Study of Capital Market and Investors Awareness Programme

STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL

EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
CONTENTS
Details of Content Page

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ACKNOWLEDGEMENT A
B
TRANSFORMATION MODEL
1-8
INPUTS OF SHARE TRADING
9-14
TRANSFORMATION PROCESS
15-20
OUTPUTS
FEEDBACKS 22-24
CONSTAIRNTS 25-26
MATRIX TABLE WITH CALCULATION 27-28
JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

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INPUTS OF SHARE TRADING:

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1. POTENTIAL INVESTOR
Potential customers considered only those people who have the desire to invest in the
stock market.
Potential customers are of following types:-
(1) Domestic investors
(2) Institutional investors
(3) Foreign investors
DOMESTIC INVESTORS are those people who are come under the periphery of India
and have the desire, capacity, and capital to invest in the domestic share market.
FOREIGN INVESTORS are those who belong to any other nation outside india.They
may be of Indian origin (NRI or PIO) but living in abroad or purely of foreign origin.
INSTITUTIONAL INVESTOR Mutual funds, Unit Trust, Insurance Corporation of
India, banks, and other large institutions which invest their members’ money in shares
and bonds, reinstitution investors. Since they trade in large volumes, they may play a
supportive role when the share market is bearish. When ordinary investors, and even
speculators to a certain extent, shy away from the share market, it is the institutional
investor who often accounts for the bulk of the trade done on the stock exchange, over a
sustained period. The absence of institutional investors in a bear market can have

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damaging results. In view of their often substantial holdings they can play a major role in
influencing company policy and in takeover bids. They have professional analysts and
advisors, and can usually read stock market trends much better than individual investors.
With their larger holdings they are often represented on the board of directors, and can
influence company policy.
Tips for Indian stock investor

Indian Stocks market is showing strength from strength and is making steady gains over last
few years. SENSEX and NIFTY are less than 5% below the all time highs.
Advice on buying and selling of Indian stocks and indices. Indian stock market investing
made easy. Expert recommendations, mature tips, share market information at one place.
Portfolio advice for indian stock markets.
Making money from Indian stock market was never so easy. But although markets are in the
upswing we find more and more people exiting citing losses in stocks. A close analysis
shows non understanding of financial markets as the main reason for this.
Stock price movement is just more than a simple graph. Fundamental analysis helps you to
identify potential winners which can be multiage’s. Technical analysis helps you time the
markets. If you are a long term investor, Fundamentals play a more important tool. If you
are a short term trader, Technical analysis, news, rumors play a more important role.

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Indian corporate earnings are showing strong growth in last 4-5 years which is well
reflected in Indian stock market.
Stock market trading without proper research is bound to make you loose all your finance.
We recommend studying charts; avoid keeping a close eye on quotes / prices, day trading,
penny stocks. Finding a good stockbroker, Stock Market Guide , stock exchange like New
York stock exchange, Toronto exchange, NSE etc. Stock picks should be purely based on
research on fundamentals and technical analysis. Consider future trading and options.
Mumbaibull.com presents a set of stocks to buy based on these principles. Emphasizing
more on fundamental and a bit on technicals.
2. MONEY
• the most common medium of exchange; functions as legal tender; "we tried to
collect the money he owed us"
• wealth reckoned in terms of money; "all his money is in real estate"
• the official currency issued by a government or national bank; "he changed his
money into francs"
Money is essential part of the life of every individual. It is accepted everywhere in all the
transactions around the world. In the perspective of investment, it is essential for every
investment made anywhere around the world. It suits all the transactions because it
provides the proper value to every transaction made.

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3. EXISTENCE OF PROFITABLE
ORGANISATION’S OFFER (NEW ISSUE) AND
STOCK EXCHANGE:-
The industrial securities market is divided into two parts:-
1. New Issue market
2. Stock exchange
One aspect of their relationship is that they differ from each other organizationally as
well as in the nature of functions performed by them. They have some similarities also
New Issue Market:-NIM deals with the new securities, i.e. securities which were not
previously available and are, therefore, offered to investing public for the first time
(A). AN INITIAL PUBLIC OFFERING (IPO): BASIC

TERMINOLOGIES
What is IPO
It is the process of selling shares that were so far privately held to new investors for the
first time IPO. It is the process for an unlisted company (called issuer) to go public and
offer shares to general public investors. The main purpose of an IPO is to raise capital for
the company. The IPOs are very effective at raising capital.
Primary market
The market in which investors have the first opportunity to buy a newly issued security
like in an IPO.

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Prospectus
A formal legal document describing the details of the company is created for a proposed
IPO. It is the document that makes investors aware of the risks of an investment.
Book Building
The process by which an the attempt is being made to determine at what price the
securities to be offered based on demand from investors. An electronic book is being
built by accepting orders from the investors who indicate the number of shares they
desire and the price they are willing to pay.
Book Building Process
Book building is a process of price discovery in case of IPOs. When Companies come
through the book building route, the price of the issue is not fixed beforehand. Rather the
issue document only gives a floor price or the price band within which investors can bid
for the shares. The IPO applicants bid for the shares being issued by the company quoting
the price of their bid and the quantity that they would like to bid at. Only the retail
investors have the option of bidding at ‘cut-off’. Cut off means that the investors are not
active bidders but they are willing to accept whatever price is getting arrived at based on
bidding done by other persons. After the bidding process is complete, the ‘cut-off’ price
is arrived and shares are issued to successful applicants
Over subscription
A situation in which the demand for shares offered in an IPO exceeds the number of
shares issued.

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Procedure of IPO:
An IPO is usually underwritten by one or more underwriters called as a "syndicate" of
investment banks. The company offering its shares enters a contract with a lead
underwriter to sell its shares to the public by book building process. The underwriter then
approaches investors with offers to sell these shares. Upon selling the shares, the
underwriters keep a commission based on a percentage of the value of the shares sold.
RIGHT ISSUE:-In case of Companies whose shares are already listed and widely
held, shares can be offered to the existing share holders. This is called Right Issue.
In India, section81 of the Companies Act 1956 provides that where a company increase
its subscribe capital by the issue of new shares, either after two year of its formation or
after one year of first issue of shares whichever is earlier
(B). STOCK EXCHANGE (SECONDARY OR STOCK MARKET):-
Every transaction in the stock exchange is carried out through licensed members called
brokers.
To trade in shares, you have to approach a broker However, since most stock exchange
brokers deal in very high volumes, they generally do not entertain small investors. These
brokers have a network of sub-brokers who provide them with orders.
The general investors should identify a sub-broker for regular trading in shares and place
his order for purchase and sale through the sub-broker. The sub/broker will transmit the
order to his broker who will then execute it.

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The stock market system is an avenue of how to trade stock for listed corporations. As a
corporation is formed, its initial shareholders are able to acquire shares of stock from the
point of subscription when a company is created. When a company starts to be traded to
the public, the primary market comes in where those who subscribe to the initial public
offering (IPO) takes on the shares of stock sold from point of IPO. When those who
bought into a company at IPO point of view decides to sell their shares of stock to other
people, they can do so by going to the stock market.
The stock market is a secondary market for securities trading wherein original or
secondary holders of a company’s shares of stock can sell their stocks to other individuals
within the frame work of the stock market system.
The stock market has buyers of stocks or those who wants to own a part of the company
but wasn’t able to do so during the initial public offerings made by the company to the
public when it has decided to list itself as a publicly listed company. The secondary
market or the stock market allows other individuals to sell shares of the company when
the initial shareholders may have realized that they want to sell their shares after gaining
either significant profit or realized significant loss from point of acquiring a company
from its IPO price.
The Major Stock Exchange of India

1. NSE(National Stock Exchange)
2. BSE(Bombay Stock Exchange)

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Functions of Stock Exchange (Secondary Market):-
Stock Exchanges discharge three vital functions in the orderly growth of capital formation
1. Nexus between savings and investments.
2. Market place
3. Continuous price formation
Nexus between savings and investments: - The savings of the community are mobilized
and channeled by stock exchanges for investment in to those sectors which are favoured
by the community at large, on the basis of such criteria as good return appreciation of
capital, and so on.
Market place: - the second important function discharged by stock exchanges is that they
provide a market place for the purchase and sell of securities, thereby enabling their free
transferability through several successive stages from the original subscriber to the never
ending stream of buyers.
Continuous price formation: - The third major function, closely related to the second
discharged by the stock exchanges is process of continuous price formation. The collective
judgment of many people operating simultaneously in the market, resulting in the
emergence of large no. of buyers and sellers at any point of time, has the effect of bringing
about changes in the levels of security prices in small graduations, there by evening out
wide swings in price.

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3. DEMAT ACCOUNT
Demat refers to a dematerialized account.
Though the company is under obligation to offer the securities in both physical and demat
mode, you have the choice to receive the securities in either mode.
If you wish to have securities in demat mode, you need to indicate the name of the
depository and also of the depository participant with whom you have depository account
in your application.
It is, however desirable that you hold securities in demat form as physical securities carry
the risk of being fake, forged or stolen.
Just as you have to open an account with a bank if you want to save your money, make
cheque payments etc, Nowadays, you need to open a demat account if you want to buy or
sell stocks.
So it is just like a bank account where actual money is replaced by shares. You have to
approach the DPs (remember, they are like bank branches), to open your demat account.
Let's say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL
and 100 of ACC. All these will show in your demat account. So you don't have to possess
any physical certificates showing that you own these shares. They are all held

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electronically in your account. As you buy and sell the shares, they are adjusted in your
account. Just like a bank passbook or statement, the DP will provide you with periodic
statements of holdings and transactions.
Is a demat account a must? Nowadays, practically all trades have to be settled in
dematerialized form. Although the market regulator, the Securities and Exchange Board
of India (SEBI), has allowed trades of up to 500 shares to be settled in physical form,
nobody wants physical shares any more.
So a demat account is a must for trading and investing.
PAN CARD:-
Permanent Account Number (PAN) is a national identification number, issued to all
taxpayers of India whose income is taxable. This number is issued by the Income Tax
Office.
This number is required for many activities such as opening an account, getting a phone
line, receiving salary or professional fees. The primary purpose of PAN is to prevent tax
evasion by keeping a track of monetary transactions. The PAN is unique, national, and
permanent. It is unaffected by a change of address, even between states.
This number can be considered to be similar to Social security number issued in United
States to citizens and other legal residents.
Structure and validation

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• PAN structure is as follows: AAAAA9999A: First five characters are letters, next 4
numerals, last character letter
• Each deductee is uniquely identified by the PAN
• If the PAN does not follow the above structure, then the PAN will be shown invalid
• The fourth character of the PAN must be one of the following, depending on the type of
assessee:
C — Company
P — Person
H — Hindu Undivided Family (HUF)
F — Firm
A — Association of Persons (AOP)
T — AOP (Trust)
B — Body of Individuals (BOI)
L — Local Authority
J — Artificial Juridical Person
G — Government
• The fifth character of the PAN is the first character in the surname of the person to whom
the PAN belongs.

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Permanent Account Number is an identity document/number which can also be issued to
non-taxpayers.
3. BROKER:-
Who is a Stock Broker?
A stock broker is a person or entity, which is a member of a stock exchange. A stock
broker acts as a facilitator to carry out transactions of investors on a stock exchange.
Thus if you want to buy say 100 shares of a company XYZ (which is listed on say
National Stock Exchange) in the secondary securities market, he would have to go
through a stock broker registered in NSE to carry out his transactions on National
Stock exchange.
Whether stock brokers are governed by any Rules and Regulations?
Stock brokers are governed by SEBI Act, 1992, Securities Contracts (Regulation) Act,
1956, Securities and Exchange Board of India [SEBI (Stock brokers and Sub brokers)
Rules and Regulations, 1992], Rules, Regulations and Bye laws of stock exchange of
which he is a member as well as various directives of SEBI and stock exchange issued
from time to time.
What are the documents to be signed with stock broker?
Before start of trading with a stock broker, you are required to furnish your details

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such as name, address, proof of address, etc. and execute a broker client agreement.
You are also entitled to a document called Risk Disclosure Document, which would
give you a fair idea about the risks associated with securities market. Please go
through all these documents carefully.
What to check while registering with a stock broker?
Every stock broker is required to be a member of a stock exchange as well as
registered with SEBI. Examine the SEBI registration number and other relevant details
can be found out from the registration certificate issued by SEBI.
TRANSFORMATION PROCESS:-
Why should you invest?
Simply put, you should invest so that your money grows and shields you against rising
inflation. The rate of return on investments should be greater than the rate of inflation,
leaving you with a nice surplus over a period of time. Whether your money is invested in
stocks, bonds, mutual funds or certificates of deposit (CD), the end result is to create
wealth for retirement, marriage, college fees, vacations, better standard of living or to just
pass on the money to the next generation or maybe have some fun in your life and do
things you had always dreamed of doing with a little extra cash in your pocket. Also, it's
exciting to review your investment returns and to see how they are accumulating at a
faster rate than your salary.

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When to Invest?
The sooner the better. By investing into the market right away you allow your
investments more time to grow, whereby the concept of compounding interest swells
your income by accumulating your earnings and dividends. Considering the
unpredictability of the markets, research and history indicates these three golden rules for
all investors
1. Invest early
2. Invest regularly
3. Invest for long term and not short term.
While it’s tempting to wait for the “best time” to invest, especially in a rising market,
remember that the risk of waiting may be much greater than the potential rewards of
participating. Trust in the power of compounding. Compounding is growth via
reinvestment of returns earned on your savings. Compounding has a snowballing effect
because you earn income not only on the original investment but also on the reinvestment
of dividend/interest accumulated over the years. The power of compounding is one of the
most compelling reasons for investing as soon as possible. The earlier you start investing
and continue to do so consistently the more money you will make. The longer you leave
your money invested and the higher the interest rates, the faster your money will grow.
That's why stocks are the best long-term investment tool. The general upward

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momentum of the economy mitigates the stock market volatility and the risk of losses.
That’s the reasoning behind investing for long term rather than short term.
How much to invest?
There is no statutory amount that an investor needs to invest in order to generate adequate
returns from his savings. The amount that you invest will eventually depend on factors such as:
1 Your risk profile 2. Your Time horizon 3. Savings made
Remember that no amount is too small to make a beginning. Whatever amount of money you
can spare to begin with is good enough. You can keep increasing the amount you invest over
a period of time as you keep growing in confidence and understanding of the investment
options available and So instead of just dreaming about those wads of money do something
concrete about it and start investing soon as you can with whatever amount of money you can
spare.
STEPS FOR INVESTMENT IN SHARE MARKET:-
1. Open a broking account with a registered stock broker. You can also open an internet
trading account and start trading by click of a mouse. A large number of brokers such as
ICICI Web-trade, Motilal Oswal Securities, and Geojit Securities etc. are offering e-
broking services.
2. Submit your details and sign the broker client agreement with your broker. This is
mandatory.

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3. Open a Demat account with any of the Depository participants registered with NSDL or
CDSL. If your broker is also a DP, you can open the DP account with him also. Sign the
relevant papers and execute agreement
4. Don't deal with unregistered intermediaries, as this would expose you to counter party
risk and may lead to losses without any stock exchange recourse for remedy.
5. Give clear and unambiguous instructions to your Broker / Sub-broker.
6. Keep a record of all instructions issued to the Broker / Sub-broker.
7. Insist on a contract note issued for each day of trading and confirm the details printed
therein about your transactions for the day.
8. Don't fall prey to promises of unrealistic high returns. It is easy to lose money that way.
Don't indulge in speculative trading, go by fundamentals of accompany and invest for
medium to long term.
9. Trade within your predetermined limits and financial capacity.
10. Promptly issue delivery instructions to your DP for transferring the shares sold by you to
your broker's account. Failure to do so may result in huge losses for you.
11. Use the Investors' Grievance Redressal system of the stock exchanges and Depository to
redress your grievances if any.

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How to invest in mutual funds?
Mutual funds normally come out with an advertisement in newspapers publishing the date
of launch of the new schemes. Investors can also contact the agents and distributors of
mutual funds who are spread all over the country for necessary information and application
forms. Forms can be deposited with mutual funds through the agents and distributors who
provide such services. Now a days, the post offices and banks also distribute the units of
mutual funds. However, the investors may please note that the mutual funds schemes being
marketed by banks and post offices should not be taken as their own schemes and no
assurance of returns is given by them. The only role of banks and post offices is to help in
distribution of mutual funds schemes to the investors.
Investors should not be carried away by commission/gifts given by agents/distributors for
investing in a particular scheme. On the other hand they must consider the track record of the
mutual fund and should take objective decisions.
Non-Resident Indians (NRI) can also invest in mutual funds. Normally, necessary details
in this respect are given in the offer documents of the schemes.
MUTUAL FUNDS PERFORMANCE
The performance of a Mutual Fund is reflected in its net asset value (NAV) which is
disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-
ended schemes. The NAVs of mutual funds are required to be published in newspapers.
The NAVs are also available on the web sites of mutual funds. All mutual funds are also

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required to put their NAVs on the web site of Association of Mutual Funds in India
(AMFI) and thus the investors can access NAVs of all mutual funds at one place
Securities and Exchange Board Of India (SEBI):-
SEBI is the regulatory authority of Capital Market. It plays a vital role in the
Transformation process of Investment into various securities. It regulates the whole
Capital Market and directs the Companies as well as investors and brokers.
In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded as
a fully autonomous body (a statutory Board) in the year 1992 with the passing of the
Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place
of Government Control, statutory and autonomous regulatory boards with defined
responsibilities, to cover both development & regulation of the market, and independent
powers have been set up. Paradoxically this is a positive outcome of the Securities Scam
of 1990-91.
The basic objectives of the Board were identified as:
• to protect the interests of investors in securities;
• to promote the development of Securities Market;
• to regulate the securities market and
• for matters connected therewith or incidental thereto.

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Since its inception SEBI has been working targeting the securities and is attending to the
fulfillment of its objectives with commendable zeal and dexterity. The improvements in
the securities markets like capitalization requirements, margining, establishment of
clearing corporations etc. reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed registration
norms, the eligibility criteria, the code of obligations and the code of conduct for different
intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers,
registrars, portfolio managers, credit rating agencies, underwriters and others. It has
framed bye-laws, risk identification and risk management systems for Clearing houses of
stock exchanges, surveillance system etc. which has made dealing in securities both safe
and transparent to the end investor.
Another significant event is the approval of trading in stock indices (like S&P CNX Nifty
& Sensex) in 2000. A market Index is a convenient and effective product because of the
following reasons:
• It acts as a barometer for market behavior;
• It is used to benchmark portfolio performance;
• It is used in derivative instruments like index futures and index options;
• It can be used for passive fund management as in case of Index Funds.

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Two broad approaches of SEBI is to integrate the securities market at the national level,
and also to diversify the trading products, so that there is an increase in number of traders
including banks, financial institutions, insurance companies, mutual funds, primary
dealers etc. to transact through the Exchanges. In this context the introduction of
derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a
real landmark.
SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for
derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of
Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the
recommendations of the committee and approved the phased introduction of derivatives trading
in India beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws"
as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and
Settlement of Derivatives Contracts.
SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM)
in the Indian Stock Index Futures Market. The report was submitted in November 1998.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include
"derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The
necessary amendment was then carried out by the Government in 1999. The Securities Laws
(Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved.
Derivatives have been accorded the status of `Securities'. The ban imposed on trading in

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derivatives in 1969 under a notification issued by the Central Government was revoked.
Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock
Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE
started trading in the year 2001.
Any company or a listed company making a public issue or a rights issue of value of
more than Rs 50 lakhs is required to file a draft offer document with SEBI for its
observations. The company can proceed further only after getting observations from
SEBI. The company has to open its issue within three months from the date of SEBI's
observation letter.
Through public issues, SEBI has laid down eligibility norms for entities accessing the
primary market. The entry norms are only for companies making a public issue (IPO or
FPO) and
12 Basic Stock Investing Rules Every Successful Investor Should Follow
There are many important things you need to know to trade and invest successfully in the
stock market or any other market. 12 of the most important things that I can share with
you based on many years of trading experience are enumerated below.
1. Buy low-sell high. As simple as this concept appears to be, the vast majority of
investors do the exact opposite. Your ability to consistently buy low and sell high, will

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determine the success, or failure, of your investments. Your rate of return is determined
100% by when you enter the stock market.
2. The stock market is always right and price is the only reality in trading. If you want to
make money in any market, you need to mirror what the market is doing. If the market is
going down and you are long, the market is right and you are wrong. If the stock market
is going up and you are short, the market is right and you are wrong.
Other things being equal, the longer you stay right with the stock market, the more
money you will make. The longer you stay wrong with the stock market, the more money
you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have
gone down will go up. The more extreme the move up or down, the more extreme the
movement in the opposite direction once the trend changes. This is also known as "the
trend always changes rule."
4. If you are looking for "reasons" that stocks or markets make large directional moves,
you will probably never know for certain. Since we are dealing with perception of
markets-not necessarily reality, you are wasting your time looking for the many reasons
markets move.
A huge mistake most investors make is assuming that stock markets are rational or that
they are capable of ascertaining why markets do anything. To make a profit trading, it is
only necessary to know that markets are moving - not why they are moving. Stock market

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winners only care about direction and duration, while market losers are obsessed with the
whys.
5. Stock markets generally move in advance of news or supportive fundamentals -
sometimes months in advance. If you wait to invest until it is totally clear to you why a
stock or a market is moving, you have to assume that others have done the same thing
and you may be too late.
You need to get positioned before the largest directional trend move takes place. The
market reaction to good or bad news in a bull market will be positive more often than not.
The market reaction to good or bad news in a bear market will be negative more often
than not.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term
trends to make sizeable money. The key is to know when to get aboard a trend and stick
with it for a long period of time to maximize profits. Contrary to the short term
perspective of most investors today, all the big money is made by catching large market
moves - not by day trading or short term stock investing.
7. You must let your profits run and cut your losses quickly if you are to have any chance
of being successful. Trading discipline is not a sufficient condition to make money in the
markets, but it is a necessary condition. If you do not practice highly disciplined trading,
you will not make money over the long term. This is a stock trading “system” in itself.

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8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect
competition model of capitalism. The Efficient Market Hypothesis at root shares many of
the same false premises as the perfect competition paradigm as described by a well
known economist.
The perfect competition model is not based on anything that exists on this earth.
Consistently profitable professional traders simply have better information - and they act
on it. Most non-professionals trade strictly on emotion, and lose much more money than
they earn.
The combination of superior information for some investors and the usual panic as losses
mount caused by buying high and selling low for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not enable you to
consistently make money in the markets. Successful market timing is possible but not
with the tools of analysis that most people employ.
If you eliminate optimization, data mining, subjectivism, and other such statistical tricks
and data manipulation, most trading ideas are losers.
10. Never trust the advice and/or ideas of trading software vendors, stock trading system
sellers, market commentators, financial analysts, brokers, newsletter publishers, trading
authors, etc., unless they trade their own money and have traded successfully for years.
Note those that have traded successfully over very long periods of time are very few in
number. Keep in mind that Wall Street and other financial firms make money by selling

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you something - not instilling wisdom in you. You should make your own trading
decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is take a large loss on their position or portfolio.
Market timing can help avert this much too common experience.
You can avoid making that huge mistake by avoiding buying things when they are high.
It should be obvious that you should only buy when stocks are low and only sell when
stocks are high.
Since your starting point is critical in determining your total return, if you buy low, your
long term investment results are irrefutably better than someone that bought high.
12. The most successful investing methods should take most individuals no more than
four or five hours per week and, for the majority of us, only one or two hours per week
with little to no stress involved.
It is the total transformation process of share trading and the investors should follow all
these guidelines for better returns in share market.
OUTPUTS:-

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After the Transformation process of various inputs, we get the various type of securities
certificate. And funds. Through the proper investment we can get the profit. It is the
process of proper allocation of money according to investor’s point of view. According to
the point of view, it is the proper way of long term financing (fund raising).
There are following output which we can get after the transformation of various inputs.
1. Certificate of various securities:-

Shares:-
Shares represent ownership of a company. When an individual buys shares in your
company, they become one of the owners of the company. Shareholders choose who runs
a company and are involved in making key decisions, such as whether a business should
be sold.
While shares are most obviously associated with the stock market, the majority of small
businesses don't go near a stock market in their lifetime. They are more likely to issue
shares in their company in return for a lump sum investment. This may either be from
friends and family or, for businesses that are looking for capital to fund high growth,
through formal equity funding finance.
Formal equity finance is available through:
• Business Angel Investors
• Venture Capital Firms
• Stock Markets

2009-10
These investors are willing to put up capital for a share in a growth business. The
advantage of raising money in this way is that you don't have to pay the money back or
pay interest to the investors. Instead, shareholders are entitled to a share of the
distributable profits of the company, known as dividends.
Paying dividends and paying tax
At the end of a calendar year, a company's board decides whether the business has done
well enough to pay shareholders a dividend. A dividend is a part of the company's profits
that is given to shareholders. In larger companies, it is common for an interim dividend to
be paid at the half-year point. The dividend is calculated per share, so the more shares
you own, the more money you get. Dividends attract income tax, but not National
Insurance.
Many company share schemes allow employee shareholders to reinvest dividends in
further shares called dividend shares. A maximum of £1,500 in dividends can be
reinvested in this way each year. If an employee holds these shares for three years, they
pay no income tax on them. If not, the dividend used to pay for the shares becomes
taxable.
Debenture:-
A debenture is defined as a certificate of agreement of loans which is given under the
company's stamp and carries an undertaking that the debenture holder will get a fixed

2009-10
return (fixed on the basis of interest rates) and the principal amount whenever the
debenture matures.
In finance, a debenture is a long-term debt instrument used by governments and large
companies to obtain funds. It is defined as "a debt secured only by the debtor’s earning
power, not by a lien on any specific asset."[1] It is similar to a bond except the
securitization conditions are different. A debenture is usually unsecured in the sense that
there are no liens or pledges on specific assets. It is, however, secured by all properties
not otherwise pledged. In the case of bankruptcy, debenture holders are considered
general creditors. The advantage of debentures to the issuer is they leave specific assets
burden free, and thereby leave them open for subsequent financing. Debentures are
generally freely transferable by the debenture holder. Debenture holders have no voting
rights and the interest given to them is a charge against profit.
Types:-
There are two types of debentures:
1. Convertible Debentures, which can be converted into equity shares of the issuing
company after a predetermined period of time.
2. Non-Convertible Debentures, which cannot be converted into equity shares of the
liable company. They usually carry higher interest rates than the convertible ones.

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Shares of stock in the issuing company, usually at some pre-announced ratio. It is a
hybrid security with debt- and equity-like features. Although it typically has a low
coupon rate, the holder is compensated with the ability to convert the bond to common
stock, usually at a substantial discount to the stock's market value.
From the issuer's perspective, the key benefit of raising money by selling convertible
bonds is a reduced cash interest payment. However, in exchange for the benefit of
reduced interest payments, the value of shareholder's equity is reduced due to the stock
dilution expected when bondholders convert their bonds into new shares.
The convertible bond markets in the United States and Japan are of primary global
importance. These two domestic markets are the largest in terms of market capitalisation.
Other domestic convertible bond markets are often illiquid, and pricing is frequently non-
standardised.
Mutual Fund:-
Mutual Fund is a investment company that pools money from shareholders and invests in
a variety of securities, such as stocks, bonds and money market instruments. Most open-
end mutual funds stand ready to buy back (redeem) its shares at their current net asset
value, which depends on the total market value of the fund's investment portfolio at the
time of redemption. Most open-end mutual funds continuously offer new shares to
investors.

2009-10
In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units
to the investors and investing funds in securities in accordance with objectives as
disclosed in offer
Short, a mutual fund is a common pool of money in to which investors with common
investment objective place their contributions that are to be invested in accordance with
the stated investment objective of the scheme. The investment manager would invest the
money collected from the investor in to assets that are defined/ permitted by the stated
objective of the scheme. For example, an equity fund would invest equity and equity
related instruments and a debt fund would invest in bonds, debentures, gilts etc . Mutual
Fund is a suitable investment for the common man as it offers an opportunity to invest in
a diversified, professionally managed basket of securities at a relatively low cost.
Types of Mutual Funds:-
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.
Open-ended Fund
An open-ended Mutual fund is one that is available for subscription and repurchase on a
continuous basis. These Funds do not have a fixed maturity period. Investors can

2009-10
conveniently buy and sell units at Net Asset Value (NAV) related prices which are
declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund
A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is
open for subscription only during a specified period at the time of launch of the scheme.
Investors can invest in the scheme at the time of the initial public issue and thereafter
they can buy or sell the units of the scheme on the stock exchanges where the units are
listed.
Fund according to Investment Objective:
A scheme can also be classified as growth fund, income fund, or balanced fund
considering its investment objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such funds
have comparatively high risks. These schemes provide different options to the investors
like dividend option, capital appreciation, etc
Income / Debt Oriented Scheme

2009-10
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such funds are less risky
compared to equity schemes. These funds are not affected because of fluctuations in
equity markets.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their
offer documents. These are appropriate for investors looking for moderate growth. They
generally invest 40-60% in equity and debt instruments. These funds are also affected
because of fluctuations in share prices in the stock markets.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation
of capital and moderate income. These schemes invest exclusively in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and inter-
bank call money, government securities, etc.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no
default risk. NAVs of these schemes also fluctuate due to change in interest rates and
other economic factors as is the case with income or debt oriented schemes.

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Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,
S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same
weightage comprising of an index.
1. PROPER ALLOCATION OF MONEY:-

Investor’s point of view:-
It is the prerequisite of investment in the share market that the allocation of capital should
be proper and in the right areas so that the returns should be maximum and there should be
certainty of the returns to the investor .It is the basic function of the capital budgeting and
working capital management that there should be wise and proper allocation of the capital
in the right places and firm so that maximum return should be obtained…
4. FUNDS FOR ORGANISATION:-
Our range of loan facilities will help you finance the medium to long-term needs of your
business. We know how important it is to get the right type of loan and have the money in
place when you need it, and so we aim to be quick and flexible in turning round your
requests. Long term financing provide capital deficit businesses funds for the period over
1 year. It contrasts to short term financing because short term financing provides funds for
the period of 1 year or less

2009-10
Whether an established corporation or new business entity it is common that many small
and large companies have some kind of debt throughout the life of their business.
These businesses normally turn to lenders not only to expand their companies or to
purchase equipment, but also to finance operating capital to even out cash flow.
FEEDBACKS OF TRADING IN
CAPITAL MARKET:-
Investor’s point of view:-
(1).Return/Profit
(2).Tax Benefits
(3).Exclusive Right
(4) Ownership of the company/share in profits/interest
Company’s point of view:-
(5).Permanent/Long Term Capital
(6). Risk sharing
(7).commission for the Broker Registered
(8).Economic Growth
1. Return/profit:-
A investor can get a better return and huge profit after investing in capital market. it is
only the process through we get proper return. The main objective of an investor is to

2009-10
earn maximum profit from its investment, In economic terms excess of income over
investment is term as profit.
Profit can be earned by allocation of fund efficiently and in right areas. So that the
chances of return is more in investing in share market. And there should be certaininty
of getting return back. always invest in that firm which is well recognized and
established so there will be less risks and no chances of uncertaininty.The firm in
which investors is investing must have goodwill at present and the shares purchased
get the worth of the money invested.
Dividend
Dividends are payments made by companies to their stockholders in order to share a portion of
the profits from a particular quarter or year. The amount that any particular stockholder receives
is dependent upon how many shares of stock they own and how much the total amount being
divided up among the stockholders amounts to. This means that after a particularly profitable
quarter a company might set aside a lump sum to be divided up amongst all of their stockholders,
though each individual share might be worth only a very small amount potentially fractions of a
cent, depending upon the total number of shares issued and the total amount being divided.
Individuals who own large amounts of stock receive much more from the dividends than those
who own only a little, but the total per-share amount is usually the same.
Dividends are paid by companies as a method of sharing their profitable times with the
stockholders that have faith in the company, as well as a way of luring other investors into

2009-10
purchasing stock in the company that is paying the dividends. The more a particular company
pays in dividend payments, the more likely it is to sell additional common stock…
Interest:-Interest is paid to the existing debenture holders..There is legal obligation to the
company’s management to pay a certain percentage of interest to the debenture holder.
(2). Tax Benefits:-
The Government of India has introduced schemes for the benefit of tax saving for NRIs and PIOs
by the way of investments. Following are the tax exemptions that NRIs and PIOs can enjoy.
Tax Exemptions from Income Tax
Income from the investments cited below is totally exempted from tax:
• Units of Unit Trust of India (UTI), mutual funds, bonds, securities and saving certificates
(as per the conditions mentioned under the Income-tax laws and regulations).
• Dividends declared by Indian companies.
• Long term capital gains from transfer of equity shares in a company and/or equity
oriented schemes of Mutual funds that are subject to securities transaction tax.
(3).Exclusive Right:-
An equity share holder have the right to claim on the income of a company .they have a
claim on income left after paying dividend to preference share holders. The rate of dividend on
these shares is not fixed. It depends upon the earning available after paying dividend on
preference share holders.

2009-10
They also have residual claim on assets on ownership of companies assets in the event of
liquidation of a company the assets are utilized first to meet the claims of creditors and
preference share holders but everything left, there after ,belongs to the equity share holders.
An equity share holders have the voting right in the meetings of a company and have a
control over the working of the company
(4).Ownership of the company/share in profits/interest:-
To Safeguards the interests of equity share holders and enable them to maintain their
proportional ownership, Sec.81 of Companies Act, 1956 provides that whenever a public limited
company proposes to increase it’s subscribed capital by the allotment of further shares, after the
expiry of two years from the formation of the company or expiry of one year from the first
allotment if shares in the company, whichever is earlier, such shares must be offered to holders
of existing equity shares in proportion, as circumstances admit, to the capital paid-up on these
shares.
(5).Permanent/Long Term Capital:-
Through issue of equity shares, the company gets permanent capital which is not returned back
during its life time. Long term s a base for the financial structure of a firm.genreally financial
needs for more than five year are included in long term finance. Long term funds are required to
create production facilities through purchase of fixed assets such as Plant, Machinery, Land,
Building etc…….and for modernization and expansion of the existing facilities.
(6). Risk sharing:-

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Equity share holders bear the risk of company. So it is called risk capital. The equity share
capital is simple and economical source for the company. In the equity share the ownership is
divided in to various owners. so the risk is divided in to various people.
(7).commission for the Broker Registered:-
Brokers can boost their income with production bonuses, profit-sharing plans and trips to Europe
or Hawaii for beating sales goals. A broker who has a very large client list or who does a lot of
business can negotiate to keep a bigger percentage of commissions by switching--or threatening
to switch--firms.
When you buy or sell stocks, you will need a broker. A stock broker charges a fee called a
commission. Here are the equations to calculate the costs and profits or losses of buying and
selling stocks:
you'll pay a commission of 2% to 3%. Typically in the industry, brokers do have discretion to
give customers a break, depending on the size of the account. Of the amount you actually pay,
Edward Jones gives its brokers 40% and keeps 60%. The split is similar with bonds, load mutual
funds and annuities. On average, brokerage firms give their reps 37% of the commission paid by
investors.
Equation:-
Cost of purchase: (stock price)  (number of shares bought) + commissions
Proceeds from selling: (stock price)  (number of shares sold) - commissions

2009-10
The difference of the proceeds and costs will tell you if you made or lost money. The
commission can be a percentage of the purchase price or a fixed fee. A discount broker usually
charges $15 to 30 commission per transaction. A full- service broker usually charges $50 to 120
for buying or selling 100 shares of stock. You pay a commission when you buy or sell stocks.
(8).Economic Growth:-
The Economic growth of any nation depends upon the per capita income of the nation. In share
market the foreign investors also invest their money in various firms and organizations in the
form of securities which leads to huge turnover of foreign capital from a country to a country.
Which leads to developments and growth in various sectors? Example External sectors financial
sectors and in domestic capital market. These all investment are in the form of securities of a
country .therefore this cash inflow leads to increase in the foreign exchange treasure.
So the above explanation indicate that the growth of the nation increase with growth of a
company /organization.
Constraints of share trading:-
EFFECT OF INFLATION ON STOCK MARKET:

2009-10
Understanding inflation is crucial to investing because inflation can reduce the value of
investment returns. Inflation affects all aspects of the economy, from consumer spending,
business investment, and employment rates, to government programs, tax policies, and interest
rates.
It is because of the inflation that share market has collapsed, it is bound to affect the investors. In
fact, the way the share market was going up was itself creating doubts in the minds of the people
about its real growth. When the market crossed 10,000 points nobody was able to explain the
logic of it. So also when it reached 12,000 points, it remained unexplainable. The happenings in
the share market were certainly a cause of concern. The government ought to have looked into
the factors when the market started rising all of a sudden. However, stocks are still a good hedge
against inflation because, in theory, a company’s revenue and earnings should grow at the same
rate as inflation over the time.
EFFECT OF FLUCTUATIONS IN SHARE PRICE:-
1) Share prices are affected by forces of demand and supply. Demand and supply of stocks
depends on various factors like macroeconomic situation, profitability of the company and its
growth, Good & reputed management, size of the company, growth in particular sector,
Government policies etc
2)Sens*x means sensitivity index. It is index of Bombay stock exchange and is considered as
barometer of Indian economy.Sens*x moves because of movement in prices of its constituent 30
Shares which forms part of sens*x.It has a base year of 1979 with base value of 100. It is

2009-10
calculated on the basis of free float market capitalization. It is the benchmark against which
movement in price of other securities are compared.
3)Majority of trading in stock exchange is done in India in two exchanges i.e. BSE & NSE.Both
these exchanges have there own indices which capture the movement in price of there constituent
securities. For eg Nifty for NSE (Comprises of 50 stocks) and Sens*x for BSE (Comprises of 30
Stocks).Derivative products are also available on these indices. These constituent stocks are
carefully selected to give true indication regarding growth. Factors considered are Market Cap,
Volume, free Float, Industry representation etc.
MARKET NEWS:-
News is a big factor affecting stock price. Negative news decreases the future prospects of the
company and a positive release increase people interest in buying the shares. Some time, there
might be a good news that company price might show small movement. So, the factor that
matters more is news. Always use wait and watch policy in the market, if there is no fixed
reaction about the stock in the market.
News from the side of finance minister also affects the share price as well as on whole stock
market. If the finance minister announces the bailout package or any relaxation to the any
company it leads to the rise in the share price. Same as if he announces any negative statement it
leads to the slowdown in share market.
EARNING PER SHARE:-

2009-10
It is the profit made by the company. This identity is mentioned in every quarter report of the
company as it is most important factor affecting share price and helps in determining company’s
health. EPS affect buying tendency and causes increase in particular stock price. So for profitable
investment, it is always recommended to go through the quarterly reports of the company before
deciding to invest in it and short list the possibilities before actually buying the shares of a
particular company
Inputs:-
(1). Potential investor
(2) Money
(3)New Issue or Stock Constraints of trading:-

Feedbacks Of Trading In Exchange
Capital Market:- (4) Demat Account (1) Effect of inflation
investor’s view:
(2) Fluctuation in share price
(1)return/profit Transformati
(2)tax benefits on Process
(3) Exclusive right (3) Market news
(4) Ownership
Outputs:-
Company’s view: (4) Earning per share
(1) Certificate of Various
(1)permanent capital Securities
(2) Proper allocation of

money
(3) Funds for Company

2009-10
(2)Risk sharing
(3) comm. Broker
National view:
(1)Economic growth
Transformation model
Matrix table
Technical Rating (0-10) Types of Availability Company’s Economic

Attribute securities of offer performance condition
Investor’s
Require-
-ment
Profit/Interest 10
Ownership 8
Security 6

2009-10
Right to 7
income
Claim on 6
Assets
-10 -Most Important

-7 -Moderate Important
-4-Less important
-1-Least Important
MATRIX CALCULATION:-
Profit/interest= (10*10) + (10*7) + (10*10) + (10*4) =310
Ownership= (8*10) + (8*7) + (8*1) + (8*4) =176
Security= (6*7) + (6*1) + (6*10) + (6*10) =168
Right to income= (7*4) + (7*1) + (7*4) + (7*4) =91
Claim on assets= (6*7) + (6*1) + (6*4) + (6*1) = 78
Explanation: -
Profit/ interest: -
Matrix calculation indicates that investors are highly interested toward the profit and return in the
form of in terest.that’s why profit has highest marks.
Profit and interest highly depend upon the types of securities. Because different type of security
have different characteristics. In the equity share there are high risk and better return and in case
of debentures the investors get a certain amount of interest.

2009-10
Avail. Of offer have less impact on the profit because investor can get profit through another
savings schemes.
Profit/interest is most affected by company’s performance. The investor gets the profit according
to the output of the organization.
Economic conditions also affect the profit and interest on an investor. Because at the time of
recession the investor get less return from the investment.
So, finally profit and interest are most important to every investor and it affected by various
factors.
Ownership: -
Ownership got 176 points, which indicate investors give priority to ownership less than profit.
Ownership of the company or any organization highly depends upon the type of securities.
Because only Equity shares provide the ownership of the company. And others have different
criteria.
Availability of offer is less important for the ownership of the company. Because can get through
the acquisition, merger and so on…
For getting the ownership of the company is not so important. Because a person can takeover a
company running in losses and other can takeover a company running in profit.
Company’s performance does not affect the ownership of the organization.

2009-10
Economic condition affects the ownership of the organization. It has moderate effect on owned a
firm.
Security:-
Security has 168 point which indicate that security has moderate priority to the security because
in the investments are more risky.
Types of securities have moderate effect on the security of various securities. Because risk are as
follows:
Equitysahres > Preference Shares > Debentures
Availability of offer has less impact on security
Company’s performance has huge impact on security because it happened in” SATYAM’S
CASE”
Economic condition also affects the security. Because at the time of GLOBAL ECONOMIC
SLOWDOWN the company cannot perform better.
Right to income: -
Right to income has 91 point, which indicates less priority to right to income. Because they are
believe in better return.
Right to analyses the incomes of any company’s not highly depend upon the types of securities.
Because only Equity share holders have the right to income.
Availability of offer has least impact on right to income.
Company’s performance has minor role in right to income .If the company announces faulty
income statement at the time of good performance then shareholders can see the income.

2009-10
Economic condition has also moderate effect on right to income. Because a share holder can ask
for the income if the company try to get benefits of ECONOMIC SLOW DOWN and show a
faulty statement.
Claim on Assets: -
Claim on assets has 78 point, which indicates minimum priority to the Claim on assets because
they are only emphasis on company’s performance.
Types of security have moderate effect on claim on assets. Because the preference order of claim
on security as follows:
Equity shareholders<preference shareholders<debentures holders
Availability of offer has least impact on claim on assets.
Company’s performance also has impact on claim on assets because if the company has come at
the stage of insolvency then investor can claim on assets.
Economic condition has least impact on claim on assets.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION

MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL

Details of Content Page

MATRIX TABLE WITH CALCULATION 27-28

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

INPUTS OF SHARE TRADING:

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

Potential customers are of following types:-

(1) Domestic investors

(2) Institutional investors

(3) Foreign investors

INSTITUTIONAL INVESTOR Mutual funds, Unit Trust, Insurance Corporation of

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

influence company policy.

Tips for Indian stock investor

Portfolio advice for indian stock markets.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

reflected in Indian stock market.

Mumbaibull.com presents a set of stocks to buy based on these principles. Emphasizing

more on fundamental and a bit on technicals.

collect the money he owed us"

• wealth reckoned in terms of money; "all his money is in real estate"

money into francs"

provides the proper value to every transaction made.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

1. New Issue market

(A). AN INITIAL PUBLIC OFFERING (IPO): BASIC

the company. The IPOs are very effective at raising capital.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

securities to be offered based on demand from investors. An electronic book is being

desire and the price they are willing to pay.

Book Building Process

is arrived and shares are issued to successful applicants

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

An IPO is usually underwritten by one or more underwriters called as a "syndicate" of

after one year of first issue of shares whichever is earlier

(B). STOCK EXCHANGE (SECONDARY OR STOCK MARKET):-

brokers have a network of sub-brokers who provide them with orders.

order to his broker who will then execute it.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

point of subscription when a company is created. When a company starts to be traded to

people, they can do so by going to the stock market.

within the frame work of the stock market system.

from its IPO price.

The Major Stock Exchange of India

2. BSE(Bombay Stock Exchange)

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

Functions of Stock Exchange (Secondary Market):-

1. Nexus between savings and investments.

3. Continuous price formation

capital, and so on.

ending stream of buyers.

judgment of many people operating simultaneously in the market, resulting in the

wide swings in price.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

the risk of being fake, forged or stolen.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

statements of holdings and transactions.

Is a demat account a must? Nowadays, practically all trades have to be settled in

nobody wants physical shares any more.

So a demat account is a must for trading and investing.

Permanent Account Number (PAN) is a national identification number, issued to all

permanent. It is unaffected by a change of address, even between states.

States to citizens and other legal residents.