Flow of Presentation

GAAP in Accountancy

C to s of Capital Markets

Discussion on Demateralisation

Matters of Mutual Funds

Suspense behind Derivatives

Round and round the Settlement

Cycle

Accountancy
The accounting process in a nutshell:

Capture and Record a business transaction.

Classify and post transactions to their individual Ledger
Accounts.
Summarize and report the balances of Ledger Accounts in
financial statements.

The three main financial statements:

Income Statement
Balance Sheet
Statement of Cash Flows

FAQs

What is GAAP?

What are the 3 Golden Rules of

Accountancy?

Where is Profit and Loss posted in a

balance sheet?

What kind of items are posted in the

Income statement?

What is depreciation and the method?

What is BRS, with an example?

What are the types of cash flows?

Capital Markets
The market for securities, where companies and the
government can raise long-term funds. The capital
market includes the stock market and the bond market.
It is a place where investors come together to buy and
sell shares.

Segmentation of Securities Market:

Primary Market: It deals with the issuance of new securities.

Companies, governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue.

Secondary Market: The financial market for trading of

securities that have already been issued in an initial public
offering.

FAQs

What are Equity shares, Preference shares, Bonus

shares, Bond, Debentures, Dividend?

Why does one need a broker?

What are Blue-Chip companies?

How is SENSEX calculated?

What is ISIN?

What is Insider Trading?

What is a Split and buy-back?

What are Corporate Actions?

What is the Technology used to carry out trades?

Dematerialisation
An Analogy
How does the Depository System operate?
BANK
DEPOSITORY

Holds funds in accounts

Transfers funds
between accounts

Holds securities in
accounts

Transfers securities in
accounts

Transfers without
handling cash

Transfers without handling

physical securities

Safekeeping of money

Safekeeping of securities

Either or survivor can

sign the cheque

All the holders must sign

the instruction

FAQs

What is Dematerialisation and its benefits?

What is a Depository?

Who is a Depository Participant?

What are the benefits of participation in a

depository?

What is a Custodian?

Can I freeze my account?

What is transposition-cum-demat?

What is transmission-cum-demat?

Mutual Funds
A Mutual Fund is a pool of money
collected from investors and is invested
according to stated investment
objectives such as portfolio
diversification, reduction in risk,
professional management, tax benefits
etc

FAQs

Types of Mutual Funds:

By Structure

Open Ended Funds , Close Ended Funds

By Investment Objectives

Equity Funds, Debt Funds, Balance Funds

Special Schemes

Money Market Funds / Cash Funds, Gilt Funds, Index Funds,

Sector Specific Funds

NAV Net Asset Value: The per share price of a

mutual fund.

Formula of NAV: Closing price of all securities owned +

cash liabilities

Number of outstanding shares

Derivatives
Financial instruments such as futures
and options, which derive their value
from underlying securities including
bonds, bills, currencies, and equities.

Futures / Forwards: Investment contracts which

specify the quantity and price of a commodity to be
purchased or sold at a later date.

Options: A contract that gives the owner the right to

buy or sell a security at a specific price within a specific

time limit. Options can be further classified as call
option and put option.

Profit from a Forward position

Long a forward (to buy)

Short a forward (to sell)

Profit

Profit

Price of Underlying Asset

at Maturity, ST

Delivery Price

Price of Underlying Asset

at Maturity, ST

Delivery Price

FAQs

Call option: An option to buy a certain asset by a certain date for a

certain price

Put option: An option to sell a certain asset by a certain date for a

certain price

Hedging: An investment strategy of lowering risk by buying securities

that have off-setting risk characteristics

Arbitrage: An act of buying securities in one market and selling in

another at higher prices. It takes advantage of a price differential

existing in the prices of the same commodity or security in two or more
different markets.

Speculation: An act to take high risks for high return. It gives liquidity
to the market.

Collateral Management: Collateral management services are a

method of securing a loan with physical commodities. They are
deposited as a pledge or guarantee that the loan will be repaid at
maturity; if not paid the commodities may be sold to reimburse the
lender.

Settlement Cycle
The period within which the settlement is made,
i.e; The period within which buyers receive their
shares and sellers receive their money.

Process of trade settlement (selling):

You sell securities in any of the stock exchanges linked to NSDL through
a broker
You give instruction to your DP to debit your account and credit the
broker's [clearing member pool] account
Before the pay-in day, your broker gives instruction to its DP for
delivery to clearing corporation
Your broker receives payment from the stock exchange [clearing
corporation]
You receive payment from the broker for the sale of securities

FAQs

What do you mean by 'Market Trades' and 'Off

Market Trades'?

What settlement details are required on the delivery

instruction slip?

What is T+2 rolling settlement cycle?

How many times can one buy and sell within a

settlement cycle?

What is a rolling settlement?

What does Pay-In and Pay-Out mean?

What is an auction?