Unit 3 FM Sem 2

SAHAS Institute :- 11th 12th Comm - F.Y S.Y T.Y B.Com - C.A & C.
S [ All Levels ] Page 1 of 12
11th - 12th (Eng. Med)

F.Y S.Y. T.Y. - B.COM
C.A & C.S ( All Level )
E-107, Vrundavan Township, Harni Road, Near Sangam, Vadodara. M : 99989 84152, 8238448020
Jashraj Complex , Near Crystal School , Parivar Cross road , Waghodia Road , Vadodra 8238448020
F.Y Sem 2 Functional Management { F.M. } Unit 3

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-: Ch = Portfolio Management :-
Q.1 Write a short note on Portfolio Management.
Ans :
# MEANING OF PORTFOLIO MANAGEMENT :
[A] A portfolio is a group of securities of a single investment unit
:- It includes = gold, Commodities, Work of art, Antiques , Property , Financial securities, etc.
:- It is a combination of assets.
[B] Portfolio management means the process of selection of best / optimum investments for a particular investor
:- It considers = risk, future expected returns, Needs / requirement of investors, Investors attitude towards risk, etc.
[C] Portfolio management is a process in which an organization ratio / proportionately select variety of alternatives
For the selection of right type of asset mix, and
Distribution and investment of financial resources in any of the following assets
(i) Bond, (ii) Cash, (iii) Stock, (iv) Real Estates, (v) Shares & Other securities
:- So, portfolio management has to decide the proper mixture of “Bonds” and “Stocks” in the portfolio.
[D] It specifies the investment policy, Which involves,
= Objectives of investors, = Limitation, and = Preference of investors
:- Investment objectives are expressed in relation of risk and return M = 82384 48020 , 99989 84152
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# PORTFOLIO STRATEGY :
:- There are two types of portfolio strategy
(i) Active strategy, & (ii) Passive strategy
(i) An active portfolio strategy tries to earn higher / superior risk adjusted return,
:- by using market timing (or) sector rotation (or) security selection (or) any combination of these
(ii) A passive portfolio strategy includes holding a diversified portfolio & maintaining pre-decided level of risk.
# PROCESS OF PORTFOLIO MANAGEMENT :

:- Following are the main steps involve in the process of portfolio management.
1] Specification of investment objectives & limitations
2] Selection of asset mix. [3] Structuring of the portfolio strategy
4] Choice of securities [5] Portfolio implementation
6] Performance examination
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Q.2 Write a short note on security analysis & intrinsic value [ April ‘2012 ]
Ans : # SECURITY ANALYSIS :
:- Security analysis is the process of estimating / assuming risk and return for individual security.
# There are two methods of security analysis. Lowest Fees
(A) Fundamental Analysis Highest Value
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(B) Technical Analysis Education
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(A) FUNDAMENTAL ANALYSIS :

:- Fundamental analysis is the analysis of basic details of the business.
Like revenue, expenses, assets, liabilities and all other fundamental factors of the company.
:- It takes into account / considers those variables / factors which are directly connected with the company.
# There are two types of fundamental analysis :
(1) Quantitative Analysis, and (2) Qualitative Analysis.
(1) Quantitative Analysis :

:- The quantitative analysis is related on numerical variables / factors, Such as
dividend policy, capital structure, profitability, and working efficiency, etc.
:- The quantitative factors are got from the financial statements.
:- There are different factors of financial statements such as
profit, expenses, revenue, working capital
Which are used for Quantitative Analysis
(2) Qualitative Analysis : Smart Mobile Education
:- The qualitative analysis involves examination of non-measurable data – such as
Quality of management , Competitiveness, Corporate governance
Factors connecting to specific industries , Investment environment , Nature of industry, etc.
(B) TECHNICAL ANALYSIS :

:- The technical analysis is based on an assumption that,
The prices of stock depends upon its supply and demand in the market
:- Moreover, the financial performance and market information of company directly focuses on its market price.
:- On the level of this, It is possible to assume / expect /predict future price, and
Movement (ups & downs) of the stock
= This is known as technical analysis.
:- It believes that, the historical (past) performance of stock and market are the indicators of future performance.
 Difference between Technical and Fundamental Analysis :

Technical Analysis Fundamental Analysis
(a) It tries to assume short term ups & downs in (a) It tries to assume long term price on value of the
the price of the stock stock
(b) It mainly focuses on internal market data (b) It mainly focuses on factors connecting to
specially price & volume of data economy, industry and the company.
(c) It is mostly used by speculators, who want to (c) It is mostly used by long term investors who want
make fast money to invest on long term basis
# INTRINSIC VALUE :
:- It is the actual value of security as opposed to its market price,
:- Market price is what the investors are willing to pay for the security.
:- But the intrinsic value, shows the value what the company is net assets
:- This concept is useful to investors to decide whether to purchase (or) sell a particular security / specific security
When the intrinsic value of a security is greater than its market value
It is beneficial to buy the security & vice−versa.
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Q.3 Explain Investment objectives & constraints.
Ans : The first step is the portfolio management process is to specify the investment policy
which gives the = Objectives , Constraints & Preferences Of the investor
# The investment policy may be expressed as follow.
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# OBJECTIVES: Join Today For Smart Education
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1] Return Requirements = Income / Growth = Risk tolerance = Stability of Return
# CONSTRAINTS & PREFERENCES:

1] Liquidity 2] Investment horizon [Time Period] 3] Taxes
4] Regulations 5] Unique Circumstances M = 82384 48020 , 99989 84152
# Objectives of Investments: Join Today For Smart Education
➔ The commonly stated investment goals are :

[1] INCOME:
:- To give a stable /steady flow of income by
(a) regular Interest [OR] (b) Dividend
[2] GROWTH:
:- To increase the value of the principle amount through capital appreciation
[3] STABILITY:
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:- To protect the principal amount invested from the risk of loss.
# CONSTRAINTS:
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[1] LIQUIDITY:
Highest Value
:- Liquidity refers to the speed with which an asset can be sold
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Without suffering any significant discount its fair market price.
:- For Example: Money market instruments are the most liquid assets,
where as antiques are among the least liquid.
[2] INVESTMENT HORIZON:
:- Investment horizon is the time till the investment is planned to be liquidated to
meet a specific need.
:- For Example: The investment horizon may be ten years to fund child’s college education (or)
thirty years to meet retirement needs.
[3] TAXES:
:- What matters finally is the post – tax return from an investment.
:- Tax considerations; therefore have an important level of investment decisions.
:- So, carefully review the tax shelters available to you.
[4] REGULATIONS: M = 82384 48020 , 99989 84152
:- While individual investors are generally not considered much by law.
:- Institutional investors have to conform to different regulations.
:- For Example: Mutual funds in India are not allowed to hold more than 10%
of the equity shares of a public company
[5] UNIQUE CIRCUMSTANCES:
:- Almost every investor faces unique circumstances.
:-For Example: An individual may have the responsibility of looking after – ageing parents
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2 GROUP C.A & C.S [ All Levels ]
-: Ch = Stock Exchange { Security Market } :-

Q.1 What is stock exchange ? Discuss shortly / briefly the functions & services of stock exchange.
[ April ‘2012, Nov. ‘2012, April ‘2013, Dec. ‘2013 ]
Ans : # MEANING :
:- A stock exchange is the market,
Where industrial securities are bought and sold as per the rules and regulations.
#Securities involves
Shares, & Government securities & Issued by Semi-Govt.

stocks, Bonds units
Issued by companies
bonds &
debentures M = 82384 48020 , 99989 84152
# DEFINITION OF STOCK EXCHANGE : Join Today For Smart Education
:- As defined by the securities contracts (regulation) Act, 1956,
“a stock exchange is an association, organization (or) body of individuals, whether incorporated (or) not,
Established for the purposes of assisting, regulating &
controlling business in buying, selling, and dealing in securities”.
:- At present, in India, there are 23 stock exchanges.
:- The most important of them are = [1] National Stock Exchange [NSE] & [2] Bombay Stock Exchange [BSE]
:- Their works / operations are controlled and regulated by the SEBI [ Securities and Exchange Board of India ]
# FEATURES / CHARACTERISTICS :
1] It is a place, where securities are purchased & Sold
2] Both investors & speculators buy & Sell shares
3] A stock exchange is an association of persons either incorporated (or) not incorporated
4] The trading in a stock exchange is strictly regulated by the rules & Regulation given for various transaction
5] Securities of corporation, trust, government, municipal corporation, etc. = are allowed to Deal in Stock Exchange
# FUNCTIONS OF STOCK EXCHANGE :

➔ Following are the main functions of stock exchange :
(1) Ready & Continuous Market [Spot Market] :
:- A stock exchange gives a ready & continuous market for sale & purchase of securities.
:- It gives constant marketability of shares & securities & increase their liquidity
(2) Spreading of Price Information :
:- The stock exchange maintain complete record of all the transactions of different securities.
:- It gives constant information about prices of selected shares
:- This satisfy the investors to know the value of their share ownership / holdings.
(3) Mobility [Transferability] of Capital :
:- It gives surety about the flow of capital in most profitable medium.
:- The investors will invest in those securities,
Which give more and better profitable opportunities.
(4) Offers Liquidity :
:- The stock exchange give a place, where investors can sell his stock & shares at present / current prices.
So, they can easily / simply convert their shares into cash.
:- So, stock exchange gives liquidity of capital to the investors.
(5) Barometer / Measurement of Business Progress :
:- Stock exchange also acts as a measurement of the business condition in the country. M = 82384 48020 , 99989 84152
:- Inflation & depression are shown by the Index of prices of different securities.
(6) Spreading of (general) Information :
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:- The listed companies have to give quarterly (every three months) financial results to the respective stock exchange.
This type of information is declared by the stock exchanges.
:- The analysis use this data & give their view about different type of shares,
Traded in the market to the investors
M = 82384 48020 , 99989 84152
(7) Offer Price Stability :
:- When share prices are low, the traders make more buying
This rises demand for shares and increase their prices
:- Similarly, when share prices are high, they try to reduce the share prices by selling shares.
:- So, stock exchange gives surety about continuous stability in share prices
By their regular purchase & sale of securities.
(8) Facilitates Speculation :
:- The stock exchange satisfy businessmen (or) proper investors to speculate and
to secure more profit by fluctuations in security prices.
:- If a speculator expects a high rise in the price of a security.
:- He starts to purchase it in advance, and Sell all his holdings at the highest level for earning profit.
(9) Wide level ownership of Securities :
:- If a company’s securities are listed in different stock markets of the country.
:- Its securities will be purchased and sold by persons speeded all over the country
So, the ownership of securities is also widely / hugely scattered / spreader
(10) Good Corporate Governance Practices :
:- The listed companies have to provide certain information like half yearly financial results, to the stock exchange.
:- So, stock exchange uses control on the working & management of the companies
:- This protects the interest of investors and Also controls the company’s management
# SERVICES OF STOCK EXCHANGE :

➔ Following are the main services of stock exchange :
(1) Higher Distribution of New Securities :
:- The listed securities get higher price as compared to unlisted securities.
So, the listed shares are more acceptable by investors
:- Because of this reasons, when the new shares are issued by stock exchange, they get good public response.
So, it is easy to sell shares in the stock exchange
(2) Proper Direction to the Flow of Capital :
:- Stock exchange is a measurement of progress of business activities
:- This is because, when the sales and profit of a company rises the prices of its shares are increasing
So, the prices of different kind of securities show their relative profitability.
:- This gives guidance to the investors
They can invest their funds in the securities of those companies, which are more profitable
:- So, stock exchange gives proper direction to the flow of capital.
(3) Constant Market for Securities :
:- The stock exchange gives a ready market for sale and purchase of securities.
M = 82384 48020 , 99989 84152
:- It gives constant marketability to the listed securities.
(4) Better Distribution of Funds :
:- As a result of stock market transactions, There is flow of funds from less profitable to more profitable enterprises.
:- This gives surety about better distribution of financial resources of the economy.
(5) Gives Information about Prices and Sales :
:- Stock exchange maintains a complete records of all transactions of different securities every day.
:- We can get information about minute to minute movement in the prices of selected shares
on TV Channels like NDTV Business, ZEE News, etc.,
(6) Mirror of Business Cycle :
:- The investment depends upon the economic conditions of the country.
:- Now, the reducing / falling prices of listed securities shows the depression in the economy.
:- At the same way, rising prices along with increase in an investment shows
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inflation / booming situation in the economy.
:- So, the stock exchange shows the economic conditions & business conditions of economy.
So, it is known as the mirror of business cycle.
(7) Collections of Savings :

:- Stock exchange helps in collection of savings , Facilities capital formation / structuring and
Help the process of economic growth
:- In absence of stock exchange, it will not be possible to collect the surplus / additional fund of people, and
To direct its investment in to most profitable medium.
(8) Give Surity about Safety of Funds : Admission
:- The stock exchange works as per the rules and regulations. OPEN
:- Moreover, it takes proper and necessary steps to stop activities like
over trading, and illegal speculations M = 82384 48020 , 99989 84152
:- So, there is a safety of the fund of the investors
This rises their trust in the stock market, and
Motivate large investment in corporate activities.
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Q.2 Discuss the benefits / utility / benefits / advantages of stock exchange.
Ans : # Following are main benefits for the different interested parties of stock exchange.
(A) Benefits / Advantages to investors
(B) Benefits of stock exchange to country and community
(C) Benefits to Companies
[A] Benefits / Advantages to Investors :
1] The stock exchange works as per the rules and regulations. This protects the interest of investors.
2] Purchased of listed securities are less risky.
3] It gives latest information about the prices of securities to the investors.
4] The securities, which can be easily sold on stock exchange, become a best additional level security for loans.
5] It gives guidance to investors relating to the selection of securities.
[B] Benefits / Advantages of Stock Exchange to country & community :

1] It helps the government in raising funds of public sector projects of national importance.
2] It motivates saving habits among people and helps in increasing capital formation.
3] with the help of capital collection, it helps in the process of economic growth.
4] It gives proper examination of the value of different securities.
5] It gives idea of economic situation about inflation (or) depression of a country
(C) Benefits / Advantages to the Companies :

1] It increases the size of market for securities.
2] Listed securities get fast and better response from the investors
3] It gives an idea of the general economic conditions of a nation, and Smart Mobile Education
It guides the company in its investment decision.
4] When the shares of a company are listed on the stock exchange, its goodwill increases.
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Q.3 Explain the procedure of buying and selling shares at stock exchange.
[OR] Explain the procedure of dealings on stock exchange.
Ans : # The investors (or) any person can trade in any securities by various / different ways.
(1) Trading through brokers
(2) Internet Trading
(a) Through Banks (b) Through Trading firms
(1) TRADING THROUGH BROKERS [ April ‘2013, Dec. ‘2013 ]
(a) PROCEDURE OF BUYING SHARES :
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# Following are the main steps in the procedure of buying shares (or) debentures.
[1] Selecting (or) Locating Broker : Join Today For Smart Education
:- When a person wants to buy (or) to sell shares of securities, he has to select a broker
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:- He should select such a broker who can give fast and proper services and protect his interest
:- For doing business with the broker, he has to submit a client registration form member constituent form
:- It possesses the terms and conditions relating to trade confirmation,

brokerage charged by a trading member, and delivery of securities and funds.
[2] Placement of Order :
:- After selecting a suitable broker, he has to place an order to buy shares
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:- The order must clearly show
(a) The name of company (b) No. of shares to be purchased and Join Today For Smart Education
(c) The maximum limit of price
:- In stock exchange, all the transactions are settled by the depositories
So, he must have a demat account with an authorized depository, before placing an order.
[3] Execution of Order :
:- On receiving the sale order, the broker will feed the same in his terminal.
:- When the order is confirmed, the broker will inform the buyer and will send a contract note.
It possess details of the transaction
:- Now, the buyer has to make payment to broker with in specified time.
:- After making the payment, the broker will transfer the shares in electronic form to his demat account.
(b) PROCEDURE OF SELLING SHARES :
1] Selection of Broker : Admission
:- As given in buying procedure ( in above topic ) OPEN
2] Placement of Order :
:- After selecting a broker, the seller has to place a sale order with the broker.
:- It shows the name of company, no. of shares to be sold, and minimum price acceptable to seller.
:- He may place a “limit order” (or) “market order”
:- The limit order shows the minimum price, acceptable to seller,
but the market price give an instruction to the broker to sell at the best possible market price.
:- Before placing the sale order, the seller must have the shares in his demat account.
3] Execution of Order :
:- On receiving the sale order, the broker will feed the same in his terminal.
:- When order is confirmed, the broker will inform the seller and will send a contract note.
:- Now, the seller has to transfer the shares to broker by issue of a depository participant cheque.
:- This cheque transfers the shares from the demat account of seller to brokers account.
:- After this, the seller receives payment from the broker in about a weeks time
(2) INTERNET TRADING [ APRIL ‘2013, NOV. ‘2012, APRIL ‘2013 ] Smart Mobile Education
(a) Internet Trading Through Banks :
:- From February 2002, trading through internet was introduced in India,
Where trading is done online through bank authorized for this purpose M = 82384 48020 , 99989 84152
:- For this purpose, the trader must have Join Today For Smart Education
➔ Computer, modem, telephone, internet connection and
➔ Saving account, demat account and security trading account with authorized bank
:- Here, the client does not have to give details of securities, to the broker
:- Here, the security trading account password gives the terminal of NSE (or) BSE, and
➔ The client can trade and monitor the ups and down in the share market.
(b) Internet Trading Through Trading Firms :
:- Presently, many trading firms like ICICI web trade, share khan, Kotak street etc.Gives services of internet trading
:- For this purpose, a person has to get registered as a client with the internet broker.
:- A client has to keep minimum deposit in the bank account with internet broker
[which the broker can directly debit and credit]
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Q.4 Explain the System (Procedure) of trading and settlement at stock exchange. OPEN
Ans : # TRADING SYSTEM :
:- In stock exchange, only listed and permitted securities are traded
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:- Moreover only the members of stock exchange can buy (or) sell securities at the stock exchange.
So, if a person wants to buy (or) to sell the securities,
:- He has to place his orders with the broker of the exchange

# There are two ways of organizing trading activities.
[1] OPEN OUTCRY SYSTEM :
:- In this system, the traders shout & use certain signals on the trading floor of stock exchange
to buy (or) to sell the shares
:- Buyer make their bids and seller makes their offers and By bargain, transactions are concluded at agreed prices
[ when the offers of both the parties match with each other, a transaction is confirmed ]
[2] SCREEN BASED SYSTEM :
:- In this system, the physical trading floor is replaced by computer screen, and
There is sale and purchase of shares by the computer network.
:- The screen based system is also known the open electronic limit order book (ELOB) market system
# Following are the main characteristics of this system :
(1) The buyers and sellers place their orders on computer terminal.
:- These orders may be limit orders (or) market orders.
[ In limit order, price limit is specified for sale (or) purchase of shares.
A market order is an order to buy (or) to sell at the best presenting price ] M = 82384 48020 , 99989 84152
(2) The computer immediately tries to match the offers of buyers and sellers : Join Today For Smart Education
➔ The matching is done on the basis of price and time priority.
➔ When the offers of seller and buyer match with each other, the transaction are confirmed.
[3] SETTLEMENT SYSTEM :
:- Formerly the stock market transactions were settled by physical delivery of shares
But, this system includes high paper cost, and risk associated with physical delivery
:- But, Now, this transactions are settled by electronic delivery system facilitated by depositories
:- A depository holds the shares in dematerialized form [electronic form], and
Shares are transferred by electronic book entries
:- This system has been introduced by the depositories act, 1996
# Following are the main provision of this Act.
(a) Every depository must be registered with the SEBI [Securities and Exchange Board of India ]
(b) Investor has an option to hold shares in physical form (or) in depository mode / way.
(c) Investor has to keep the shares in his demat account with the depositories.
(d) Investor can leave the system and can get physical share certificates from the company
(e) In this system, the ownership of shares is transferred by electronic book entries
➔ So, no stamp duty is payable on the transfer of shares.
# TYPES SYSTEM :
[1] Weekly Accounting Period Settlement System :
:- Formerly, in India, the share transactions were settled on the basis of the weekly account period
:- Under this system, the purchases & selling transactions during the account period
were settled at the end of the week.
:- For e.g. the account period for BSE was from Monday to Friday and for NSE it was from Wednesday to Tuesday.
[2] Rolling Settlement System :
:- Under this system, purchase and selling of securities was done virtually and not in reality
[where accounts was maintained by both the parties, broker and investor]
:- Further the settlement is on demand by any party.
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[3] Intra Trade :
:- In this system, a person trading has to settle the transaction on the same day. Join Today For Smart Education
:- For e.g. If the shares are purchased in the morning at a particular price,
then the same shares are to be sold in the evening at the present price in the market.
:- This settlement can be on ‘t + 2’ (or) ‘t + 5’ basis.
:- Where T = trade and +2 (or) +5 specifies the day after trade has taken place.
JOIN FY SEM 2 GROUPMost of the dealings are settled on ‘t + 2’ basis.
[4] Delivery Based :

:- Many of the investors prefer this pattern for their transaction in securities.
:- Here, he is not forced to sell the securities within specific time limit, but at his own desire
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Q.5 Write a short note on Primary Market and Secondary Market [ April ‘2012, Nov. ‘2012 ]
Ans : # PRIMARY MARKET :
:- The primary market is an arrangement which gives the facility of getting long term fund by fresh issue of
Shares & debentures
:- The companies make fresh issue of shares (or) debenture in their starting stage (or) for expansion.
:- The fresh issue is done by private placement to friends, relatives and financial institutions.
:- For this, company has to follow the well establish legal process and has to appoint intermediaries like
underwriter, broker etc.
:- Presently, there are lots of companies, which came into market with IPO [Initial Public Offering]
like GAIL, NTPC, Adani Power etc.
# SECONDARY MARKET :
:- It is also known as stock exchange (or) stock market.
:- It collects long term fund by giving require liquidity to the investment in shares and debentures
:- It gives a place, where the securities can be enchased without any difficulty and delay.
:- This is an organized market, where industrial securities are traded regularly / constantly
with high level of guarantee and security.
:- An active secondary market helps in the growth of primary market
:- Because the investors in primary market get constant market for the liquidity of their investment
:- The main players of primary market are merchant bankers, mutual funds,
financial institutions and individual investors
:- While, secondary market have all these players along with stock brokers,
Who are the members of stock exchange to facilitate trading.
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Q.6 Discuss the need, objectives, functions and role of SEBI ? [ April ‘2013, Dec. ‘2013 ]
Ans : # OBJECTIVES OF SEBI :
:- SEBI was established in 1992. following were the main objectives of SEBI
(1) To protect the interest of investors
(2) To promote and regulate the security market.
# FUNCTIONS / POWERS OF SEBI :
(a) It restricts the business in stock exchange and other securities.
(b) It promotes and regulates self regularly organization.,
(c) It registers and regulates the working of collective investment scheme like mutual fund
(d) It registers and regulates the working of stock brokers, sub brokers, share transfer agents,
merchant bankers , underwriters = are Associated with Stock Market
(e) It promotes investors education and training to intermediaries
(f) It stops fraudulent and unfair trade practices
(g) It stops insider trading. M = 82384 48020 , 99989 84152

# ROLE OF SEBI :
Following are the main points showing role of SEBI in controlling activities of capital market.
1] Licence to Dealers and Brokers :
:- SEBI gives licence to dealers and brokers.
2] To stop fraud in capital market :
:- If any broker is involved in fraud in stock market , SEBI can ban his activities and can impose penalty.
3] To make Rules :
:- SEBI has powers to make new rules for stock exchange.
Admission
:- For e.g. it has fixed the time of reading 9 a.m. to 5 p.m. in stock market.
OPEN
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4] Audit / Examination of Stock Market :
:- SEBI has power to examine / audit the performance of different stock markets.
5] Education to Investors :
:- From time to time, SEBI organizes / arranges workshop to educate the investors.
6] Relationship with ICAI :
:- SEBI maintains relationship with ICAI to give surety about accuracy in company audit.
:- Sometime, it investigates with ICAI to give surety about whether M = 82384 48020 , 99989 84152
CAs are doing their duty ethically and properly (or) not Join Today For Smart Education
7] To control merger, acquisition and takeover :
:- In case of merger (or) takeover, SEBI gives surity about
It is not harmful to the interest of all the share holders, and It is for development of business
8] Regulation of Mutual Funds :
:- SEBI has given certain regulatory guidelines for mutual funds.
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Q.7 Write a short note on National Stock Exchange and Bombay Stock Exchange.
Ans : # THE NATIONAL STOCK EXCHANGE :
:- The NSE was established in 1994 for following purposes / objectives
1] The meet international standards for security market,
2] To reduce settlement period,
3] To give surity about fairness, efficiency, and transparency = in Transactions of Security
4] To give equal opportunity to investors across the country.
5] To create a nation wide trading facility for equities, debts and mixture of these two i.e. preference shares
 Features of NSE :
1] The NSE is a ring-less, national, computerized stock exchange.
2] It has two segments – the capital market and the wholesale debt market segment.
3] NSE is the first exchange in the world to employ the satellite technology.
4] The NSE adopted an order driven system
➔ In this system, when an order is placed by a trading member,
➔ The computer automatically creates a unique / different order number, and
➔ The member can take a print of order confirmation slip containing this number
5] All the transactions on NSE are guaranteed by the National Securities Clearing Corporation [NSSC]
# THE BOMBAY STOCK EXCHANGE [BSE] :

:- The BSE was established in 1875.
:- It is one of the oldest organize exchanges in the world with a long and very powerful history.
 Features of NSE :
1] The BSE switched from an open outcry system to a screen based system [ BOLT SYSTEM / on Line trading ]
2] In BOLT system, formerly, it was using both ‘Quote driven’ as well as an ‘order driven system’.
3] In ‘quote driven’ system the brokers were offering two prices – bid quote and ask quote.
That is bid price and ask price.
4] The bid price is the price, at which the broker is willing to buy and the ask price is the price,
at which the broker is willing to sell
5] From August 2001, BSE became a completely order driven market.
6] In October, 1996, SEBI permitted BSE to increase its BOLT network outside Mumbai.
➔ Now, a number of subsidiary companies of regional exchanges became members of BSE, and
➔ The members of regional exchanges now work as sub-broker of BSE.
➔ This has expanded the volume of activities of BSE.
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Q.8 SEBI & Their Future Challanges
Ans : [1] Regulate business in Stock Exchange & any other Securities markets.
M = 82384 48020 , 99989 84152
[2] Register & regulate the working of capital market intermediaries
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[broker, merchant broker, portfolio management & soon].
[3] Register & regulate the working of Mutual funds.
[4] Promote & regulate the self regulating organization.

[5] Prohibit Fraudulent & unfair trade practice in security markets.
[6] Promote investors education & training of Intermediates of Security markets.
[7] Prohibit insider trading in Securities.
[8] Regulate Substantial acquisition of shares & takeover of companies.
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[9] Perform such other functions as may be prescribed
# OBJECTIVES:
[1] Capital Preservation [2] Capital Appreciation [3] Current Income [4] Total Return
# INVESTMENT CONSTRAINTS:
[1] Liquidity Constraints [2] Time Period
[3] Tax Concerns [4] Legal & Regulatory [5] Unique Circumstances
-------------------------------------------------------------------------------------
Q.9 Discuss in detail the Structure of Security Market.
Ans : The Securities market is the market for = Equity, Debt & Derivatives
# The Debt market, may be divided into three parts,
[a] Government securities market [b] Corporate debt market & [c] Money market
# The derivative market, may be divided into two parts,
[a] Option Market & [b] Futures Market
➔ Except the derivatives market, each of the above markets have two components,
[a] the primary market & [b] the secondary market.
➔ The market where new securities are issued is called the primary market &
➔ The market where outstanding securities are traded is called the secondary market.
➔ Now, let us discuss both the markets in details. { It is already Discussed in Above Que No. 5 }
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Q.10 Explain briefly the different participants in the Securities Market.
Ans : In the Indian Securities Market, There are number of Participants
Who link demanders of fund with supplier of funds . They are as under :-
[1] Regulators:
➔The various / different key agencies that have a significant regulatory influence
Over the Securities Market are as follow:
[a] The Company Law Board (CLB)]:
➔ Which is responsible for the administration of the Companies Act, 1956 / 2013.
[b] The Reserve Bank Of India (RBI)]:
➔ Which is primarily responsible, for the supervision of banks, money market & Smart Mobile Education
government securities market.
[c] The Securities & Exchange Board Of India (SEBI)]:
➔ Which is responsible for the regulation of the capital market. M = 82384 48020 , 99989 84152
[d] The Department Of Economic Affair (DEA)]: Join Today For Smart Education
➔ An Arm of the government, which is concerned/ related with orderly working
of the financial markets as a whole.
[e] The Ministry Of Company Affairs (MCA)]:
➔ An Arm of the government, which is responsible for the administration of corporate bodies.
[2] Stock Exchanges:
➔ A Stock Exchange is an institution where securities that have already been issued are Bought & Sold
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➔ The major / main exchanges in India are NSE & BSE
[3] Listed Securities:

➔ They are listed on different stock exchanges & eligible for being traded.
➔ At Present about 10,000 securities are listed on all the stock exchanges in India put together.
[4] Depositors:
➔ A depository is an institution which dematerializes physical certificates &
M = 82384 48020 , 99989 84152
transfers the ownership of securities by electronic book entries.
[5] Brokers:
➔ Brokers are registered members of the stock exchanges through whom investors transact.
[6] Foreign Institutional Investors [FII]:
➔ Institutional investors From abroad Who are registered with SEBI to work
in the Indian Capital Market are called Foreign Institutional Investors.
➔ There are about 600 FII & they are the main force in the Indian Market.
[7] Merchant Bankers:
➔ Firms which specialize in managing the issue of securities are called merchant bankers.
➔ Who are registered with SEBI to work in Indian Capital Market are called Foreign Institutional Investors.
➔ They have to be registered with SEBI.
[8] Primary Dealers:
➔ They are appointed by the RBI & work as underwriters in the primary market &
➔ As a market makers in the secondary market for government securities
[9] Mutual Funds:
➔ A mutual fund is a vehicle for collective investment
Admission
➔ It pools & manages the funds of investors
OPEN
➔ There are about 300 mutual funds in India.
[10] Custodians:
➔ A custodians looks after the investment back office of a mutual fund
➔ It receives and delivers securities, collect income, distributes dividends and
segregates the assets between schemes.
[11] Register and Transfer Agents:
➔ A Register and transfer agent is employed by a company or a mutual fund
to handle all investor – related services
[12] Underwriters:
➔ An Underwriter agrees to subscribe to a given number of shares [Or any other security] in the event the
public subscription is inadequate.
➔ The underwriters give guarantee for public subscription.
[13] Bankers To An Issue:
➔ The bankers to an issue collect money on behalf of the company from the applicants.
[14] Debenture Trustees:
➔ When debentures are issued by a company, a debenture trustee has to be appointed
to ensure that the borrowing firm fulfills its contractual obligations. M = 82384 48020 , 99989 84152
[15] Venture Capital Funds: Join Today For Smart Education
➔ A venture capital fund is a pool of a capital which is essentially invested in equity shares or equity linked
instruments or unlisted companies.
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[16] Credit Rating Agencies :- A credit rating agency assigns ratings primarily to debt securities.

Unit 3 FM Sem 2

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SAHAS Institute :- 11th 12th Comm - F.Y S.Y T.Y B.Com - C.A & C.

S [ All Levels ] Page 1 of 12

11th - 12th (Eng. Med)

F.Y Sem 2 Functional Management { F.M. } Unit 3

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# PROCESS OF PORTFOLIO MANAGEMENT :

(A) FUNDAMENTAL ANALYSIS :

(1) Quantitative Analysis :

(B) TECHNICAL ANALYSIS :

 Difference between Technical and Fundamental Analysis :

# OBJECTIVES: Join Today For Smart Education

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# CONSTRAINTS & PREFERENCES:

# Objectives of Investments: Join Today For Smart Education

➔ The commonly stated investment goals are :

Think Commerce = Think SAHAS

-: Ch = Stock Exchange { Security Market } :-

Shares, & Government securities & Issued by Semi-Govt.

# FUNCTIONS OF STOCK EXCHANGE :

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# SERVICES OF STOCK EXCHANGE :

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(7) Collections of Savings :

[B] Benefits / Advantages of Stock Exchange to country & community :

(C) Benefits / Advantages to the Companies :

:- It possesses the terms and conditions relating to trade confirmation,

:- He has to place his orders with the broker of the exchange

JOIN FY SEM 2 GROUPMost of the dealings are settled on ‘t + 2’ basis.

[4] Delivery Based :

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# THE BOMBAY STOCK EXCHANGE [BSE] :

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[4] Promote & regulate the self regulating organization.

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[3] Listed Securities:

[15] Venture Capital Funds: Join Today For Smart Education

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