was founded over 200 years ago in 1792 with the signing of the
Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the
NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette
and Wal-mart, is the market of choice for the largest companies in America.

The trading floor of the NYSE

The NYSE is the first type of exchange (as we referred to above), where much of the
trading is done face-to-face on a trading floor. This is also referred to as a
listed exchange. Orders come in through brokerage firms that are members of the
exchange and flow down to floor brokers who go to a specific spot on the floor
where the stock trades. At this location, known as the trading post, there is a
specific person known as the specialist whose job is to match buyers and sellers.
Prices are determined using an auction method: the current price is the highest
amount any buyer is willing to pay and the lowest price at which someone is willing
to sell. Once a trade has been made, the details are sent back to the brokerage
firm, who then notifies the investor who placed the order. Although there is human
contact in this process, don't think that the NYSE is still in the stone age:
computers play a huge role in the process.

The Nasdaq
The second type of exchange is the virtual sort called an over-the-counter (OTC)
market, of which the Nasdaq is the most popular. These markets have no central
location or floor brokers whatsoever. Trading is done through a computer and
telecommunications network of dealers. It used to be that the largest companies
were listed only on the NYSE while all other second tier stocks traded on the other
exchanges. The tech boom of the late '90s changed all this; now the Nasdaq is home
to several big technology companies such as Microsoft, Cisco, Intel, Dell and
Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.

The Nasdaq market site in Times Square

On the Nasdaq brokerages act as market makers for various stocks. A market maker
provides continuous bid and ask prices within a prescribed percentage spread for
shares for which they are designated to make a market. They may match up buyers and
sellers directly but usually they will maintain an inventory of shares to meet
demands of investors.

Other Exchanges
The third largest exchange in the U.S. is the American Stock Exchange (AMEX). The
AMEX used to be an alternative to the NYSE, but that role has since been filled by
the Nasdaq. In fact, the National Association of Securities Dealers (NASD), which
is the parent of Nasdaq, bought the AMEX in 1998. Almost all trading now on the
AMEX is in small-cap stocks and derivatives.

There are many stock exchanges located in just about every country around the
world. American markets are undoubtedly the largest, but they still represent only
a fraction of total investment around the globe. The two other main financial hubs
are London, home of the London Stock Exchange, and Hong Kong, home of the Hong Kong
Stock Exchange. The last place worth mentioning is the over-the-counter bulletin
board (OTCBB). The Nasdaq is an over-the-counter market, but the term commonly
refers to small public companies that don't meet the listing requirements of any of
the regulated markets, including the Nasdaq. The OTCBB is home to penny stocks
because there is little to no regulation. This makes investing in an OTCBB stock
very risky.

Stocks Basics: What Causes Stock Prices To Change?

Stock prices change every day as a result of market forces. By this we mean that
share prices change because of supply and demand. If more people want to buy a
stock (demand) than sell it (supply), then the price moves up. Conversely, if more
people wanted to sell a stock than buy it, there would be greater supply than
demand, and the price would fall.

Understanding supply and demand is easy. What is difficult to comprehend is what

makes people like a particular stock and dislike another stock. This comes down to
figuring out what news is positive for a company and what news is negative. There
are many answers to this problem and just about any investor you ask has their own
ideas and strategies.

That being said, the principal theory is that the price movement of a stock
indicates what investors feel a company is worth. Don't equate a company's value
with the stock price. The value of a company is its market capitalization, which is
the stock price multiplied by the number of shares outstanding. For example, a
company that trades at $100 per share and has 1 million shares outstanding has a
lesser value than a company that trades at $50 that has 5 million shares
outstanding ($100 x 1 million = $100 million while $50 x 5 million = $250 million).
To further complicate things, the price of a stock doesn't only reflect a company's
current value, it also reflects the growth that investors expect in the future.

The most important factor that affects the value of a company is its earnings.
Earnings are the profit a company makes, and in the long run no company can survive
without them. It makes sense when you think about it. If a company never makes
money, it isn't going to stay in business. Public companies are required to report
their earnings four times a year (once each quarter). Wall Street watches with
rabid attention at these times, which are referred to as earnings seasons. The
reason behind this is that analysts base their future value of a company on their
earnings projection. If a company's results surprise (are better than expected),
the price jumps up. If a company's results disappoint (are worse than expected),
then the price will fall.

Of course, it's not just earnings that can change the sentiment towards a stock
(which, in turn, changes its price). It would be a rather simple world if this were
the case! During the dotcom bubble, for example, dozens of internet companies rose
to have market capitalizations in the billions of dollars without ever making even
the smallest profit. As we all know, these valuations did not hold, and most
internet companies saw their values shrink to a fraction of their highs. Still, the
fact that prices did move that much demonstrates that there are factors other than
current earnings that influence stocks. Investors have developed literally hundreds
of these variables, ratios and indicators. Some you may have already heard of, such
as the price/earnings ratio, while others are extremely complicated and obscure
with names like Chaikin oscillator or moving average convergence divergence.

So, why do stock prices change? The best answer is that nobody really knows for
sure. Some believe that it isn't possible to predict how stock prices will change,
while others think that by drawing charts and looking at past price movements, you
can determine when to buy and sell. The only thing we do know is that stocks are
volatile and can change in price extremely rapidly.

The important things to grasp about this subject are the following:

1. At the most fundamental level, supply and demand in the market determines stock
2. Price times the number of shares outstanding (market capitalization) is the
value of a company. Comparing just the share price of two companies is meaningless.

3. Theoretically, earnings are what affect investors' valuation of a company, but

there are other indicators that investors use to predict stock price. Remember, it
is investors' sentiments, attitudes and expectations that ultimately affect stock
4. There are many theories that try to explain the way stock prices move the way
they do. Unfortunately, there is no one theory that can explain everything.

Stocks Basics: Buying Stocks

ByInvestopedia Staff

You've now learned what a stock is and a little bit about the principles behind the
stock market, but how do you actually go about buying stocks? Thankfully, you don't
have to go down into the trading pit yelling and screaming your order. There are
two main ways to purchase stock:

1. Using a Brokerage
The most common method to buy stocks is to use a brokerage. Brokerages come in two
different flavors. Full-service brokerages offer you (supposedly) expert advice and
can manage your account; they also charge a lot. Discount brokerages offer little
in the way of personal attention but are much cheaper.

At one time, only the wealthy could afford a broker since only the expensive, full-
service brokers were available. With the internet came the explosion of online
discount brokers. Thanks to them nearly anybody can now afford to invest in the

2. DRIPs & DIPs

Dividend reinvestment plans (DRIPs) and direct investment plans (DIPs) are plans by
which individual companies, for a minimal cost, allow shareholders to purchase
stock directly from the company. Drips are a great way to invest small amounts of
money at regular intervals.

Stocks Basics: How to Read A Stock Table/Quote

Any financial paper has stock quotes that will look something like the image below:

Columns 1 & 2: 52-Week High and Low - These are the highest and lowest prices at
which a stock has traded over the previous 52 weeks (one year). This typically does
not include the previous day's trading.

Column 3: Company Name & Type of Stock - This column lists the name of the company.
If there are no special symbols or letters following the name, it is common stock.
Different symbols imply different classes of shares. For example, "pf" means the
shares arepreferred stock.
Column 4: Ticker Symbol - This is the unique alphabetic name which identifies the
stock. If you watch financial TV, you have seen the ticker tape move across the
screen, quoting the latest prices alongside this symbol. If you are looking for
stock quotes online, you always search for a company by the ticker symbol. If you
don't know what a particular company's ticker is you can search for it at:

Column 5: Dividend Per Share - This indicates the annual dividend payment per
share. If this space is blank, the company does not currently pay out dividends.

Column 6: Dividend Yield - The percentage return on the dividend. Calculated as

annual dividends per share divided by price per share.

Column 7: Price/Earnings Ratio - This is calculated by dividing the current stock

price by earnings per share from the last four quarters. For more detail on how to
interpret this, see our P/E Ratio tutorial.

Column 8: Trading Volume - This figure shows the total number of shares traded for
the day, listed in hundreds. To get the actual number traded, add "00" to the end
of the number listed.

Column 9 & 10: Day High and Low - This indicates the price range at which the stock
has traded at throughout the day. In other words, these are the maximum and the
minimum prices that people have paid for the stock.

Column 11: Close - The close is the last trading price recorded when the market
closed on the day. If the closing price is up or down more than 5% than the
previous day's close, the entire listing for that stock is bold-faced. Keep in
mind, you are not guaranteed to get this price if you buy the stock the next day
because the price is constantly changing (even after the exchange is closed for the
day). The close is merely an indicator of past performance and except in extreme
circumstances serves as a ballpark of what you should expect to pay.

Column 12: Net Change - This is the dollar value change in the stock price from the
previous day's closing price. When you hear about a stock being "up for the day,"
it means the net change was positive.

Quotes on the Internet

Nowadays, it's far more convenient for most to get stock quotes off the Internet.
This method is superior because most sites update throughout the day and give you
more information, news, charting, research, etc.

To get quotes, simply enter the ticker symbol into the quote box of any major
financial site like Yahoo! Finance, CBS Marketwatch, or MSN Moneycentral. The
example below shows a quote for Microsoft (MSFT) from Yahoo Finance. Interpreting
the data is exactly the same as with the newspaper.

Stocks Basics: The Bulls, The Bears And The Farm

On Wall Street, the bulls and bears are in a constant struggle. If you haven't
heard of these terms already, you undoubtedly will as you begin to invest.

The Bulls
A bull market is when everything in the economy is great, people are finding jobs,
gross domestic product (GDP) is growing, and stocks are rising. Things are just
plain rosy! Picking stocks during a bull market is easier because everything is
going up. Bull markets cannot last forever though, and sometimes they can lead to
dangerous situations if stocks become overvalued. If a person is optimistic and
believes that stocks will go up, he or she is called a "bull" and is said to have a
"bullish outlook".

The Bears
A bear market is when the economy is bad, recession is looming and stock prices are
falling. Bear markets make it tough for investors to pick profitable stocks. One
solution to this is to make money when stocks are falling using a technique called
short selling. Another strategy is to wait on the sidelines until you feel that the
bear market is nearing its end, only starting to buy in anticipation of a bull
market. If a person is pessimistic, believing that stocks are going to drop, he or
she is called a "bear" and said to have a "bearish outlook".

The Other Animals on the Farm - Chickens and Pigs

Chickens are afraid to lose anything. Their fear overrides their need to make
profits and so they turn only to money-market securities or get out of the markets
entirely. While it's true that you should never invest in something over which you
lose sleep, you are also guaranteed never to see any return if you avoid the market
completely and never take any risk,

Pigs are high-risk investors looking for the one big score in a short period of
time. Pigs buy on hot tips and invest in companies without doing their due
diligence. They get impatient, greedy, and emotional about their investments, and
they are drawn to high-risk securities without putting in the proper time or money
to learn about these investment vehicles. Professional traders love the pigs, as
it's often from their losses that the bulls and bears reap their profits.

What Type of Investor Will You Be?

There are plenty of different investment styles and strategies out there. Even
though the bulls and bears are constantly at odds, they can both make money with
the changing cycles in the market. Even the chickens see some returns, though not a
lot. The one loser in this picture is the pig.

Make sure you don't get into the market before you are ready. Be conservative and
never invest in anything you do not understand. Before you jump in without the
right knowledge, think about this old stock market saying:

"Bulls make money, bears make money, but pigs just get slaughtered!"

Stocks Basics: Conclusion

Let's recap what we've learned in this tutorial:

Stock means ownership. As an owner, you have a claim on the assets and earnings of
a company as well as voting rights with your shares.
Stock is equity, bonds are debt. Bondholders are guaranteed a return on their
investment and have a higher claim than shareholders. This is generally why stocks
are considered riskier investments and require a higher rate of return.
You can lose all of your investment with stocks. The flip-side of this is you can
make a lot of money if you invest in the right company.
The two main types of stock are common and preferred. It is also possible for a
company to create different classes of stock.
Stock markets are places where buyers and sellers of stock meet to trade. The NYSE
and the Nasdaq are the most important exchanges in the United States.
Stock prices change according to supply and demand. There are many factors
influencing prices, the most important of which is earnings.
There is no consensus as to why stock prices move the way they do.
To buy stocks you can either use a brokerage or a dividend reinvestment plan
Stock tables/quotes actually aren't that hard to read once you know what everything
stands for!
Bulls make money, bears make money, but pigs get slaughtered!
1.3k Views � View Upvoters � Answer requested by Bala
Prakarsh Gagdani
Prakarsh Gagdani, Around 15 years of Capital market experience including Mutual
Answered Jun 7, 2017 � Author has 1k answers and 925.2k answer views
Stock market is a place where everyone wants to make quick money. But at the same
time, it is highly risky as well. A new entrant should try to read quality
materials related to stocks and the market. Try to understand the basic concepts
and market cycle, its volatility, factors affecting it etc.

You can pick some 10-15 blue chip stocks and keep a regular watch on their price
movements and also note it down. Revise it weekly, monthly and write down your own

Some factors you should consider before making stock investment are:

- Decide Your Objective Of Investment: The first step to investing is to set your
objective behind investing. Which means, you need to know why you are inventing and
what purpose you wish your investments to fulfill.

- For How Long You Wish To Stay Invested: Deciding your investment horizon - long-
term or short-term determines investor's income needs and desired risk exposure.
Once investment period is decided, it, to a large extent helps investors pick the
right investment asset.

- Determine Your Risk Appetite: Saving and investing involves a variety of risks,
for example the risk your money will not keep up with rising prices (inflation
risk), the risk that comes with share prices going up and down (volatility risk),
the risk that an institution will fail (default risk), and the risk that you could
have earned better returns elsewhere (interest-rate risk).

- Do Your Own Research Before Investing: Collect information about companies, its
financial position, its future plans, any mergers or acquisitions, dividend/return
history etc.

- Read To Learn: Try to read quality stuff from websites for new market updates and
read books to learn about stock market.

As a new stock market participant, the things that you'll definitely require:

1. Quality Research

2. Accurate Stock Calls

3. Ease of transaction

4. Helpful Customer support

5. Good Mobile App

There are lot of good brokerage firms that allow you to trade by yourself.
IndiaInfoline, Sharekhan,, Angel Broking and Motilal Oswal to name a
few. Most of these brokers provide everything from trading, research, company info,
discussion forums, videos, charting, advisory, notifications, etc.

Apart from the above given names, there are many others in the market as well who
are putting their best to introduce new features to woo and retain their clients.
Some of the platforms provided by brokers are free of cost and some others can be
availed by paying monthly fees.

As I represent, I would recommend you try our services. With,
an investor just have to pay Rs 10/order and get online trading software, mobile
app, charting facilities, research advisory and many more.

719 Views � View Upvoters

Razzu Oran
Razzu Oran, learner Digital Anlytics and Marketer (2015-present)
Answered Mar 29, 2016

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612 Views � View Upvoters

Abhinash Das
Abhinash Das, The stock market is a device to transferring money from a impatient
to a patient
Answered May 21, 2016 � Author has 132 answers and 438.9k answer views
If you are just a Novice and do not know anything about stock market but have
interest to learn and earn then I will start from the account opening process.There
are many brokers available .

Discount Broker ( like I am using a discount broker i.e )

Full Service Broker (Normally all Banks,and few others )
Step 1 : Go to Zerodha Account Opening Page. Click Here

They'll try to call you within 30 minutes on working days.Tell them you want to
open a Equity Trading account and a Demat Account. You can have commodity trading
account(optional). Trading account will cost Rs 300 and Demat Account Rs.100 for
first year.Only a Trading account is needed to trade Future ,option (Equity/Cash,
Currency). You will learn later what future,options are and you should focus now
only on Equity or Cash Segment which can give you return in long term or you can
dive into intraday trading(you buy or sell stocks in the same day and make
profits ,no need to wait for years or months).

Step 2 : Get your latest bank statement ,your pan card copy and a passport size
photo ready. No need for other documents . pancard and bank statement is enough

Their agent will come to your given address and collect these documents and your
sign on trading and demat account forms . They will help you in very steps,where to
sign on forms,changing in form or anything .Time taken 1 day for trading account. 3
working days for demat account.

If you want a DEMO .They will give you Demo on how to buy or sell stocks other very
basic things,you can ask any noob questions. also can schedule the demo as per your
time and demo will be given by screen sharing technology. It is quite interesting
for a newbie .

Step 3 : Start Trading !

You will receive 2 emails after your account opens ,first a welcome email which
gives you the login and password to our reporting backoffice tools Q and Quant.
Second,Trading and transaction passwords email.You can download their mobile App
from playstore . It is awesome and have a great User Interface ,you will enjoy
Earning on the move .

Step 4 : Learn on Varsity - Capital markets explained like never before


The modules on this learning platform is perfect. They have started from very basic
level to technical analyse ,algorithm etc. Besides you everyday a new thing is
being added.I am sure you will enjoy reading the modules and it is a interactive
learning platform,you can ask any related question and get your answers from the

Step 5 : Read Financial News Everyday, Check Company�s results, Updated Financial
datas ,Visit Financial Blogs etc

Visit ,Bookmark it ,The latest business, finance, and market news
from the last 24 hours from all major Indian news sources aggregated in one place.

Visit, You will find all the information ,almost all the
information on stocks . The data is updated every minutes .

More Resource to refer

Z-Connect � Among India's most active financial blogs.
For all your coding/backtesting related queries.

How to start ?

The following is a screenshot from my Zerodha account.I am also a risk-adverse

investor and trade in very small capital. I trade in Intraday to make only 100�1000
It is not fixed sometimes I loss 100�200 not more than that.I don�t take too much
risk. Since Brokerage is zero in Zerodha , I make this much small profit without
worrying for brokerage charges. If you have bank as a broker ,they will loot you
even for trading in small amount of fund. Always go for discount brokerage like
Zerodha. Below is a screenshot from my account ,see how I am doing trading with
this much of small capital. Actually it is a part of learning process,you have to
dive into Real trading with broker. Along with it learn from
tutorial,blogs,articles etc.

But having a trading and demat account is must for starting the learning process.

On Zerodha Varsity ,Go through modules one by one starting from the module 1 and
chapter one, Finish one module within a week .Also advice you to go through the
comments on Zerodha Varsity . you can ask your query also.

No need to go for expensive courses offered by banks and not go for paid online
tutorials charging 5,000 rupees to 50,000 rupees for course materials and video

Trade in small amount ,Fund your Zerodha Trading with 1 k to 10K Rupees or any
amount you are comfortable with . Then start Intraday trading by taking margin with
the Zerodha

So if you have 2,000 rupees then you can borrow rest amount from the Zerodha
Discount Broker and buy stocks worth 20,000 rupees.

Following this process will help to understand stock market in few days only.

I was also a total newbie like you and had started just few days before. you can
follow me on Quora and check my questions I asked here ,all the questions are based
on basic understanding of concepts of Indian stock market. There are some awesome
answers I got on my questions ,Thanks Quorans for their help !

Take the first step then Eventually you will become a good at trading and it is
skill,you should have

Later Learn Technical Analysis and Algorithm trading on Zerodha Varsity.Develop

your own algorithm and strategy .

Happy learning and Earning !!

1.8k Views � View Upvoters

Vishal Jhaveri
Vishal Jhaveri, Founder at Wealthpedia, Helping People Creating Wealth
Answered Apr 8, 2018 � Author has 565 answers and 346.8k answer views
Many investors, especially the small investors, do not often possess adequate
expertise/ knowledge to make informed investment decisions. Many of them are not
aware of the risk-return profiles of various investment products. A large number of
investors are not fully aware of the precautions they should take while dealing
with the market intermediaries. Many are not familiar with the market mechanisms
and practices as well as with their rights and obligations. These are substantially
fuelled by the huge rewards that some investments have the potential to offer. At
the same time, wrong investment decisions can lead to huge losses too.

�Investors Beware� should be the watchword. As all investments have some risk
element, this should be borne in mind by the investors. If caution is thrown to the
winds, they have only to blame themselves. Investing well has a secret formula �
having the right information, planning and making good choices.

Why is investing important?

Savings v/s Investing

Saving is the excess of your income over your expenditure. Generally, this lies in
the savings bank account or in fixed deposits with a bank. The money is very safe,
earning a small rate of interest and it can be on hand as and when required (high
liquidity). On the other hand, this money could be invested in meeting long-term
goals. While some investments may rise or fall in value over time, prudent
investments would earn a lot more than the bank�s savings account.

It is important to take into account the effects of inflation on your investments.

(Inflation is the rise in prices of goods and services. As the prices of these
increases, the value of the rupee goes down and one will not be able to purchase as
much with those rupees as one could have in the last month or last year). Savings
rarely beat the inflation rate; investments can.

In essence, the difference between savings and investment is that savings are
simply idle cash while investments help your funds to grow over a period of time.
One can meet his short-term needs with his savings but to meet his long-term goals,
he needs to make investments. Savings primarily help to protect the principal while
investments help to earn returns beyond the inflation rate.

Power of Compounding

The most powerful tool for creating wealth safely and surely is the magical �power
of compounding�. If you park your money in an investment with a given return and
then reinvest those earnings as you receive them, your investment grows
exponentially over time. Illustratively, if you set aside a sum of say ` 5,000
every month from the age of 25, earning interest at the rate of 10% p.a., in 60
years you will have with you funds worth more than Rs. 1 crore. However, if you
start at 40 with the same amount and rate of interest, the fund accumulated will
amount to only around Rs. 33 lakh. Hence, it is always advisable to start saving
early to enjoy the benefits of the power of compounding.

What should be the investment objectives?

There are primarily three investment objectives: safety, returns, and liquidity. In
an ideal scenario, this means that one would like the investment to be absolutely
safe, while it generates handsome returns and also provides high liquidity.
However, it is very difficult to maximize all three objectives simultaneously.
Typically, one objective trades off against another. For example, if one wants high
returns, one may have to take some risks or if one wants high liquidity, one may
have to compromise on returns.

Every person should prepare a statement of financial goals covering as many

requirements as possible. This is the basis on which the financial plan shall then
be prepared. A person�s financial needs depend on the age, stage in the career
path, size of the family, needs of the other family members etc. Some of the needs
can be identified with precision while others can only be determined tentatively.
There may be unanticipated needs as well for which provisions will need to be made.
If the financial capability in terms of savings is found to be inadequate to meet
all the goals, these would need to be prioritized. The financial plan is never
static; it has to be reviewed from time to time to account for the changing

There are investment opportunities that are high on risk and there are investment
opportunities that are low on risk. Each is called an asset class. An investor
needs to allocate his savings to one or more asset classes depending upon his

The indicative table below charts some instruments vis-�-vis their features

Investor Age and Asset Allocation

There are no magic tricks to find the perfect asset allocation. Perfect asset
allocation is not the one which will make you rich but rather the one that will fit
your profile. One of the key factors in determining your investing profile is your
age. While it is not the only factor to take into consideration, you can manage
your asset allocation according to your age.

Younger investors should be better off with a portfolio featuring more stocks with
greater growth opportunities. Older investors nearing or already in retirement
should prefer portfolios with a greater percentage of bonds (or other fixed income
products) with their more reliable revenue streams and a lower proportion of stocks
with their associated risks.

There are many ways to determine an asset allocation, including several rules of
thumb. One common suggestion is to invest your age in bonds. So, if you are 40
years old, you may use a 40/60 (bond/equity) allocation. At worst, by such
investing according to age, the asset allocation might be slightly more
conservative for the under-40 people and slightly more risky than is advisable for
those over 60.

However, if there was the only age to manage, things would be pretty easy. This is
far from being that simple. In fact, age is only a mathematical data that doesn�t
take into consideration your risk tolerance. You might be young enough to support a
big market drop as you will have time to play with you to gain it back but if you
are about to have a heart attack when the market goes down by 5%, you won�t last
until your retirement!

Here is some general advice for various age groups.

18 to 35: While you should not be having much money to invest during this period,
this is where you should risk the most. Technically, you should not need the money
you invest for retirement for a good 30 years. This is the perfect time horizon for
an investor. As such, an asset allocation with 90% to 100% in stocks would be
ideal. Unless you are good at building your own stock portfolio, it is advisable to
invest through mutual funds or index ETFs. Why should you select such an aggressive
asset allocation? Simply because it will be the type of portfolio with the highest
expected yield over time. Investing in bonds at such early age will minimize your
profit expectancy for nothing.

36 to 50: This is usually the time of your life where you get a better job
(therefore better salary). Try to aim for an asset allocation of about 75% of
equity and 25% of bonds. At your age, you still can afford a lot of risks and you
should not be shy to take them. The 25% in your asset allocation will smooth your
investment returns during the major crisis but would not slow down too much.

51 to 65: During this period, you can start seeing your retirement. However, that
should not be the reason for you to secure your asset allocation to the maximum
either. Since you would not be withdrawing much of your investment at that age, you
can still handle some market fluctuations. Going from a growth to a more balanced
asset allocation seems logical and as such, a 25%/75% asset allocation approach
would allow you to earn some decent investment returns while not suffering too much
during market crashes.

66 and older: You will for sure be retired during this period of your life. If you
have been investing throughout your whole life, you should be sitting on a solid
nest egg. There are no reasons why you should now risk in the name of higher
returns. A more secure asset allocation showing a 90% to 100% bond portfolio would
be advisable.

Individual Category and Selection Criteria

Are there any parameters one should look at based on his individual status. On a
thumb rule basis, the following could be the selection criteria before making an
investment in various categories of individuals:

VI: Very Important I: Important LI: Less Important

Capital Market:

Among all investment options available, the capital market is considered the most
challenging as well as most rewarding. The capital market is a market for
securities (equity and debt), where companies (and government) raise long-term
funds from the public investors, and where investors can subsequently trade among
themselves in these securities.


Typically, personal savings of an entrepreneur, and if required then contributions

from friends/relatives are the source of funds to start a new business. For a large
project, however, as the fund requirements are large, these will not only require
term loans but go even beyond that.Thus the availability of capital is a major
input for setting up or expanding business on a large scale There is a way to raise
equity beyond oneself or from a limited pool of a small circle of friends and
relatives. This is by way of raising money from the public across the country by
selling shares of the company. For this purpose, the promoter has to invite
subscriptions through an offer document which gives full details about the
promoters� track record, the company, the nature of the project, the business
model, the expected profitability etc. When an individual is comfortable with such
an investment opportunity, he may apply in the company�s public issue and upon
allotment become a shareholder of the company. This way, through aggregation, even
small amounts available with a very large number of individuals translate into
usable capital for corporates. Your small savings of, say, even Rs. 5,000 can
contribute to setting up, say, Rs. 5,000 crore telecom plant. This mechanism by
which companies raise money from the public is called the primary market.

Importantly, when you, as a shareholder, need your money back, you can sell these
shares to other or new investors. Such trades do not reduce or alter the company�s
capital. Stock exchanges bring such sellers and buyers together through
stockbrokers and facilitate trading. As such, companies raising money from the
public are required to compulsorily list their shares on a stock exchange which has
nationwide trading terminals. This mechanism of buying and selling shares through a
stock exchange is known as the secondary market.

As a shareholder, you are part owner of the company and entitled to all the
benefits of ownership, including dividend (company�s profit distributed to owners).
Over the years if the company performs well, other investors would like to become
owners of such a company by buying its shares. This increase in demand for the
shares leads to increase in its price. You then have the opportunity of selling
your shares at a higher price than at which you purchased it. You can thus increase
your wealth, provided you make the right choice at the first instance of buying
shares of the right companies. The reverse is also true! It is therefore important
that an investor makes an informed choice.

Equity is an appropriate investment avenue for an investor who is prepared to take

risks in order to generate higher returns. Over the long term, returns from equity
shares at aggregated levels have been historically higher than most other avenues.


There are primarily three types:

� Nonconvertible debentures (NCD) � the Total amount is redeemed by the issuer at a
specified time
� Partially convertible debentures (PCD) � Part of the value is redeemed and the
remaining is converted to equity shares at a specified price and time

� Fully convertible debentures (FCD) � Full value is converted into equity at a

specified price and time

Debentures/Bonds are contracts where one party is the lender (investor) and the
other party is the borrower (company). This contract specifies the rate of
interest, the periodicity of interest payments (monthly/quarterly/ annual), and the
maturity date for repayment of the principal amount (like 3/5/7 years). The term
�bond� is used for the debt instrument issued by the central and state governments
and PSUs while the term �debenture� is used for debt issues from the private
corporate sector. These instruments are normally secured/charged against the assets
of the company, and are required to be rated by credit rating agencies.

Debentures/Bonds are ideal for investors seeking assured and regular income. These
instruments typically offer interest rates higher than bank fixed deposits. Some
bonds offer tax benefits to the investors.

Purchasing Securities in the Primary Market

Initial Public Offering (IPO) is when a hitherto unlisted company makes either a
fresh issue of shares or some of its existing shareholders make an offer to sell
off part of their existing shareholding for the first time to the public. This
paves the way for the listing and trading of such shares. An IPO of fresh shares is
typically made by a company when it needs money for growth-expansion or
diversification or acquisitions or even to meet its increasing working capital
requirements. In an IPO involving an offer for sale, the proceeds go to the selling

Further Public Offering (FPO) is when an already listed company makes either a
fresh issue of securities to the public or the existing promoters make an offer for
sale to the public. An FPO, where fresh securities are issued, is typically made by
a company when it needs money for growth-expansion or diversification or
acquisitions or even to meet its increasing working capital requirements. An FPO is
also the preferred route (over a rights issue) when the company wants to bring in
new investors- both institutional as well as retail. It may be pointed out that the
FPO route is also being utilized extensively by the Government for the PSUs for the
purpose of disinvestment of government�s holdings.

Regarding the price of shares offered in an IPO or an FPO, SEBI does not play any
role in price fixation. The issuer company decides the price. In support of this,
it is required to give full disclosures in the offer document and also justify the
issue price by parameters such as EPS, PE multiples and return on net worth and
comparison of these parameters with peer group companies. There are two types of
issues. In one, the company fixes a specified price (called fixed price issues). In
the other, the company stipulates a floor price or a price band (within 20%) and
invite bids from the market to then determine the final price (called book building
issues). In the case of FPOs, the issue price is normally at a discount to the
current market price. Some companies, and specifically PSUs, offer a discount to
the retail investors in both IPOs and FPOs up to a maximum 10%.

Dos for Investing in IPOs/FPOs

Read the Prospectus/Abridged Prospectus carefully, with special attention to:

-Risk factors
-Background of promoters -Company history
-Outstanding litigations and defaults

-Financial statements
-The object of the issue
-The basis of Issue price
-Instructions for making an application

-Use the ASBA process for applying (Under this, the investor authorizes his bank to
block in his bank account an amount equivalent to the application money. The money
remains in the bank. Upon finalization of the basis of allotment, only the amount
equivalent to the allotment amount is debited to the bank account, and the rest is
freed up).

-In case of non-receipt, within the due period, the credit to demat account/refund
of application money, lodge a complaint with compliance officer of the issuer and
with post-issue lead manager

DON�Ts for investing in IPOs/FPOs

� Don�t be influenced by any implicit/explicit promise made by the issuer or anyone


� Don�t invest based only on the prevailing bull run of the market index or of
scrips of other companies in the same industry or scrips of the issuer
company/group companies

� Don�t expect the price of the shares of the issuer company to necessarily go up
upon listing or forever

Purchasing Securities in the Secondary Market

Secondary market refers to the market where the issued shares and bonds/debentures
are sold and bought by investors through a broker of a stock exchange.

DOs for investing in the secondary market

Before investing, check the credentials of the company, its management,
fundamentals and recent announcements made by them and other disclosures made. The
main sources of information are the websites of the exchanges and companies,
databases of data vendors, business newspapers, and magazines

Adopt trading/investment strategies commensurate with your risk-bearing capacity as

all investments carry some risk, the degree of which varies according to the
investment strategy adopted
Transact only through SEBI-recognized stock exchanges and deal only through SEBI-
registered brokers/sub-brokers
Give clear and unambiguous instructions to your broker/sub-broker/DP
Insist on a contract note for each transaction and verify details in the contract
note, immediately on receipt. If in doubt, crosscheck details of your trade
available with the details on the exchange�s website
Ensure that the broker�s name, trade time and number, transaction price and
brokerage are shown distinctly on the contract note
Issue cheques/ drafts only in the trade name of the broker
Deliver the shares/depository slip in case of sale and pay the money in case of
purchase within the prescribed time
Ensure receipt of payment/deliveries within 48 hours of payout
Insist on the periodical statement of accounts
Scrutinize both the transactions and the holding statements that you receive from
your DP
Handle Delivery Instruction Slips (DIS) Book issued by the DP carefully. Insist
that the DIS numbers are pre-printed and your account number (Client ID) is pre-
In case you are not transacting frequently, use the freezing facility in your demat
In case of disputes with the sub-broker, inform the main broker immediately
DON�Ts for investing in the secondary market

Don�t forget to take account of the potential risks that are involved in investment
in shares
Don�t undertake an off-market transaction
Don�t deal with unregistered intermediaries� Don�t fall prey to promises of
unrealistic returns or guaranteed returns
Don�t invest on the basis of hearsays, rumors, and tips
Don�t be influenced into buying into fundamentally unsound companies (penny stocks)
based on sudden spurts in trading volumes or �low� prices or favorable
articles/stories in the media
Don�t blindly follow investment advice given on TV channels/ websites/ SMS� Don�t
invest under peer pressure or blindly imitate investment decisions of others who
may have profited from their investment decisions
Don�t get misled by companies showing approvals/registrations from Government
agencies as the approvals could be for certain other purposes
Don�t get carried away with advertisements about the financial performance of

A stock market index captures the behavior of the overall equity market. The ups
and downs of an index reflect the changing expectations of the stock market about
the future profitability of India�s corporate sector. This is achieved by giving
each stock a weight

proportional to its market capitalization. The most important market index is the
broad-market index, consisting of the large, liquid stocks of the country. In
India, we have NIFTY 50 and SENSEX as the major index.

Depository System
Earlier, there used to be physical share certificates issued, which are now
converted to Electronic form. A depository holds securities (like shares,
debentures, bonds, mutual fund units etc.) of investors in electronic form (demat
form) through a registered Depository Participant (DP). It also provides services
related to transactions in securities. A DP is an agent of the depository through
which it interfaces with the investor and provides depository services. It is now
compulsory for every investor to open a beneficial owner (BO) account to apply in
IPOs/FPOs or to trade in stock exchange.

Benefits of availing depository services include:

� A safe and convenient way to hold securities

� Immediate transfer of securities

� No stamp duty on transfer of securities
� Elimination of risks associated with physical certificates such as bad delivery,
fake securities, delays, thefts etc.
� Reduction in paperwork involved in the transfer of securities
� Reduction in transaction cost
� No odd lot problem, even one share can be traded
� Nomination facility
� Change in address recorded with DP gets registered with all companies in which
investor holds securities electronically eliminating the need to correspond with
each of them separately

� Transmission of securities is done by DP eliminating correspondence with


� Automatic credit into demat account of shares, arising out of bonus/split/merger

etc. � Holding investments in equity and debt instruments in a single account.

Process for becoming a capital market investor

For investing in IPOs/FPOs

The first requirement is PAN

The second requirements is a bank account
The third requirement is demat account(shares are credited/debited in an electronic
mode) which can be opened with a registered Depository Participant. For more
details, visit the websites of the two depositories: CDSL (Central Depository
Services (India) Limited -MN) and NSDL (NSDL)
Additionally, for investing in the secondary market

� Select a broker, complete the KYC form and enter into a broker-client agreement
to open a Trading Account


All shareholders have certain rights. Shareholders also need protection; not
protection for the assured growth of their investments but protection from
malpractices and frauds. SEBI regulates the capital market and it has laid down
guidelines for ensuring rights of the shareholders. For this purpose, it monitors
all constituents of the capital market- from issuers on one hand to stock exchanges
on the other hand and all other intermediaries like stock brokers, merchant
bankers, and underwriters. For more information, please visit Securities and
Exchange Board of India. Please also visit the websites of the two national-level
stock exchanges: BSE and NSE
To receive the shares on allotment or purchase within the stipulated time
To receive copies of the Annual Report of the company
To receive dividends, if declared, in due time
To receive approved corporate benefits like rights, bonus, etc.
To receive an offer in case of the takeover, delisting or buyback
To participate/vote in general meetings
To inspect the statutory registers at the registered office of the company
To inspect the minute books of the general meetings and receive copies
To complain and seek redressal against fraudulent and investor unfriendly companies
To proceed against the company, if in default, by way of civil or criminal
To receive the residual proceeds in case of winding up
Rights as a debenture holder
To receive interest/redemption in the stipulated time
To receive a copy of the trust deed on request
To apply before the CLB in case of default in the redemption of debentures on the
date of maturity
To apply for winding up of the company if the company fails to pay its debt
To approach the Debenture Trustee for grievances


The capital market is highly complex. The risks rise further for most individuals
who neither have the time, skills or resources to select the right securities nor
to monitor their investments subsequently nor to take decisions on exits. Selecting
securities with growth and income potential from a large number of listed
securities involves careful research and monitoring of the market, which is not
possible for most small investors. Also, the key to successful investing in the
capital market is to minimize risks which can be done by building a diversified
portfolio, which however requires substantial capital.

Mutual Fund is a professional intermediary between the investor and the capital
market. Mutual Fund is an entity which collects funds from small investors, pools
these funds together and with the help of competent professionals invest these into
various equity and debt instruments, in accordance with the scheme objectives.
Investors are issued units by a mutual fund against their investments. For this,
the mutual funds charge a management fee. The profits or losses made by the mutual
fund are shared with the investors in proportion to their investments. Mutual Funds
as such mitigate to a large extent the shortcomings of direct investing.

The performance of a particular scheme is denoted by Net Asset Value (NAV). The NAV
per unit is the market value of securities of a scheme divided by the total number
of units of the scheme on any particular date. Since the market value of securities
changes every day, the NAV of a scheme also changes accordingly. NAV is required to
be disclosed by the mutual funds on a daily basis.

Mutual Funds offer a wide range of schemes to suit different needs of the
investors. An investor should select suitable schemes matching his investment
objective. One must study the offer document of the scheme carefully; due care must
be given to sections relating to main features of the scheme, risk factors, initial
expenses and recurring expenses of the scheme, exit loads, sponsor�s track record
of the sponsor and of fund managers, past and pending litigations/defaults. The
past track record of performance of the scheme or other schemes of the same mutual
fund is an important input in the decision making. Though past performance of a
scheme is not an indicator of its future performance and good performance in the
past may or may not be sustained in the future, this still is one of the important
factors for making the investment decision.
Many investors are tempted to invest in schemes that are available at a low NAV.
Accordingly, they are even drawn towards NFOs, which are made available at Rs. 10
per unit. Investors should understand that in case of mutual funds schemes, lower
or higher NAVs of similar type schemes of different mutual funds have no relevance.
At the entry point for the investor in an existing scheme, the NAV reflects the
present value of the underlying assets, and a higher NAV, in fact, shows a
comparatively high quality of assets. In NFOs, the initial corpus shall be first
invested and the NAV shall then depend upon the quality of investments.

Growth/Equity Oriented Schemes

normally invest a major part of their corpus in equities and as such carry higher
risks/rewards. Growth schemes are good for investors having a long-term outlook.
Such schemes could be focused, for example, investing only in large-cap stocks or
only in mid-cap stocks etc.

Income/Debt Oriented Schemes aim to provide regular and steady income to the
investors. As such, these schemes generally invest in fixed income securities such
as bonds, corporate debentures, Government securities and money market instruments.
Such schemes are less risky but offer low returns.

Balanced Schemes offer the middle path by combining both growth and income. As
such, these schemes invest both in equities and in fixed income securities. These
are appropriate for investors who do not wish to take excessive risk and at the
same time are also looking for some capital appreciation. Such schemes generally
invest 40-60% in equity and the balance in debt instruments.

Sector Specific Funds/Schemes invest in the securities of a pre-specified

sector/industry (like Pharmaceuticals, Software, FMCG, PSUs, Banks). The returns on
these funds are significantly dependent on the performance of the respective
sector/industry. Such funds may give higher returns, but they are also riskier.

Tax Saving Schemes offer tax rebates to the investors under specific provisions of
the Income Tax Act. A good example of this is the Equity Linked Savings Schemes
(ELSS). Pension schemes launched by mutual funds also offer tax benefits. Such
schemes are growth-oriented and invest predominantly in equities.

Capital Protection Oriented Schemes are oriented towards protection of capital but
not with guaranteed returns. Such schemes typically invest a part of their
portfolio into AAA-rated bonds in such a way that on maturity, this investment
equals to 100 percent of the original capital. The balance of portfolio is invested
in other assets which offer higher returns.

Systematic Investment Plans (SIP) is a convenient option which offers disciplined

investing. Under SIP, an investor invests a fixed amount regularly, say every month
or quarter. Such investments are made at the respective prevailing NAVs. The
investor can redeem his units any time irrespective of whether he has completed his
minimum investment in that scheme.

Index Funds replicate the portfolio of a particular index such as the BSE Sensex or
the S&P NSE Nifty. These schemes invest in the securities in the same weightage as
in the index. NAVs of such schemes rise or fall substantially in accordance with
the rise or fall of the index.

Exchange Traded Funds, popularly known as ETFs, select a market index and make
investments in the basket of stocks drawn from the constituents of that index. The
fund may invest in any or all of the stocks constituting that index but not
necessarily in the same proportion.
Gold ETFs are funds where the underlying asset is standard gold bullion of 0.995
purity and the investors� holding is denoted in units, unlike the equity mutual
fund, where the underlying asset is the stocks of various companies.

All Mutual Funds are regulated by SEBI. For more information, visit Securities and
Exchange Board of India and Mutual Funds India | Investment Plans | Tax Saving |
Mutual Funds Nav.

Purchasing mutual fund schemes

A new scheme launched by a mutual fund to collect funds from the investors is
called a New Fund Offering (NFO). Launches of NFOs are usually advertised in
newspapers/TV. Investors can also contact agents and distributors of mutual funds
for necessary information and application forms. The units of existing schemes can
be purchased directly from the fund itself or from distributors/brokers/sub-

DOs for investing in mutual fund schemes

Read the offer document carefully before investing

Investments in mutual funds may be risky and do not necessarily result in gains
Invest in a scheme depending upon your investment objective and risk appetite
Note that past performance of a scheme or a fund is not indicative of the scheme�s
or the fund�s future performance. Past performance may or may not be sustained in
the future
Keep regular track of the NAV of the schemes in which you have invested
Ensure that you receive an account statement for your investments/ redemptions
DON�Ts for investing in mutual fund schemes

Don�t invest in a scheme just because somebody is offering you a commission or some
other incentive, gift etc.
Don�t get carried away by the name of the scheme/ mutual fund
Don�t be guided solely by the past performance of a scheme/ fund
Don�t forget to take note of the risks involved in the investment
Don�t hesitate to approach the proper authorities for redressal of your doubts/
Don�t deal with any agent/broker-dealer who is not registered with AMFI

Many companies accept Fixed Deposits from investors, typically for short durations
of 6 months to 3 years. These are similar to bank fixed deposits but entail lesser
liquidity and usually carry higher risk and return. The attractive returns on such
deposits draw many investors to channel their savings into such deposits. This
results in mobilization of household savings for utilization in productive purposes
by the corporate sector.

Some key features of Company Fixed Deposits are:

Fixed deposit scheme offered by a company. Similar to a bank deposit

Used by companies to borrow from small investors
The investment period must be selected carefully as most FDs are not encashable
prior to their maturity
Not as safe as a bank deposit. Company deposits are �unsecured�
Offer higher returns than bank FDs, since they entail higher risks
Ratings can be a guide to their safety
Rights of deposit holders

Right to receive periodic interest payments on time.

Right to receive intimation regarding any amendment to the terms of repayment of
Right to receive the amount of matured deposits on time.
Right to intimation regarding unclaimed deposits before transfer to the IEPF.
Right to file a complaint in the prescribed format before Company Law Board (in the
office where the registered office of the company is situated) in case of default
in repayment of deposits.
Right to alternatively file a complaint in the Consumer Forum under the Consumer
Protection Act, 1986.
DOs for investing in company fixed deposits schemes

Do choose a company with a better track record for similarly rated companies
Do avoid investing in Fixed Deposits of companies whose promoters have a dubious
Do realize while investing in Fixed Deposit that if the company is unable to repay
your money, you may end up losing it, as Deposits are unsecured
Do refer to the investor service standards of the company
Do lodge a complaint with the concerned regulator in case the company defaults in
repayment of deposits (For listed companies, file complaint with SEBI; for
manufacturing companies, file complaint with MCA; for banks and NBFCs, file
complaint with RBI)
Do state the name of the guardian in the application, if the deposit is in the name
of a minor
Do always have a nominee for the deposits made by you
Do check the credit rating assigned by the Credit Rating Agencies to the Fixed
Deposits being considered
Do ignore the unrated Fixed Deposit schemes Do understand the background and
credibility of the promoters
DON�Ts for investing in company fixed deposits schemes

Don�t invest all or substantial part of your savings in Fixed Deposits

Don�t get lured by high-interest rates
Don�t forget to check the track record of the company

New Pension System (NPS): A person can build his retirement corpus during his
working life by regularly contributing (the minimum amount being Rs. 6,000 p.a.) to
the NPS till the age of 60. Such contributions are invested by the Pension Fund
Manager (PFM) the investor chooses, in the investment option of his choice:

Active Choice

v Asset Class E (Equity): Invests in index funds (the maximum allowed is 50%, the
balance has to be in Asset Class G & C)
v Asset Class G (Government securities): Invests in central and state government
v Asset Class C (non-government debt): Invests in liquid funds of Asset Management
Companies, bank fixed deposits, rated bonds issued by corporates, banks, financial
institutions, PSUs, Municipality and Infrastructure entities.
Auto Choice (Lifecycle fund)

Under this option, the contributions are automatically allocated to the three asset
classes in a predefined manner depending on the investor�s age.

Upon subscribing, the investor is allotted a Permanent Pension Account Number

(PPAN). The PPAN will remain constant even if the investor changes the PFM, his
location or employer. The returns earned on the contributions would depend on the
investment option. Charges are applicable to the NPS account as prescribed by the
regulator-Pension Fund Regulatory and Development Authority (PFRDA). For further
details, visit Home-Pension Fund Regulatory and Development Authority (PFRDA)
At the age of 60, a minimum of 40% of the accumulated amount in the account has to
be used to buy a pension (annuity) scheme from any insurance company from whom the
investor will receive a monthly pension. The balance of 60% in the account can be
withdrawn or be used to buy an annuity.

Annuity/Pension Policies/Funds are products of the insurance companies and offer

guaranteed income either for life or for a certain period without any insurance


Insurance, as the name suggests is an insurance against future loss. Life insurance
is the most common insurance cover for an individual. Life Insurance is a contract
providing for payment of a sum of money to the person assured, or following him to
the person entitled to receive the same, on the happening of a certain event. It is
a good method to protect your family financially, in case of death, by providing
funds for the loss of income.

Term Life Insurance

A lump sum is paid to the designated beneficiary in case of the death of the
Policies are usually for 5, 10, 15, 20 or 30 years
Low premium compared to other policies
Does not carry any cash value
Endowment Policies

� Provide for periodic payment of premiums and a lump sum amount either in the
event of a death of the insured or on the date of expiry of the policy, whichever
occurs earlier

Annuity / Pension Policies / Funds

No life insurance cover but a guaranteed income either for life or a certain period
Taken so as to get income after the retirement
Premium can be paid as a single lump sum or through installments paid over a
certain number of years
The insured receives back a specific sum periodically from a specified date onwards
(can be monthly, half yearly or annual)
In case of the death, it also offers residual benefit to the nominee.
Units Linked Insurance Policy (ULIP)

ULIP is a life insurance policy, providing a combination of risk cover and

The dynamics of the capital market have a direct bearing on the performance of
Most insurers offer a wide range of funds to suit one�s investment objectives, risk
profile and time horizons. Different funds have different risk profiles. The
potential for returns also varies from fund to fund
ULIPs offered by different insurers have varying charge structures. Broadly the
different fees and charges include- Premium allocation charges, Mortality charges,
fund management fees, policy/administration charges and fund switching charges
DOs for an insurance policy

Do review your insurance coverage

Do consider how much life cover you need and your affordability to pay the premium
Do study details of various schemes
Select a policy that suits you in terms of your requirement and premium outflows
Do get an advice from an insurance professional who offers policies of different
insurance companies
Do go online to get the best quotes and verify the same before choosing one
Do consider two single plans rather than joint cover
Do disclose correct information in your application
Do check and update your policy regularly
DON�Ts for an insurance policy

Don�t purchase a policy unless you understand the concept behind it

Don�t buy life insurance unless you need it
Don�t opt for the cheapest deal without understanding the risk
Don�t forget to check for terminal illness benefits
Don�t limit your choice to one insurer
Don�t over-burden yourself with unaffordable premium outflows
Don�t blindly trust the information that is available online
Don�t lie in your medical exam
Don�t cancel any current insurance policy until you receive a certificate
Don�t do anything to hinder an investigation if you file a claim
Don�t default on your payments which may lead to cancellation at the time of need
Don�t forget to report accidents and mishaps to your insurance company, even if you
don�t plan on filing a claim

The Government offers a wide variety of savings/investment products:

National Savings Certificates (NSC)

Popular Income Tax Savings scheme, available throughout the year

Interest rate of 8%
Minimum investment Rs. 100, no upper limit
The maturity period of 6 years
Transferable and a provision of loan
Public Provident Fund (PPF)

Interest rate of 8% p.a

Minimum investment limit is Rs. 500 and maximum are Rs. 100000
The maturity period of 15 years
The first loan can be taken in the third financial year from the date of opening of
the account, or up to 25% of the amount at credit at the end of the first financial
year. The loan amount can be returned in the maximum of 36 installments
Post Office Scheme (POS)

� One of the best Tax Saving Schemes

� It is available throughout the year
� Post Office schemes depend upon the type of investment and maturity period, which
can be divided into following categories: Monthly Deposit/Saving Deposit/Time
Deposit/ Recurring Deposit

Infrastructure Bonds

� Lock in period of three years

� The tax benefit U/S 88 on investments up to Rs. 20,000
� Any redemption prior to maturity nullifies the tax exemption

Kisan Vikas Patra (KVP)

� Money invested in this scheme doubles in 8 years and 7 months

� There is a minimum investment limitation of Rs. 100 with no upper limit

� This scheme is available throughout the � A person can withdraw an amount (not
more year than 50% of the balance) every year from the 7th year onwards

� Currently, there is no tax benefit on investment under this scheme


There are several dubious schemes operating in the market. The promoters of such
schemes float companies with attractive names. They start in a particular area and
then, on attaining saturation of member enrollments, keep shifting over to new
areas. While promoting the schemes, they get film stars, politicians, sportspersons
etc. at grand functions to impress the public. They engage persuasive direct
marketing agents, print attractive brochures, release eye-catching advertisements
and hoardings and offer gifts to the investors. They also use attractive slogans.
They also �honor� their members with titles like Silver Member or Gold Member. Some
of such schemes that are designed to entrap the gullible public by luring them with
the promise of becoming rich overnight are:



By enrollment into such scheme, one gets back some or full initial investment and
then keeps gaining financially by enrolling new members. So also the second set of
enrollers keeps multiplying and gain financially, luring every onlooker. Such a
system of chain to work endlessly to provide profit to everyone concerned
ultimately breaks down at some stage, resulting in big financial losses to many.
When a person fails to get his required clients or enrollees, the promoters of the
scheme do not tell about the non-viability of the scheme but blame it as one�s
personal failure. Many companies have now disguised into the activity of marketing
goods, services, drugs and healthcare products.


Chit fund is a kind of savings scheme under which a person enters into an agreement
with a specified number of persons that every one of them shall subscribe a certain
sum of money by way of periodical installments over a definite period and that each
such subscriber shall, in his turn, as determined by lot or by auction or by
tender, be entitled to the prize amount. However, there are many such schemes which
have been misused by their promoters and there are many instances of the founders
running what is basically a Ponzi scheme and absconding with their money.


Finance Companies take deposits from the public, promising them unusually high
returns. Since high returns are unsustainable, ongoing repayments of interest and
deposit amounts depend on the continuous and uninterrupted flow of fresh deposits.
At some stage, when the flow of deposits gets stifled, the payments to the
investors stop, leaving them high-and-dry.


Many companies offer equity shares/convertible debentures/preference shares etc to

the public through the private placement route, often for an �a mega project� and
promise dream returns. By law, such securities cannot be sold to more than 49
persons, beyond which the Company is required to come out with a Public Issue under
the guidelines of SEBI.

Many companies offer schemes that multiply money by investment into plantations.
Most of such companies are not registered with SEBI and typically have fled with
the investors� monies.

Caution for the general public

Remember that there is no free lunch and that there is some catch when someone
offers to make money for you easily and quickly. So any get rich quick scheme or
high returns schemes should be suspected. Remember also that these schemes are
unsecured, are illegal and are not regulated by the Government. As such, if you
lose money, you will not be able to seek any help from the Government.


This Guide has been prepared/ compiled/ adapted primarily from the information
available on the websites of the Ministry of Corporate Affairs (Ministry Of
Corporate Affairs), Investor Education and Protection Fund (, SEBI
(Securities and Exchange Board of India), NSE (National Stock Exchange of India
Ltd.), BSE (BSE Ltd. (Bombay Stock Exchange)


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