14MBE08-SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

GLOSSARY
(I & II UNIT)
Investment
An asset or item that is purchased with the hope that it will generate income or appreciate
in the future. In an economic sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth. In finance, an investment is a
monetary asset purchased with the idea that the asset will provide income in the future or
appreciate and be sold at a higher price.
Speculation
The act of trading in an asset, or conducting a financial transaction, that has a significant
risk of losing most or all of the initial outlay, in expectation of a substantial gain. With
speculation, the risk of loss is more than offset by the possibility of a huge gain; otherwise, there
would be very little motivation to speculate. While it is often confused with gambling, the key
difference is that speculation is generally tantamount to taking a calculated risk and is not
dependent on pure chance, whereas gambling depends on totally random outcomes or chance.
Gambling
Gambling is the wagering of money or something of material value (referred to as "the
stakes") on an event with an uncertain outcome with the primary intent of winning additional
money and/or material goods. Gambling thus requires three elements be present: consideration,
chance and prize
Mutual Fund
An investment programme funded by shareholders that trades in diversified holdings and
is professionally managed.
Personal Finance
Personal finance, money used to purchase shares, put in a collective investment scheme
or used to buy any asset where there is an element of capital risk is deemed an investment.
Investment planning
Financial planning is nothing but an assessment of your goals and the steps you must take
to help make them a reality.
Real estate
In real estate, investment money is used to purchase property for the purpose of holding
or leasing for income and there is an element of capital risk.
Equity Shares
An equity share in a company is a share in its ownership. Equity shareholders collectively
constitute the ownership of the company and enjoy the fruits of the ownership like dividend and
voting in the meetings etc., but they are not liable for the debts of the company beyond the value
that has already been subscribed through the share capital.
Blue Chip Shares
Shares of large, financially strong and well – established companies which have stood up
against all odds and which have a good profitability and dividend track record are called blue
chip shares. The volumes of trading in these stocks are high and they enjoy any time liquidity in
the exchange.
Growth Shares
These are the shares that have out performed others in the industry. Shares of such companies
grow at a faster rate than others in terms of sales and profitability.
Value Stocks
Value stocks are those that currently have a low market sentiment and are under priced
relative to their intrinsic value. A major advantage is that, it limits the downside risk of the
portfolio – since their prices may not dip further. On the flip side, however, the market may not
take cognizance of the stock’s potential worth for a long time. In which case, the investors have
to hold them for a longer period till its full worth is recognized.
Defensive Shares
These stocks are generally neutral to business cycle. These have low fluctuations in their
prices and are fairly stable. If you expect a downtrend in the economy, it may be a good idea to
pick up a defensive stock, so that your portfolio value may not erode. At present, FMCG and
Pharma stocks fall into this category.
Settlement
At the end of a trading period, the obligation of each broker is calculated and brokers
settle their respective obligations as per rules, by laws and regulations prescribed. This process is
called settlement.
Auction
When a broker selling shares default on the delivery, the exchange resorts to a
mechanism called auction to fulfill its obligation towards the broker buying the shares. In a
particular settlement, if the selling brokers have delivered short, their deliveries are bad or if they
have not rectified the company’s objections reported against them. The stock exchange
purchases the requisite quantity from the market through the auction and delivers them to the
buying party.
Primary Market
The primary market is the place where the new offerings bycompanies are made either as
Initial Public Offer (IPO) or Rights Issue. IPOs are offerings made by the companies for the first
time while rights are offerings made to the existing shareholders. Investors who prefer to invest
in the primary issues are called Stags.
Secondary Market
Secondary market consists of stock exchanges where the buy orders and sell orders are
matched in the organised manner/ there are at present 25 recognized stock exchanges in India
and are governed by the Securities Contracts (Regulation) Act (SCRA).
Government Securities:
It includes T-Bills (364, 182, 91 &14 days), Bonds issued by the Central & State
Government, State Financial Institutions, Municipal Bodies, Port Trusts, and Electricity Bodies
etc.
Bonds:
 It can be of many types like Regular Income, Infrastructure, Tax saving or Deep Discount
Bonds. These are investment products with fixed coupon rates and a definite period after which
they are redeemed. The bonds may be regular income with the coupons being paid at fixed
intervals or cumulative in which interest is paid on redemption. Deep Discount bonds are one,
which is issued at a discount at the face value, and the investor is paid the face value at
redemption.

Debentures:
It may be many types like, Fully convertible debentures (FCDs), Partly convertible
debentures (PCDs) and non-convertible debentures (NCDs). FCDs are those whose face value is
converted into fixed number of equities at a fixed price. The price of each equity share is
received by the way of converting the face value of convertible securities i.e. the debenture is
called the conversion price and the number of equity shares exchanable per unit of the
convertible security i.e. debenture is called conversion ratio.
Public Deposits:
Corporates can raise funds from the public in the form of fixed deposits. These deposits
are unsecured and are mainly used for the working capital requirements.
These unsecured public deposits are governed by the Companies (Acceptance of Deposits)
Amendment Rules 1978. Under this rule, public deposits can’t exceed 25% of the share capital
and free reserves and the maximum maturity period is 3 years while the minimum is 6 months.
Certificate of Deposits
These are short term funding instruments issued by banks and financial institutions at a
discount to the face value. Banks can issue CDs for duration
of less than 1 year while FIs can only issue this for more than 1 year. The issuing bank or
financial institution can’t repurchase the instruments. CDs have to be issued for a minimum of
Rs. 5 lakhs with multiples of Rs. 1 lakh thereafter. These are generally used by corporates to
meet their short-term requirements.
Commercial Papers:
These represent short-term promissory notes issued by firms with a high credit rating.
The maturity of these varies from 15 days to 1 year, sold at a discount to the face value and
redeemed at the face value. CPs can be issued by the companies having minimum net worth of
Rs. 4 crores and needs a mandatory credit rating of P2 (CRISIL), D2 (Duff & Phelps), PR2
(Credit Analysis & Research) and A2 (ICRA). The rating should not be more
than 2 months old. It can be issued for a minimum amount of Rs. 25 lakhs and more in multiples
of Rs. 5 lakhs.
Credit Rating Agencies
The major credit rating agencies existing in India are Credit Rating Information Services of India
Limited (CRISIL), Indian
Credit Rating agency (ICRA), Credit Analysis & Research (CARE). The rating accorded by any
rating agency is instrument specific and relates to the debt instrument of any maturity, public
deposits and preferential shares.
S&P CNX Nifty
It comprises 50 stocks and is a market capitalization weighted index. Stocks are selected
based on their market capitalization and liquidity. All stocks in the index should have market
capitalization of more than 500 crores and should have traded for 85% of the trading days at an
impact cost of less than 1.5%. The low impact cost of S&P CNX Nifty makes it an optimal index
for derivative trading.

Clearing
Clearing is the process of determination of obligations, after which the obligations are discharged
by settlement.

Real Time Gross Settlement

It involves settlement of trades on real time and involves every single trade being settled without
any netting. This type settlement involves the smallest time between the trade and settlement.

Initial Public Offer: Sale of securities to the members of the public.

Rights Issue: Method of raising further capital from the existing shareholders / debenture
holders by offering additional shares to them on a preemptive basis.

Private Placements: As the name suggests it involves selling securities privately to a group of
investors.

OTC
Over-the-counter (OTC) or off-exchange trading is done directly between two parties,
without any supervision of an exchange. It is contrasted with exchange trading, which occurs
via exchanges. A stock exchange has the benefit of facilitating liquidity, mitigates allcredit
risk concerning the default of one party in the transaction, provides transparency, and maintains
the current market price. In an OTC trade, the price is not necessarily published for the public.

SEBI

The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in

India. It was established in the year 1988 and given statutory powers on 12 April 1992 through
the SEBI Act, 1992

Depository Participant
In India, a Depository Participant (DP) is described as an agent of the depository. They
are the intermediaries between the depository and the investors. The relationship between the
DPs and the depository is governed by an agreement made between the two under the
Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such
with SEBI under the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this
Act, a DP can offer depository-related services only after obtaining a certificate of registration
from SEBI. As of 2012, there were 288 DPs of NSDL and 563 DPs of CDSL registered with
SEBI