Professional Documents
Culture Documents
http://www.arborinvestmentplanner.com/enterprise-value-ev-calculating-enterprise-
value-ratios/
ROE EXPLANATION:
http://equityfriend.com/articles/117-how-to-analyse-roe-of-a-company.html
OPERATING PROFIT:
http://equityfriend.com/articles/116-how-to-analyse-operating-profit-of-a-
company.html
WHY BLOCK DEAL OCCUR IN ANY STOCK
Block deal is a single transaction, of a minimum quantity of five lakh shares or a minimum value of
Rs 5 crore, between two parties.
Definition: It is a single transaction, of a minimum quantity of five lakh shares or a minimum value of
Rs 5 crore, between two parties which are mostly institutional players. The transaction happens
through a separate trading window. The deals happen in the beginning of trading hours for a time
span of 35 minutes.
1. An order may be placed for a minimum quantity of 5 lakh equity shares or minimum value of Rs 5
crore.
2. Every trade has to result in delivery and "Block Deal" orders cannot be squared off or reversed.
3. The price of a share ordered at the window should range within +1% to -1% of the current market
price/previous day's closing price, as applicable.
4. Transparent disclosure of trade transaction details such as the name of scrip, name of the clients
(Buyer and Seller), quantity of shares bought/sold, and traded price have to be made by the broker
to the exchange immediately. The exchange has to furnish all the transaction-related information to
the public markets on the same day of the block deal transaction, after the closing of trading hours.
For example, two FIIs (foreign institutional investors) want to trade 10% of a company's total
number of shares. As this transaction involves trading of a large quantity of shares, the risk factors
entailing to this transaction are immense. Thereby, the exchange on which trading will happen,
allocates a separate trading window for these two investors to exhibit a block deal, with the prime
focus of prohibiting risk
A block deal happen through a separate window provided by the stock exchange. This window is open for
only 35 minutes but bulk deals take place throughout the trading day. There is always a need for two
parties for a block deal to take place, however, bulk deals are market driven.
If more than 0.5% of the number of equity shares of a company gets traded in a single or multiple
transactions under a single client code, it is called as bulk deal. The broker, who facilitates the trade, is
required to reveal to the stock exchange about the bulk deals on a daily basis though data upload
software (DUS).
End Result Funds flow statement shows the causes Cash flow statement shows the causes the
of changes in net working capital. changes in cash.
I. Open-Ended - This scheme allows investors to buy or sell units at any point in time. This
does not have a fixed maturity date.
1. Debt/ Income - In a debt/income scheme, a major part of the investable fund are
channelized towards debentures, government securities, and other debt instruments.
Although capital appreciation is low (compared to the equity mutual funds), this is a
relatively low risk-low return investment avenue which is ideal for investors seeing a steady
income.
2. Money Market/ Liquid - This is ideal for investors looking to utilize their surplus funds in
short term instruments while awaiting better options. These schemes invest in short-term
debt instruments and seek to provide reasonable returns for the investors.
3. Equity/ Growth - Equities are a popular mutual fund category amongst retail investors.
Although it could be a high-risk investment in the short term, investors can expect capital
appreciation in the long run. If you are at your prime earning stage and looking for long-term
benefits, growth schemes could be an ideal investment.
3.i. Index Scheme - Index schemes is a widely popular concept in the west. These follow a
passive investment strategy where your investments replicate the movements of benchmark
indices like Nifty, Sensex, etc.
3.ii. Sectoral Scheme - Sectoral funds are invested in a specific sector like infrastructure,
IT, pharmaceuticals, etc. or segments of the capital market like large caps, mid caps, etc.
This scheme provides a relatively high risk-high return opportunity within the equity space.
3.iii. Tax Saving - As the name suggests, this scheme offers tax benefits to its investors.
The funds are invested in equities thereby offering long-term growth opportunities. Tax
saving mutual funds (called Equity Linked Savings Schemes) has a 3-year lock-in period.
4. Balanced - This scheme allows investors to enjoy growth and income at regular intervals.
Funds are invested in both equities and fixed income securities; the proportion is pre-
determined and disclosed in the scheme related offer document. These are ideal for the
cautiously aggressive investors.
II. Closed-Ended - In India, this type of scheme has a stipulated maturity period and
investors can invest only during the initial launch period known as the NFO (New Fund Offer)
period.
1. Capital Protection - The primary objective of this scheme is to safeguard the principal
amount while trying to deliver reasonable returns. These invest in high-quality fixed income
securities with marginal exposure to equities and mature along with the maturity period of
the scheme.
2. Fixed Maturity Plans (FMPs) - FMPs, as the name suggests, are mutual fund schemes
with a defined maturity period. These schemes normally comprise of debt instruments which
mature in line with the maturity of the scheme, thereby earning through the interest
component (also called coupons) of the securities in the portfolio. FMPs are normally
passively managed, i.e. there is no active trading of debt instruments in the portfolio. The
expenses which are charged to the scheme, are hence, generally lower than actively
managed schemes.
III. Interval - Operating as a combination of open and closed ended schemes, it allows
investors to trade units at pre-defined intervals.
Based on the maturity period
Open-ended Fund
An open-ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is
available for subscription throughout the year and investors can buy and sell units at NAV related prices. These
funds do not have a fixed maturity date. The key feature of an open-ended fund is liquidity.
Close-ended Fund
A close-ended fund is a fund that has a defined maturity period, e.g. 3-6 years. These funds are open for
subscription for a specified period at the time of initial launch. These funds are listed on a recognized stock
exchange.
Interval Funds
Interval funds combine the features of open-ended and close-ended funds. These funds may trade on stock
exchanges and are open for sale or redemption at predetermined intervals on the prevailing NAV.
Equity/Growth Funds
Equity/Growth funds invest a major part of its corpus in stocks and the investment objective of these funds is long-
term capital growth. When you buy shares of an equity mutual fund, you effectively become a part owner of each of
the securities in your funds portfolio. Equity funds invest minimum 65% of its corpus in equity and equity related
securities. These funds may invest in a wide range of industries or focus on one or more industry sectors. These
types of funds are suitable for investors with a long-term outlook and higher risk appetite.
Debt/Income Funds
Debt/ Income funds generally invest in securities such as bonds, corporate debentures, government securities
(gilts) and money market instruments. These funds invest minimum 65% of its corpus in fixed income securities. By
investing in debt instruments, these funds provide low risk and stable income to investors with preservation of
capital. These funds tend to be less volatile than equity funds and produce regular income. These funds are suitable
for investors whose main objective is safety of capital with moderate growth.
Balanced Funds
Balanced funds invest in both equities and fixed income instruments in line with the pre-determined investment
objective of the scheme. These funds provide both stability of returns and capital appreciation to investors. These
funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination
of income and moderate growth. They generally have an investment pattern of investing around 60% in Equity and
40% in Debt instruments.
Money Market/ Liquid Funds
Money market/ Liquid funds invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit
and Commercial Paper for a period of less than 91 days. The aim of Money Market /Liquid Funds is to provide easy
liquidity, preservation of capital and moderate income. These funds are ideal for corporate and individual investors
looking for moderate returns on their surplus funds.
Gilt Funds
Gilt funds invest exclusively in government securities. Although these funds carry no credit risk, they are associated
with interest rate risk. These funds are safer as they invest in government securities.
Some of the common types of mutual funds and what they typically invest in:
Fixed Income Fund Fixed income securities like government and corporate bonds
Money Market Fund Short-term fixed income securities like treasury bills
Index Fund Equities or Fixed income securities chosen to replicate a specific Index for
example S&P CNX Nifty
Other Schemes
Index Funds
Index schemes replicate the performance of a particular index such as the BSE Sensex or the S&P CNX Nifty. The
portfolio of these schemes consist of only those stocks that represent the index and the weightage assigned to each
stock is aligned to the stocks weightage in the index. Hence, the returns from these funds are more or less similar
to those generated by the Index.
Sector-specific Funds
Sector-specific funds invest in the securities of only those sectors or industries as specified in the Scheme
Information Document. The returns in these funds are dependent on the performance of the respective
sector/industries for example FMCG, Pharma, IT, etc. The funds enable investors to diversify holdings among many
companies within an industry. Sector funds are riskier as their performance is dependent on particular sectors
although this also results in higher returns generated by these funds.
Futures contracts are highly standardized whereas the terms of each forward
contract can be privately negotiated.
Counterparty risk
In any agreement between two parties, there is always a risk that one side will renege on
the terms of the agreement. Participants may be unwilling or unable to follow through the
transaction at the time of settlement. This risk is known as counterparty risk.
In a futures contract, the exchange clearing house itself acts as the counterparty to both
parties in the contract. To further reduce credit risk, all futures positions are marked-to-
market daily, with margins required to be posted and maintained by all participants at all
times. All this measures ensures virtually zero counterparty risk in a futures trade.
Forward contracts, on the other hand, do not have such mechanisms in place. Since
forwards are only settled at the time of delivery, the profit or loss on a forward contract is
only realized at the time of settlement, so the credit exposure can keep increasing. Hence, a
loss resulting from a default is much greater for participants in a forward contract.
Secondary Market
The highly standardized nature of futures contracts makes it possible for them to be traded
in a secondary market.
Price discovery is frequently confused with price determination. These are two related but different concepts which
need to be understood when discussing prices and pricing issues. Fact that distinguishes between both concepts,
identifies how they are interrelated, and provides an indication when price discovery concerns may increase.
Price determination is the interaction of the broad forces of supply and demand which determine the market price
level. It is the interaction of a supply curve and a demand curve to determine the general price level.
Price discovery is the process of buyers and sellers arriving at a transaction price for a given quality and quantity of a
product at a given time and place. Price discovery involves several interrelated concepts, among them: Market
structure (number, size, location, and competitiveness of buyers and sellers); Market behavior (buyer procurement
and pricing methods); Market information and price reporting (amount, timeliness, and reliability of information); and
Futures markets and risk management alternatives. Price discovery begins with the market price level. Because
buyers and sellers discover prices on the basis of uncertain expectations, transaction prices fluctuate around that
market price level. Because of information uncertainty, we never know exactly the shape and location of the demand
and supply curves. Therefore, we must estimate demand and supply. Those estimated supply and demand curves
intersect at a range of quantities and prices.
Thus, discovered prices fluctuate above and below the general or market price level. This fluctuation is attributable to
the quantity and quality of the commodity brought to market, the time and place of the transaction, and the number of
potential buyers and sellers present. Other factors are the amount and type of public market information available,
captive supplies, and packer concentration.