TASK DAY 2

Q.1) WHAT IS DEMATERIALISATION (DEMAT)?

ANS: The process by which the physical share certificates of a company are converted to an electronic
form is what is commonly known as dematerialization of shares. These dematerialized shares are then
hold in a demat account that you open with a depository. In, the current context of stock trading, share
dematerialization is mandatory in order to be able to sell or transfer your shares to another account.

Advantages if demat of shares:

1. Enhanced safety:
2. Increased security:
3. Facilitation of instant transfer:

Q.2) WHAT DOES MARKET CAPITALISATION MEAN?

ANS: Market capitalization, commonly called market cap, is the market value of a publicly traded
company’s outstanding shares. Market capitalization is equal to the share price multiplied by the
number of shares outstanding. Since outstanding stock is bought and sold in public markets,
capitalization could be used as an indicator of public opinion of a company’s net worth and is a
determining factor in some forms of stock valuation.

Q.3) IS MARKET CAPITALIZATION THE SAME MARKET VALUE?

ANS: Market Capitalization vs. Market Value

In many areas of the financial sector, including economics, accounting, and investing, accurately
assessing the value of a company can be of utmost importance. However, numerous ways exist to
measure company size, and value, and there is often confusion concerning similar-sounding terms. Two
much misleading terms are market capitalization and market value. While each is a measure of
corporate assets, the two are vastly different in their calculation and precision. Market capitalization is
basically the number of a company’s shares outstanding multiplied by the current price of a single share.
Market value is more amorphous and more complicated, assessed using numerous metrics and
multiples, such as price-to-earnings, price-to-sales, and return-on-equity.

Key Takeaways:

 While market capitalization and market value are both measures of corporate assets, the two
are vastly different in their calculation and precision.
 Market capitalization is calculated by multiplying the number of shares outstanding by the
current price of a single share.
 Market value is assessed using numerous metrics and multiples including price-to-earnings,
price-to-sales, and return-on-equity.
  Confusion often arises because, when referring to a company, market capitalization is often
used synonymously with market value-though technically, it means the market value of its
equity, not its market value overall.

Q.4) WHAT DOES INDEX MEAN IN STOCKS?

ANS: An index is a method to track the performance of a group of assets in a standardized way. Indexes
typically measure the performance of a basket of securities intended to replicate a certain area of the
market. These could be a broad-based index that captures the entire market, such as the Standard &
Poor’s 500 index or Dow Jones Industrial Average (DJIA), or more specialized such as indexes that track a
particular industry or segment.

Indexes are also created to measure other financial or economic data such as interest rates, inflation, or
manufacturing output. Indexes often serve as benchmarks against which to evaluate the performance of
a portfolio’s returns. One popular investment strategy, known as indexing, is to try to replicate such an
index in a passive manner rather than trying to outperform it.

Q.5) WHAT ARE THE 3 MAJOR STOCK INDEXES?

ANS: A Stock Market Index is a statistical measure which shows changes taking place in the stock
market. To create an index, a few similar kinds of stocks are chosen from amongst the securities already
listed on the exchange and grouped together.

The criteria of stock selection could be the type of industry, market capitalization or the size of the
company. The value of the stock market index is computed using values of the underlying stocks. Any
change taking place in the underlying stock prices impact the overall value of the index. If the price of
most of the underlying securities rise, then the index will rise and vice-versa.

In this way, a stock index reflects overall market sentiment and direction price movements of products
in the financial, commodities or any other markets.

Some of the notable indices in India are as follows:

 Benchmark indices like NSE Nifty and BSE Sensex

 Broad-based indices like Nifty 50 and BSE 100
 Indices based on market capitalization like the BSE Smallcap and BSE Midcap
 Sectoral indices like Nifty FMCG Index and CNX IT

Q.6) WHAT IS THE DIFFERENCE BETWEEN SPOT NIFTY 50 AND SGX NIFTY?

ANS: SGX Nifty is the Nifty futures based on the Nifty value that is traded on the Singapore exchange.
One SGX Nifty contract is twice the size of the Nifty contract or equal to 2 lots of Nifty. Many global
investors prefer to use the SGX Nifty rather than the NSE Nifty futures. Here are some of the reasons.

 SGX Nifty does not attract securities transaction tax (STT) since it is traded offshore in Singapore.
That makes the SGX Nifty more cost effective.
  SGX Nifty is denominated in dollars. This makes it easier for the FIPs as their positions are also
denominated in dollars and they don’t have to worry about currency hedging.
 Most of the foreign investors who trade in India are based out of Singapore or Hong Kong and
since their time zones match, they find it easier to use the SGX Nifty.
 Lastly, it is extremely liquid and largely an institutional/corporate market and getting counter
parties is hardly a problem.

In the last few years, there has been an attempt by the government and the NSE to reduce the off-
shoring of Nifty futures trading and bring it to India. However, it remains quite popular among
institutional investors.

Q.7) WHAT IS DIFFERENCE BETEEN TRADING ACCOUNT AND DEMAT ACCOUNT?

ANS: For those of you who want to invest in stock markets, these are few basics that you have to be
aware of. Two of the most important requirements for trading in a stock market involves, a demat
account is an account in which you can store your shares or other classes of assets in a dematerialized
form. A trading account is an account that enables you to transact. Despite the fact that these two
accounts are vital, a lot of people lack clarity on it.

Difference between a Demat Account and a Trading Account:

The following are the main areas where a Demat and a Trading Account differ:

The functionality of a Demat Vs a Trading Account-

One major difference between the two accounts pertains to the functions each performs. A trading
account is used for the buying and selling of securities by means of it getting debited from your Demat
account and sold in the market. A Demat account, on the other hand, allows investors to keep their
financial instruments in an electronic format. This also works in a way where you can change your
electronic format securities into physical form as well.

The table below shows summarises the major differences between Demat and trading accounts:

PARAMETER DEMAT ACCOUNT TRADING ACCOUNT

BROAD DEFINITION AN ACCOUNT TO STORE
ASSETS IN THE
DEMATERIALISED FORM
TRANSACTION THE ACCOUNT IS ONLY USED
TO STORE ASSETS, AND NO
TRANSACTIONS CAN BE MADE
ANNUAL CHARGES TO BE PAID BY THE INVESTORS
CAN BE CONSIDERED AS A
BRIDGE BETWEEN YOUR
BANK AND DEMAT
ACCOUNTS.
THE MAIN PURPOSE OF
DEMAT ACCOUNTS IS TO
ALLOW INVESTORS TO PLACE
TRADE TRANSACTION
GENERALLY FREE, DEPENDS
ON THE FIRM.
Q.8) IS IT MANDATORY TO HAVE A DEMAT ACCOUNT TO APPLY IN AN IPO?

ANS: Yes, it is mandatory to have a demat account to apply in an IPO. IPO Allocated shares are transfer
to investors demat account. If you don’t provide correct demat account information your IPO bidding
application will not consider for share allotment.

Always double check that you provided correct DP ID and Client ID details in the bid/application forms
before submitting the form.

Q.9) DO I HAVE TO PAY YEARLY MAINTAINANCE CHARGES EVEN I DO NOT HOLD ANY SHARES IN MY
DEMAT ACCOUNT?

ANS: The AMC is an annual fee charged by stockbroker for maintaining your demat accounts. It is a fixed
charge which you need to pay every year irrespective of whether you are holding any securities in your
account or not.

Q.10) WHAT IS DIFFERENCE BETWEEN INTRADAY AND DELIVERY?

ANS: It is easy to conclude that intraday trading is usually completed within a day. This typically means
that all the shares purchased in the day must be sold by the end of the day, before the closing of the
markets. If these shares are not sold, they are automatically squared off at the closing time.

However, on the other hand, in delivery based trading, shares bought can be maintained for a longer
duration for higher profit returns.

While intraday trading gives the opportunity for low capital accounts and margin payments, delivery
trading requires complete amounts for its transactions.

As an intraday trader, if one can judge and forecast the value of shares at short and small intervals, then
intraday trading is a good idea. Nevertheless, there are many technical tools which assist in predicting
short term price movement.

However, if one thinks long term investing is better suited for them, and they are able to pick shares
based on company’s intrinsic value and relatable assessments (such as the company’s fundamental
indicators – like price-to-earnings ratio, book value and the like), delivery based trading can be
considered as a better option.