Financial Market

Money Market: - The market for short term debt instrument

maturity is one year or less is known as money market. Ex: TBills, CP, CD

Capital markets: - The market for trading long term

instrument maturing for more than 1 year.

Instruments Of Financial
Markets

T-Bills: - It is a short dated US/UK security, no interest but issued at

a discount on its redemption price.
Commercial paper: - It is a short term promissory note, issued by a
company.
Debentures: - It is a long term security, which has a fixed rate of
interest, issued by a company and secured against assets.
Bonds: - A bond is a debt investment in which an investor loans
money to an entity (typically corporate or governmental) which
borrows the funds for a defined period of time at a variable or fixed
interest rate. Bonds are used by companies, municipalities, states and
sovereign governments to raise money and finance a variety of
projects and activities. Owners of bonds are debt holders, or creditors,
of the issuer.

Products in Financial Market:

Niche product- Mutual Fund

Corporates FDS
Insurance
Direct Equity
PMS (Portfolio management service)
Private equity fund

ABSS: - It is a type of debt, not backed by the financial

assets. Financial assets means receivables other than
mortgages.
MBSS: - Mortgage backed security is the type of ABSS,
which secured by a mortgages or collection of mortgages.
quasi debt: - A category of debt taken on by a company that
has some traits of equity, such as having flexible repayment
options or being unsecured. Examples of quasi-equity include
mezzanine debt and subordinated debt.

Mezzanine debt: - mezzanine capital is any subordinated debt

or preferred equity instrument that represents a claim on a
company's assets which is senior only to that of the common
shares. Mezzanine financings can be structured either as debt
(typically an unsecured and subordinated note) or preferred
stock.

Types of Mutual Fund

Debt Fund: - DebtMutualFundsmainly invest in a

mix ofdebtor fixed income securities such as
Treasury Bills, Government Securities, Corporate
Bonds, Money Market instruments and
otherdebtsecurities of different time horizons.
Generally,debtsecurities have a fixed maturity
date & pay a fixed rate of interest.

Types of Debt Fund:

Gilt Funds: - They invest their corpus in securities issued by

the government. These funds carry zero default risk but are
associated with interest rate risk. So, there could be a
possibility that the debt funds lose some part of their net asset
vale (NAV) also. But these schemes are safer as they invest in
papers backed by government. These are invested for long
term
Income funds: - They are mutual fund, ETFs or any other
type of mutual fund that seek to generate an income stream for
shareholders by investing in securities that offer dividends or
interest payment. This is mid-term fund generally invested for
3 years

Short term Plans: - These funds are for those with an

investment horizon of three to six months. These funds
primarily invest in short term papers like Certificate of
Deposits (CDs) and Commercial Papers (CPs). Some portion
of the corpus is also invested in corporate.
Liquid funds: - Also known as money market schemes. These
provides easy liquidity and preservation of capital. These
schemes invest in short-term instruments like Treasury Bills,
inter-bank call money market, CPs and CDs and are meant for
an investment horizon of one day to three months.


Equity Funds: -

Value Funds: - Here the fund manager focuses on

undervalued stocks as per his parameters. In other words the
intrinsic value of each share is substantially higher than the
market price. If the fund manager /analyst are correct this
scheme will tremendous value for its investors.
Sector Funds: - These types of schemes scatter to one or
couple of sectors only. Ex: Pharma Fund, FMCG fund,
Infrastructure fund etc. this is the highest risk and highest
return category in the investment scheme. Hence, before
investing or advising proper and deep analysis must be done
on that particular sector and after considering the risk apatite of
clients.

Large cap funds: - There are a plethora of mutual

funds available in the market. Funds which invest a
larger proportion of their corpus in companies with
large market capitalization are called large cap funds.
Large cap (sometimes "big cap") refers to a company
with a marketcapitalizationvalue of more than $5
billion. Largecap is a shortened version of the term
"large market capitalization." Market capitalization is
calculated by multiplying the number of a company's
shares outstanding by its stock price per share. The
dollar amounts used for the classifications "large cap,"
mid cap" or "small cap are only approximations that
change over time.

Mid cap Funds: - Amid-cap fundis a type of

stockfundthat invests inmid-sized companies. A
company's size is determined by its market
capitalization, withmid-sized firms generally ranging
from $2 billion to $10 billion in marketcap.

Diversified Funds: - As the name suggest this fund

diversified across sectors. It may have 7 sectors or
more sectors allocation in its portfolio. It may give more
weightage to couple of sectors. The performance will be
compared with or will be in competitors with given
benchmark index announced in advance. Investors get
a benefit of diversification.

Hybrid Funds: - This is a mixture of equity and debt

components. The percentage allocation to both
extremes reduces volatility in returns and risks. These
are of two types:
Balanced Funds: - This must have a minimum of
51% allocation to equity (it can have high allocation
also). The maximum allocation to debt instrument is
49%.
MIP (Monthly Installment Plans): - In this Scheme
minimum allocation to equity is 15% and maximum
allocation to debt is 85%. This type scheme failed
because it could not deliver on the dividend plan.

CRITERIA FOR SELECTING A SCHEME:

Past performance of the scheme

beta
AUM
Sharp ratio
R square
Expense ratio

Top 10 Mutual funds Scheme and their Returns.

Trust

A relationship crated at the

MWP Act: - Sec6 of the married women Property Act 1874,

Provides that, a policy of insurance effected by any married man on
him own life, and expressed on the face of it to be for the benefit of
his wife.
Rupee cost averaging: - you invest a specific dollar amount at a
regular intervals regardless of the investment share price.

SIP (Systematic Investment Plan): - This works like

recurring deposits, where the investor decides a fixed amount
per month, per week, daily in a scheme for a fixed period. Ex:
- 12 months, 36months etc. He has a choice of selecting the
date of each investment. On this date the amount will be
debited to his account or he will be issue PDCS (Post debate
Cheque). The principle of rupee cost averaging applies to all
SIPs.

STP (Systematic Transfer Plan): - In this case, the investors

invest a lump-sum in a money market scheme. His ultimate
aim is to invest in equity market. He will ask the mutual fund
to transfer a fix amount (ex 25%) from money market to
equity scheme on a fix date every month. The mutual fund will
act accordingly.
SWP (Systematic withdrawal plan): - In this plan, the
investor invest lump-sum and opts for withdrawal of a fixed
amount either monthly or quarterly. He may do this to take
care of certain outflows or requirements.

 Current Yields: - Annual Interest payment

Current Bond Prices
It determines the annual interest payment on the Bond.

Clean Price: - Clean price is the price of a bond excluding

any interest that has accrued since issue. This is compared
with the dirty price which is the price of a bond including the
accrued interest.

Dirty Price: - Dirty price is the price of a bond including any

interest that has accrued since issue. This is compared with the
clear price, which is the price of a bond excluding accured
interest.
NCDS: - It is an unsecured Bond that cannot be converted
into equity or stock. NCD usually have higher interest rate than
convertible debentures.

Non-convertible debentures are simply regular

debentures, cannot be converted into equity shares of the liable
company. They are debentures without the convertibility feature
attached to them. As a result, they usually carry higher interest
rates than their convertible counterparts.

 NCDs might be the answer to your quest for the investment

instrument that offers high returns with moderate risk while
giving you the flexibility of choosing between short and long
tenures. NCDS are of two types: Secured.
Unsecured
Secured: - It is backed by the assets of the company and if it
fails to pay the obligation, the investor holding the debentures
can claim it through liquidation of the assets.
Unsecured: - There is no backing in unsecured NCDs when
the company defaults

 YIELD TO MATURITY: The Yield to maturity (YTM), book yield or redemption yield of
a bond or other fixed-interest security, such as Gilt, is the internal
rate of return (IRR, overall interest rate) earned by an investor
who buys the bond today at the market price, assuming that the
bond will be held until maturity, and that all coupon and principal
payments will be made on schedule. Yield to maturity is the
discount rate at which the sum of all future cash flows from the
bond (coupons and principal) is equal to the price of the bond

 CALCULATION OF YTM
The YTM is often given in terms of Annual Percentage Rate
(A.P.R.), but more usually market convention is followed. In a
number of major markets (such as gilts) the convention is to
quote annualized yields with semi-annual compounding
(see compound interest)
Example Consider 30 years zero coupon bond with a face
value of 100 if the bond is priced at annual YTM of 10% it will
cost 5.73 today (the present value of cash flow 100/(1.10)*30 =
5.73)

 DURATION: Duration is the measure of the sensitivity of the price of the fixed
income investment to a change in interest rate. A fund with
duration of 10 years is twice as volatile as a fund with five-year
duration. Duration also gives an indication of how a fund's NAV
will change as interest rates change.

Bond: - A bond is a debt investment in which an investor

loans money to an entity (typically corporate or governmental)
which borrows the funds for a defined period of time at a
variable or fixed interest rate Bonds are used by companies,
municipalities, states and sovereign governments to raise
money and finance a variety of projects and activities. Owners
of bonds are debt holders, or creditors, of the issuer.

Types of Bonds: Perpetual Bonds

Government Bonds
Municipal Bonds
Corporate Bonds
Zero coupon Bonds
Dynamic Bonds Fund

Perpetual Bond: - Perpetual bond, which is also known as

a perpetual or just a prep, is a bond with no maturity date.
Therefore, it may be treated as equity, not as debt. Issuers pay
coupons on perpetual bonds forever, and they do not have to
redeem the principal. Perpetual bond cash flows are, therefore,
those of perpetuity.
Government Bonds: - A government bond is a bond issued by
a national government, generally with a promise to pay
periodic interest payments and to repay the face value on the
maturity date. Government bonds are usually denominated in
the country's own currency.

Municipal Bonds: - Municipal bonds are debt obligations

issued by states, cities, countries and other governmental
entities, which use the money to build schools, highways,
hospitals, sewer systems, and many other projects for the
public good.
Corporate Bonds: - A corporate bond is a bond issued by
a corporation in order to raise financing for a variety of
reasons such as to ongoing operations, M&A, or to expand
business. The term is usually applied to longer-term debt
instruments, with maturity of at least one year.

Zero coupon Bonds: - A zero-coupon bond (also discount

bond or deep discount bond) is a bond bought at a price
lower than its face value with the face value repaid at the time
of maturity.
Dynamic Bond Funds: - Dynamic Bond Fund is an actively
managed open ended income scheme that seeks to invest in
quality government securities, corporate bonds and structured
credit instruments. The scheme is primarily driven by
generating optimal returns with high liquidity through active
management.

COUPON: - Coupons are normally described in terms of the

coupon rate, which is calculated by adding the total amount of
coupons paid per year and dividing by the bond's face value.
For example, if a bond has a face value of $1,000 and a
coupon rate of 5%, then it pays total coupons of $50 per year.

YIELD CURVE: - A curve on a graph in which the yield of

fixed-interest securities is plotted against the length of time
they have to run to maturity.