TASK DAY 3

Q.1) WHAT I NEED TO KNOW BEFORE INVESTING IN STOCKS?

ANS: HERE’S A LIST OF THINGS TO CONSIDER BEFORE INVESTING IN THE

STOCK MARKET IN INDIA:

 UNDERSTAND YOUR INVESTMENT GOALS: Every individual is

unique and so is their investment goal. Before understanding the
way the stock market works in India, one should first understand
their financial goals and how long they want to get invested for. It
is often suggested that choosing a long-term investment
potentially gives higher returns. However, you must take into
account your investment goals before you start investing.
 ANALYZE YOUR RISK APPETITE: If you are hoping for only the best
returns from your investments, that might be an over-optimistic
approach. While you are getting ready to invest in the stock
market, you must also keep in mind the risks associated with it.
Once you have understood your investment goals and risk
appetite, you can make an informed investment decision.
 DIVERSIFY OR NOT? : There is no thumb rule for investment
diversification. The basic logic is that if you have a well-diversified
investment portfolio, the risk of falling hard is reduced. If some of
your stocks are not working out, you will still have other stocks
that might do the losses and help you portfolio stay afloat. Savvy
investment managers often advise creating a diversified portfolio,
but not overly diversified that it hinders the growth of the
portfolio as a whole. You can either diversify across markets via
geographies or sectors.
  SET ASIDE YOUR EMOTIONS: The common phrase ‘Never mix you
personal and professional life’, stays true for investing as well.
While investing keep your emotions out of the picture. Never get
fixated or too attached to any particular stock. The key is to get rid
of the fear as well as greed.
 NEVER BORROW TO INVEST IN SHARE MARKET: The biggest
mistake while investing would be to make an investment that you
can’t afford. Finance experts put an emphasis on investing only
your surplus funds, as investing in the stock market has its
potential risks, says an article on Financial Express. The next big
mistake would be to take a loan for investing.
 DO YOUR RESEARCH: No matter how luring the stock market may
seem, its suggested to do your research before investing any
amount of money. It’s crucial to educate yourself about the basics
of the market first. Learn the terminologies associated with online
trading and investing.

Q.2) WHAT ARE THE FACTORS AFFECTING STOCK MARKET?

ANS: The fluctuating stock prices make equity investment risky. Risk-
averse investors usually prefer to stay away from the share market.
Whereas, the risk-takers invest aggressively in stocks to create wealth
in the long-run. The dynamic nature of the share market makes it an
intriguing prospect to venture into. One cannot predict the future
performance of the stock market. This keeps the investor awake with
whether to invest in or not. Let’s discuss them in detail.

 GOVERNMENT POLICIES: Economy and business are largely

affected by Government policies. The Government has to
implement new policies in regard to the economic condition of
 the country. Any new change in policy can be profitable for the
economy or tighten the grip around. This creates a possibility of
the stock market being affected due to any change or introduction
of the new policy by the government. For instance, the increase in
corporate taxes impacts the industry severely as their profits will
take hit and at the same time the stock price will fall.
 MONETARY POLICY OF RBI AND REGULATORY POLICIES OF SEBI:
Reserve Bank of India (RBI) is the apex body which regulates
the monetary policy in India. RBI keeps on reviewing its
monitory policy. Any increase or decrease in Repo and
Reverse Repo rates impacts the stock prices. If RBI raises
the key rates it reduces the liquidity in the banks. This makes
borrowing costlier for them and in turn, they increase the
lending rates. Ultimately, this makes borrowing highly
expensive for the business community and may find it
difficult to service their debt obligations.
Investors see it as a barrier in the expansion of business
activities and start selling the shares of the company which
reduces its stock price. A reverse of this happens when RBI
follows a dovish monetary policy. Banks reduces the lending
rates which leads to credit expansion. Investors consider it
as a positive step and stock price starts improving.
Similarly, any changes in trading and investment policies
done by the Securities Exchange Board of India (SEBI) who
keeps an eye on the entire stock market activities impacts
the performance of the shares of the listed companies on
 the stock exchanges (NSE, BSE). Nifty50 and Sensex are two
major benchmark indices in India.
 Exchange Rates:
The exchange rates of Indian Rupee keep fluctuating vis-à-
vis other currencies. When the rupee hardens in respect to
other currencies it causes Indian goods to become
expensive in foreign markets, Companies that are highly
affected are the ones involved in overseas operations.
Companies dependent on exports experience a drop in
demand for their goods abroad. Thus, revenue from exports
decline and stock prices of such companies in the home
country fall.
On the other hand, softening of rupee vis-à-vis other
currencies results in opposite effect, in this, the stock price
of exporters rises whereas, that of importer drops.

 Interest Rate and Inflation:

Whenever the interest rates go up, banks raise the lending
rates which increases the cost for corporates and individuals
alike. The rising cost will tend to create an impact on the
profit levels of the business affecting the stock prices of the
company.
Inflation is a surge in the pricing of goods and services over
a period of time. High inflation discourages investment and
long-term economic growth. The listed companies in the
stock market may postpone their investment and halt
production, leading to negative economic growth. The fall in
the value of money could also lead to a fall in the value of
savings. The stocks of luxurious companies also tend to
suffer as nobody will want to invest in them. This not only
 adversely affects one's purchasing power but also the
investing power.

 Foreign Institutional Investors (FIIs) and Domestic

Institutional Investors (DIIs):
FIIs and DIIs activities highly impact the stock market. As
they have a prominent role in the stocks of the company,
their entry or exit will create a huge impact on the equity
market and will influence the stock prices.

 Politics:
Factors like election, budget, government intervention,
stability, and other factors have a huge impact on the
economy and the financial markets. The political events and
budget announcements create tremendous levels of
volatility in the market influencing the stock market deeply.

 Natural Disasters:
Natural disasters hamper the lives and the market equally. It
impacts the company’s performance and the capacity of
people to spend the money. This will lead to lower levels of
consumption, lower sales and revenues ultimately hitting the
company’s stock performance.

 Economic Numbers:
Various economic indicators affect the overall economy,
ultimately creating an impact on the financial market. The
movement of oil prices and GDP have a huge impact on the
 stock market. A country that is dependent on imported oil,
any price change is likely to impact the economy. The
movement of oil prices is one of the key determinants of the
stock market. As and when the prices rise, the expenses will
increase and will lower the buyers’ ability to invest in the
market.
Similarly, Gross Domestic Product (GDP) looks at the aspect
of total economic production of the country and its overall
economic health. It helps to showcase the economic
developments and the future direction of the market. A
healthy GDP status will create a positive impact on financial
markets and investment.

 Gold Prices and Bonds:

There is no established theory that expresses the
relationship between stock price and gold & Bonds. Usually,
stocks are considered a risky investment whereas gold &
bonds are considered as a safe investment havens. So at the
time of any major crisis in the economy, investor prefers to
invest in safe instruments. As a result, gold and bond prices
increase while the stock price tumbles.

Conclusion:
Stock prices of the company may rise or fall due to different
factors. Ideally, the investor should have a solid allocation
strategy in place after a thorough understanding of the
above factors. It will ensure that the investor makes the right
investment decision and generate magnificent returns in the
long-run.
 Q.3) WHAT FACTORS AFFECT NIFTY?

ANS: Below are the five most important macroeconomic indicators

according to us that affect the Indian stock market:
1. Dollar Index:
The dollar index is one of the macroeconomic factors which affects the
Indian Stock Markets greatly.

Traders should note that there is an inverse relationship between the

dollar index and the Indian stock market.
If you look at the chart below of the past 20 years data, it shows that
both the NIFTY 50 index and USD movements share a strong inverse
relationship.

The technical analyst can easily analyse the dollar index with NIFTY 50
for finding out the ongoing scenario of the market.

As a result of rising dollar value, the Indian stock markets suffer. There
are few sectors in the Indian stock market that suffer a lot in
comparison to other sectors.

Thus, when the dollar index rises, it is likely to cause a fall in the share
prices of those companies especially in cyclical sectors and domestic
consumption sectors such as Banking, Automobiles, Oil and Gas,
Capital Goods, Metals etc.
Thus, if you are a regular trader then you can get benefits from tracking
or comparing the dollar index with the NIFTY 50 index in technical
analysis using technical charts.

2. Crude oil:
There is also an inverse relationship between the crude oil price and
the Indian equity market.
The reason behind this is that the Indian oil industry is a major importer
of oil. Thus industries like tyre, logistics, refinery, airlines, lubricants,
paints, etc are affected by a change in oil prices directly.

As we know that the energy stocks have around 12.5% weightage in

Nifty 50 and nearly 15% weightage in Sensex.

Thus, strength in crude oil prices adversely affects these sectors that
are oil-dependent and weakness in oil prices results in the rise in these
companies’ stock prices.

3. US 10-year yield:

The US bond yields are very influential globally as they attract funds
from investors all across the world.

Also investing in the US treasuries is one of the safest investment tools

and when these bond yields rise then they become more attractive.

When the yields increase then it also indicates that the Fed might
raise interest rates for controlling inflation.
Due to this reason, many FIIs and global investors may pull out their
money from Indian Stock Markets and invest in these bonds.
As a result, the prices of the stocks in the Indian stock markets may
fall.

4. US market indices:

Due to globalisation, the whole world has become a single economy
and the financial markets of all over the world work in sync.

As we are connected with the whole world through various businesses,

every company is connected directly or indirectly to another for
fulfilling their business purpose.
As we all know, the US economy is the largest economy in the
world. Whenever there is any negative news in the US markets, it
largely affects the global markets, especially Indian Stock Markets.

5. All Indian market indices:

When analysing the Indian Stock Markets, one should look at all the
indices be it Nifty Midcap, Nifty Smallcap, Nifty Pharma, Nifty Metals,
Sensex etc.
According to one of the Dow Theories, the averages should confirm
each other and if they do not confirm then reversal might come.

Bottomline:
As discussed above we can see how all the above macroeconomic
factors play an important role in the price movements of the Indian
Stock Markets. Traders who regularly trade in the stock market should
see all the above macroeconomic factors at least once a week to
analyse the present Indian stock market scenario.

Q.4) WHAT IS BUYING AND SELLING IN STOCK MARKET?

ANS: In India, people have always been sceptical about investing in

shares or equities. While most of you prefer buying gold, silver or land
as these can always appreciate in value, in the future. You need to learn
how to buy shares through Demat. You can buy and sell shares at a
reasonable level of profit. You can source a broker to help you trade
through, during the initial days. Once you become a thorough expert in
buying and selling shares you can try dabbling at the stock market on
your own.

These are the 6 steps by which you can buy shares online:

Obtain a PAN card

You have to obtain a PAN card. The full form for PAN is Permanent
Account Number. Obtaining a PAN number is a primary requirement for
entering any form of financial transactions, across our country. It is a 10
digit alpha numeric number and a valid ID proof that is issued by the
Govt. of India. The tax authorities use the PAN card for assessing one’s
tax liabilities.

Open an operative Demat Account

To facilitate easier transition of buying and selling shares, you need to

necessarily open a valid demat account. You will have a fill in a demat
form online. You will have to attest the required set of documents and
scan these to the brokerage company you desire transacting with. After
the documents are verified in a precise manner, you can open a demat
account and you can use the account to buy and sell stocks, shares and
derivatives. Your demat account is the storehouse of your stock
portfolio.

Get yourself a broker

If you are directly transacting with stocks or shares by going to a

broker’s office, you will definitely have a broker who gives you guidance
on the day to day aspects of share trading. These individuals are
certified by the SEBI board (Securities Exchange Board of India) and
given license to act as brokers.

In other words, a broker is an intermediary between an independent

share trader and the stock broking firm. He charges a small sum as
commission to help traders buy and sell shares. Brokers can also be
companies or online agencies that are registered or licensed by SEBI or
Exchange Board of India in order to regulate the share markets.

Depository Participant or DP
There are two types of Depository Participants in India. These are NSDL-
National Securities Depository Limited and CSDL- Central Securities
Depository Limited. These agencies have Depository Participants. The
DP’s or Depository Participants help you store the shares you hold.
They provide you with a unique account number pertaining to the
same.

You cannot get confused with Trading or Demat account. Demat shows
the number of shares you hold. Trading account reflects the buying and
selling that has taken place in your account. It is the DP that holds the
shares you have bought and releases the shares that you have sold. A
broker would be taking care of all this. Yet it is better that you
conceptually know what the DP or Depository Participant is all about.

Professional investors make use of UIN

UIN is otherwise known as a Unique Identification Number. UIN is

mandatory for investors who transact with a capital of 1, 00, 000 and
above. For usual or low key investors a UIN would not be needed.
Investors usually play with the bigger innings to buy high-end blue chip
stocks or to buy shares of high profile companies. Bigger innings stocks
can assure you better returns on the investment over mediocre stocks.
Apple Inc., Nestle, Hindustan Lever, India Cements and L& T are some
of the blue chip shares you can try investing your money with.

Buying and selling shares

This is how you indulge in buying and selling of shares. Say you want to
buy a share of Reliance Industries at Rupees 885; you can inform your
broker accordingly. Buy Reliance Industries Ltd at Rupees 885.
Quantity: 10. Even if you are operating online, you can contact the
broker by dialling the toll free number or customer care number, if you
do not have access to internet at that particular point of time. If you
want to sell a Reliance Share at Rupees 895, you can do so accordingly.
Sell Reliance Shares Ltd, Quantity: 3, Price: 895. The sale order will be
processed when the share reaches that price. You can execute a stop
order transaction, if you want to freeze a particular transaction on
account of market fluctuations.
Learn how to buy shares through Demat. Buy shares online to sell them
for a reasonable level of profit.
Q.5) WHAT IS A DEPOSITORY?

ANS: A depository is an entity which helps an investor to buy or sell

securities such as stocks and Bonds in a paper-less manner. Securities in
depository accounts are similar to funds in Bank accounts. A depository
institution provides financial services to personal and business
customers. Deposits in the institution include securities such as stocks
or bonds. The institution holds the securities in electronic form also
known as book-entry form, or in dematerialized or paper format such
as a physical certificate. Companies become members of depositories
and keep electronic records of all their issued equity and debt securities
with the depositories..

Q.6) WHAT IS DIFFERENCE BETWEEN NSDL & CDSL?

ANS: Before the introduction of Demat Account, if you bought shares

in the stock market, you would receive physical shares in the form of
share certificates. Transferring and storage of physical share certificates
was quite risky and would sometimes result in loss or damage. Hence
the Depositories were introduced to help store the shares in electronic
form.
NSDL and CDSL are the depositories in India that help you store the
shares electronically. Depositories are companies that provide Demat
Services to the Stock Brokers. Every Stock Broker is registered with
NSDL or CDSL or Both and is called as a Depository Participant.
Both NSDL and CDSL are SEBI Registered entities and they not just help
in storing the Shares in Dematerialized form but also other financial
instruments such as:
 Debentures
 Bonds
 Exchange-traded Funds (ETFs)
 Mutual Funds
 Government Securities (GSecs) 
 Treasury Bills (T-bills) etc.
To understand them better, we suggest you keep reading and find the
difference between NSDL and CDSL in the next sections of the article.
Both CDSL and NSDL offer similar services and it doesn’t make any
difference to the investor if he chooses either of the depositories. In
fact, the investors do not have the option of choice, it is the depository
participants or stock brokers that choose the depositories depending
on the ease of service and charges. 
Now let’s have a look at the difference between CDSL and NSDL.
Parameter NSDL CDSL

Full Form National Securities Central Depository Services Limited

Depository Limited

Incorporation 1996 1999

Headquarters Mumbai, India. Mumbai, India.

Exchange National Stock Bombay Stock Exchange

Exchange

Accounts  NSDL number of CDSL number of Demat Accounts:

Demat Accounts: 2,54,64,525 (as on 30 Aug 2020)
 2,07,23,115 (as on
30 Nov 2020)

Number of 278 594

Depository
Participants
Q.7) WHAT IS DIFFERENCE BETWEEN MIS & CNC?

ANS: CNC, MIS are the Product type to be used every time you place
an order through Kite.

Cash and Carry (CNC) is used for delivery based trading in equity. In
delivery based trade, you intend to hold the stocks overnight for
however long you wish. Using CNC product type, you will not get any
leverage, nor will your position be auto squared off. You will not be able
to take any short positions using CNC. However, you can sell the stock
from your Holding using this product type.

Note: CNC is just a product type. If you use CNC to buy and sell a share
on the same day, it will still be considered as an intraday trade, and the
brokerage will be levied as per intraday.

Margin Intraday Square Off (MIS) is used for trading Intraday Equity,
Intraday F&O, and Intraday Commodity. MIS product type is used to get
the intraday leverage. You can check the Margins provided in Intraday
using MIS product type on our Margin Calculator . All open positions
under the MIS product type will get automatically squared off if they
are not closed before the auto-square off time. Click here for the auto-
square off timings.

Q.8) SEBI STANDS FOR?

ANS: The Securities and Exchange Board of India (SEBI) is
the regulatory body for securities and commodity market in India under
the jurisdiction of Ministry of Finance , Government of India. It was
established on 12 April 1992 and given Statutory Powers on 30 January
1992 through the SEBI Act, 1992.

Q.9) WHO IS THE CURRENT CHAIRMAN OF THE SEBI?

ANS: Ajay Tyagi, Chairman of the Securities and Exchange Board of

India (Sebi), has been given an extension for another 18 months to
ensure policy continuity and stability amid the Covid-19 pandemic.

The Appointments Committee of the Cabinet, headed by Prime

Minister Narendra Modi, has approved extension of Tyagi’s term until
February 28, 2022. His tenure would otherwise have ended at the end
of this month.

Q.10) HOW DO STOCK BROKER MAKE THEIR MONEY?

ANS:

 A stockbroker is a person who will purchase and sell the stocks in

the stock market on behalf of their clients.
 They can be termed as middleman as they are the ones who deal
between both stocks and their clients.
 They are also the investment advisor as they only suggest when
and on which stock should their client invest for the stock to be
profitable.
 The majority of stockbrokers practice for a brokerage company
and deal with a range of individual and corporate clients.
  Full-service brokers, who provide advice and financial analysis in
addition to performing trades, are also used by wealthy
individuals and organizations.
 There are three types of Stockbrokers: Direct access brokers, Full-
service brokers, and Discount brokers.

Stockbrokers make money in various ways some of which are as

follows:

 Referral bonuses:
You must have noticed that from time to time you are pressured by the
stockbrokers to buy some specific stocks, investments, mutual funds,
etc., it is then that they charge you trader or broker referral fees
because they just recommended you that specific stock and will offer
you to make investors enroll in it. There are chances that it can be
either a good or bad stock, so you need to be mindful when if take up
such chances as sometimes investors end up loosing a lot of money if
they did not make a right choice.

 Broker fees:
These are charged by the stockbrokers when they advise their clients
on which stock they should invest on a varied scale and hence, it is very
expensive. These are usually the advises made on an individual basis as
in when the investor asks its personal broker for advises for which stock
they should invest on and which will be more profitable after studying
the stock and the company they plan to invest in.
Therefore, different stockbroker and people have different
subscriptions and requirements, so they charge these fees accordingly.

 Commissions:
If you make a lot of trades, you might think you are paying a lot in
commissions, but commissions make up a small portion of a
brokerage's revenue but The PayScale survey by stockbrokers shows
that Commissions are the greatest component or primary source of
salaries in this field (and the most variant source). As in many sales
occupations, reputation and rewards, wages frequently become a
marginal part of the full income, the more the broker hopes to earn
commissions.
But the general fact is, an experienced broker will always charge you a
heavy amount as commissions.

Q.11) DIFFERENT TYPES OF INVESTORS IN STOCK MARKET?

ANS: Investing intimidates a lot of people. There are many options, and
it can be hard to figure out which investments are right for your
portfolio. This guide walks you through 10 of the most common types
of investment and explains why you may want to consider including
them in your portfolio. If you’re serious about investing, it might make
sense to find a financial advisor to guide you. SmartAsset can help you
find an advisor with our free financial advisor matching service.

Stocks

Stocks, also known as shares or equities, may be the most well-known

and simple type of investment. When you buy stock, you’re buying an
ownership stake in a publicly traded company. Many of the biggest
companies in the country — think General Motors, Apple and Facebook
— are publicly traded, meaning you can buy stock in them.

How you can make money: When you buy a stock, you’re hoping that
the price will go up so you can then sell it for a profit. The risk, of
course, is that the price of the stock could go down, in which case you’d
lose money.
Brokers sell stocks to investors. You can either opt for an online
brokerage firm or work face-to-face with a broker.

Bonds

When you buy a bond, you’re essentially lending money to an entity.

Generally, this is a business or a government entity. Companies issue
corporate bonds, whereas local governments issue municipal bonds.
The U.S. Treasury issues Treasury bonds, notes and bills, all of which are
debt instruments that investors buy.

How you can make money: While the money is being lent, the lender
gets interest payments. After the bond matures — that is, you’ve held it
for the contractually determined amount of time — you get your
principal back.

The rate of return for bonds is typically much lower than it is for stocks,
but bonds also tend to be lower risk. There is some risk involved, of
course. The company you buy a bond from could fold, or the
government could default. Treasury bonds, notes and bills, however,
are considered a very safe investments.

Mutual Funds

A mutual fund is a pool of many investors’ money that is invested

broadly in a number of companies. Mutual funds can be actively
managed or passively managed. An actively managed fund has a fund
manager who picks securities in which to put investors’ money. Fund
managers often try to beat a designated market index by choosing
investments that will outperform such an index. A passively managed
fund, also known as an index fund, simply tracks a major stock market
index like the Dow Jones Industrial Average or the S&P 500. Mutual
funds can invest in a broad array of securities: equities, bonds,
commodities, currencies and derivatives.
Mutual funds carry many of the same risks as stocks and bonds,
depending on what they are invested in. The risk is often lesser, though,
because the investments are inherently diversified.

How you can make money: Investors make money off mutual funds
when the value of stocks, bonds and other bundled securities that the
fund invests in go up. You can buy them directly through the managing
firm and discount brokerages. But note there is typically a minimum
investment and you’ll pay an annual fee.

Exchange-Traded Funds (ETFs)

Exchange-traded funds (ETFs) are similar to mutual funds in that they

are a collection of investments that tracks a market index. Unlike
mutual funds, which are purchased through a fund company, shares of
ETFs are bought and sold on the stock markets. Their price fluctuates
throughout the trading day, whereas mutual funds’ value is simply the
net asset value of your investments, which is calculated at the end of
each trading session.

How you can make money: ETFs are often recommended to new

investors because they’re more diversified than individual stocks. You
can further minimize risk by choosing an ETF that tracks a broad index.
And just like mutual funds, you can make money from an ETF by selling
it as it gains value.

Certificates of Deposit (CDs)

A certificate of deposit (CD) is a very low-risk investment. You give a

bank a certain amount of money for a predetermined amount of time.
When that time period is over, you get your principal back, plus a
predetermined amount of interest. The longer the loan period, the
higher your interest rate.
How you can make money: CDs are good long-term investments for
saving money. There are no major risks because they are FDIC-
insured up to $250,000, which would cover your money even if your
bank were to collapse. That said, you have to make sure you won’t
need the money during the term of the CD, as there are major penalties
for early withdrawals.

Q.12) WHAT IS BETTER ACCORDING TO YOU INVESTING OR TRADING?

ANS: Investing works better than trading for most 

If the distinction between investing and trading sounds a lot like that
between active investing and passive investing, it should! These pairs of
investing approaches have many similarities.

Passive investing is a buy-and-hold strategy that relies on the

fundamental performance of the underlying businesses to drive returns
higher. So when you take a stake, you expect to hold it for a while, not
simply sell it when the price jumps or before the next person offloads
their stake.

Passive investing via funds (either ETFs or mutual funds) lets you enjoy
the return of the target index. For example, the Standard & Poor’s 500
has returned an average 10 percent annually over time. That would be
your return if you had bought an S&P 500 index fund and not sold.

Active investing is a strategy that tries to beat the market by trading in

and out of the market at advantageous times. Traders try to pick the
best opportunities and avoid falling stocks.
While active investing seems like it would be the consistent winner,
research shows that passive investing tends to win the majority of the
time. A 2018 study from S&P 500 Dow Jones Indices shows that 63
percent of fund managers investing in large firms didn’t beat their
benchmark index in the previous 12 months. And over time only a
handful could do so, with 92 percent of the professionals unable to
beat the market over a 15-year period.

These are pros who have experience, knowledge and computing power
to help them excel in a market dominated by turbocharged trading
algorithms that have well-tested methodologies. That leaves very few
crumbs for individual traders without all those advantages.

So investors are more likely to prefer a passive approach to the

markets, whether they invest in individual companies or funds. Traders
are more likely to prefer an active approach.

Q.13) WHAT IS DIFFERENCE BETWEEN SCALPING AND SWING

TRADING?
ANS: When trading stocks, forex, futures, crypto and other types of assets,
one of the factors that define any given strategy is the amount of a time a
position is held.

This is true for scalping and swing trading, two of the most common short-
term trading styles, although some other factors and characteristics set them
apart.

Swing trading is arguably the most popular, especially for beginners, as it allows

traders to identify broad trends and use technical analysis and charts to make
moves to procure profits over several days or even weeks.
On the other hand, scalping requires more experience and expertise as
traders typically conduct hundreds or thousands of trades during a single
session to make the most of micro-movements in the market. The expectation
is making smaller gains, albeit at a larger volume.
While both scalping and swing trading are short term strategies that look out for fairly
small price changes, there are several factors that distinguish them.

Let’s look at these distinguishing factors:

Time Period
The 1st & major comparison factor between Scalping vs Swing Trading is Time.

The time horizon for scalping concludes within a single trading session. In fact, scalping
trades generally square off within seconds or within minutes.

The time horizon for swing trading on the other hand is much longer. Swing trading
could extend over a few days to even a few weeks. Swing traders do not square off
within a single trading session.

Objective
Another important differentiating factor between Swing Trading & Scalping is obhective
of trade.

The objective of scalping is to earn minor profits on quick trades which can be multiplied
by executing large trade volumes.

The objective of swing trading on the other hand is to earn profits on securities that are
expected to follow a specific price trend which can be forecasted to book profits.

Quantum of Trades
Volume of Trade is an importance factor to Compare Swing Trading & Scalping.

Scalping involves a very large quantum of trades. Scalpers engage in a high volume of
quickly executed trades that individually earn small profits.

In fact, they may engage in several hundred trades within a single trading session.
Swing trading involves fewer trades.
Swing traders hold onto their positions for several days in a bid to make higher profits.
Thus, the quantum of trades is fewer.

Q.14) WHAT IS FOREX EXCHANGE?

ANS: Forex trading is the process of speculating on currency prices to potentially

make a profit. Currencies are traded in pairs, so by exchanging one currency for
another, a trader is speculating on whether one currency will rise or fall in value against
the other.

The value of a currency pair is influenced by trade flows, economic, political and
geopolitical events which affect the supply and demand of forex. This creates daily
volatility that may offer a forex trader new opportunities.

Online trading platforms provided by global brokers like FXTM mean you can buy and
sell currencies from your phone, laptop, tablet or PC.

Q.15) WHAT IS BOND?

ANS: Bonds refer to high-security debt instruments that enable an entity to raise

funds and fulfil capital requirements. It is a category of debt that borrowers avail from

individual investors for a specified tenure.

Organisations, including companies, governments, municipalities and other entities,

issue bonds for investors in primary markets. The corpus thus collected is used to

fund business operations and infrastructural development by companies and

governments alike.

Investors purchase bonds at face value or principal, which is returned at the end of a

fixed tenure. Issuers extend a percentage of the principal amount as periodical

interest at fixed or adjustable rates.

Individual investors acquiring bonds have legal and financial claims to an

organisation’s debt fund. Borrowers are therefore liable to pay the entire face value of
bonds to these individuals after the term expires. As a result, bondholders receive

debt recovery payments before stakeholders in case a company faces bankruptcy.

With this understanding of what bonds are, take a look at the features of this debt

category.
Types of Bonds
Bonds are classified into different categories as per the model of return and validities

of legal obligations. The prevailing types of bonds in the public debt market are –

Types of
Description
Bonds

 Fixed-interest bonds are debt instruments which accrue consistent

coupon rates throughout their tenure. These predetermined interest rates

 Fixed- benefit investors with predictable returns on investment irrespective of
interest alterations in market conditions.
bonds
 Creditors have the benefit of being aware of the receivable interest

amount periodically within the long term investment schedule.

 These bonds incur coupon rates which are subject to market

fluctuations and elastic within their tenures.

 Floatin

g-interest  The return on investment through interest income is thus inconsistent

bonds as it is determined by market factors such as inflation, condition of the

economy, and confidence of investors in an entity’s bonds.

 Inflatio  Inflation-linked bonds are special debt instruments designed to curb

n-linked the impact of economic inflation on the face value and interest return. The
 coupon rates offered on inflation-linked bonds are usually lower than fixed-

interest bonds.
bonds
 ILBs thus aim to reduce the negative consequences of inflation by

adjusting coupons concerning prevailing rates in the debt market.

 Perpetual bonds are fixed-security investment options whereby issuers

do not have to return the principal amount to the purchaser. This

 Perpetu investment type does not have any maturity period, and customers benefit
al bonds from steady interest payments for perpetuity.

 These debt instruments are also called ‘consol bonds’ or ‘perp’.

Other types of objective-specific bonds offered by corporations and governments

include war and climate bonds.

Q.16) WHAT ARE MUTUAL FUNDS?

ANS: Mutual funds are one of the most popular investment options these
days. A mutual fund is an investment vehicle formed when an asset
management company (AMC) or fund house pools investments from several
individuals and institutional investors with common investment objectives. A
fund manager, who is a finance professional, manages the pooled investment.
The fund manager purchases securities such as stocks and bonds that are in
line with the investment mandate.
Mutual funds are an excellent investment option for individual investors to get
exposure to an expert managed portfolio. Also, you can diversify your portfolio
by investing in mutual funds as the asset allocation would cover several
instruments. Investors would be allocated with fund units based on the
amount they invest. Each investor would hence experience profits or losses
that are directly proportional to the amount they invest. The main intention of
the fund manager is to provide optimum returns to investors by investing in
securities that are in sync with the fund’s objectives. The performance of
mutual funds is dependent on the underlying assets.
We have broken down the types of mutual funds in detail below:
 

1. Equity Mutual Funds

Equity funds, as the name suggests, invest mostly in equity shares of
companies across all market capitalisations. A mutual fund is
categorised under equity fund if it invests at least 65% of its portfolio in
equity instruments. Equity funds have the potential to offer the highest
returns among all classes of mutual funds. The returns provided by
equity funds depend on the market movements, which are influenced by
several geopolitical and economic factors. The equity funds are further
classified as below:
i. Small-Cap Funds
Small-cap funds are those equity funds that predominantly invest
in equity and equity-linked instruments of companies with small
market capitalisation. SEBI defines small-cap companies as those
that are ranked after 251 in market capitalisation.
ii. Mid-Cap Funds
Mid-cap funds are those equity funds that invest primarily in equity
and equity-linked instruments of companies with medium market
capitalisation. SEBI defines mid-cap companies as those that are
ranked between 101 and 250 in market capitalisation.
iii. Large-Cap Funds
Large-cap funds are those equity funds that invest mostly in
equity and equity-linked instruments of companies with large
market capitalisation. SEBI defines large-cap companies as those
that are ranked between 1 and 100 in market capitalisation.
iv. Multi-Cap Funds
Multi-Cap Funds invest substantially in equity and equity-linked
instruments of companies across all market capitalisations. The
fund manager would change the asset allocation depending on
the market condition to reap the maximum returns for investors
and reduce the risk levels.
v. Sector or Thematic Funds
 Sectoral funds invest principally in equity and equity-linked
instruments of companies in a particular sector like FMCG and IT.
Thematic funds invest in equities of companies that operate with a
similar theme like travel.
vi. Index Funds
Index Funds are a type of equity funds having the intention of
tracking and emulating the performance of a popular stock market
index such as the S&P BSE Sensex and NSE Nifty50. The asset
allocation of an index fund would be the same as that of its
underlying index. Therefore, the returns offered by index mutual
funds would be similar to that of its underlying index.
vii. ELSS
Equity-linked savings scheme (ELSS) is the only kind of mutual
funds covered under Section 80C of the Income Tax Act, 1961.
Investors can claim tax deductions of up to Rs 1,50,000 a year by
investing in ELSS.

2. Debt Mutual Funds

Debt mutual funds invest mostly in debt, money market and other fixed-
income instruments such as treasury bills, government bonds,
certificates of deposit, and other high-rated securities. A mutual fund is
considered a debt fund if it invests a minimum of 65% of its portfolio in
debt securities. Debt funds are ideal for risk-averse investors as the
performance of debt funds is not influenced much by the market
fluctuations. Therefore, the returns provided by debt funds are very
much predictable. The debt funds are further classified as below:
i. Dynamic Bond Funds
Dynamic Bond Funds are those debt funds whose portfolio is
modified depending on the fluctuations in the interest rates.
ii. Income Funds
Income Funds invest in securities that come with a long maturity
period and therefore, provide stable returns over time. The
average maturity period of these funds is five years.
iii. Short-Term and Ultra Short-Term Debt Funds
 Short-term and ultra short-term debt funds are those mutual funds
that invest in securities that mature in one to three years. These
funds are ideal for risk-averse investors.
iv. Liquid Funds
Liquid funds are debt funds that invest in assets and securities
that mature within ninety-one days. These mutual funds generally
invest in high-rated instruments. Liquid funds are a great option to
park your surplus funds, and they offer higher returns than a
regular savings bank account.
v. Gilt Funds
Gilt Funds are debt funds that invest in high-rated government
securities. It is for this reason that these funds possess lower
levels of risk and are apt for risk-averse investors.
vi. Credit Opportunities Funds
Credit Opportunities Funds mostly invest in low rated securities
that have the potential to provide higher returns. Naturally, these
funds are the riskiest class of debt funds.
vii. Fixed Maturity Plans
Fixed maturity plans (FMPs) are close-ended debt funds that
invest in fixed income securities such as government bonds. You
may invest in FMPs only during the fund offer period, and the
investment will be locked-in for a predefined period.

3. Balanced or Hybrid Mutual Funds

Balanced or hybrid mutual funds invest across both equity and debt
instruments. The main objective of hybrid funds is to balance the risk-
reward ratio by diversifying the portfolio. The fund manager would
modify the asset allocation of the fund depending on the market
condition, to benefit the investors and reduce the risk levels. Investing in
hybrid funds is an excellent way of diversifying your portfolio as you
would gain exposure to both equity and debt instruments. The debt
funds are further classified as below:
i. Equity-Oriented Hybrid Funds
Equity-oriented hybrid funds are those that invest at least 65% of
its portfolio in equities while the rest is invested in fixed-income
instruments.
 ii. Debt-Oriented Hybrid Funds
Debt-oriented hybrid funds allocate at least 65% of its portfolio in
fixed-income instruments such as treasury bills and government
securities, and the rest is invested in equities.
iii. Monthly Income Plans
Monthly income plans (MIPs) majorly invest in debt instruments
and aim at providing a steady return over time. The equity
exposure is usually limited to under 20%. You can decide if you
would receive dividends on a monthly, quarterly, or annual basis.
iv. Arbitrage Funds
Arbitrage funds aim at maximising the returns by purchasing
securities in one market at lower prices and selling them in
another market at a premium. However, if the arbitrage
opportunities are not available, then the fund manager may
choose to invest in debt securities or cash equivalents.

Why Should You Invest in Mutual Funds?

Investing in mutual funds provides several advantages for investors. To name
a few, flexibility, diversification, and expert management of money, make
mutual funds an ideal investment option.
1. Investment Handled by Experts ( Fund Managers )
Fund managers manage the investments pooled by the asset
management companies (AMCs) or fund houses. These are finance
professionals who have an excellent track record of managing
investment portfolios. Furthermore, fund managers are backed by a
team of analysts and experts who pick the best-performing stocks and
assets that have the potential to provide excellent returns for investors
in the long run.
2. No Lock-in Period
Most mutual funds come with no lock-in period. In investments, the lock-
in period is a period over which the investments once made cannot be
withdrawn. Some investments allow premature withdrawals within the
lock-in period in exchange for a penalty. Most mutual funds are open-
 ended, and they come with varying exit loads on redemption. Only
ELSS mutual funds come with a lock-in period.
3. Low Cost
Investing in mutual funds comes at a low cost, and thereby making it
suitable for small investors. Mutual fund houses or asset management
companies (AMCs) levy a small amount referred to as the expense ratio
on investors to manage their investments. It generally ranges between
0.5% to 1.5% of the total amount invested. The Securities and
Exchange Board of India (SEB) has mandated the expense ratio to be
under 2.5%.
4. SIP ( Systematic Investment Plan )
The most significant advantage of investing in mutual funds is that you
can invest a small amount regularly via a SIP (systematic investment
plan). The frequency of your SIP can be monthly, quarterly, or bi-
annually, as per your comfort. Also, you can decide the ticket size of
your SIP. However, it cannot be less than the minimum investible
amount. You can initiate or terminate a SIP as and when you need.
Investing via SIPs alleviates the need to arrange for a lump sum to get
started with your mutual fund investment. You can stagger your
investments over time with an SIP, and this gives you the benefit of
rupee cost averaging in the long run.
5. Switch Fund Option
If you would like to move your investments to a different fund of the
same fund house, then you have an option to switch your investments
to that fund from your existing fund. A good investor knows when to
enter and exit a particular fund. In case you see another fund having the
potential to outperform the market or your investment objective changes
and is in line with that of the new fund, then you can initiate the switch
option.
6. Goal-Based Funds
Individuals invest their hard-earned money with the view of meeting
specific financial goals. Mutual funds provide fund plans that help
investors meet all their financial goals, be it short-term or long-term.
There are mutual fund schemes that suit every individual’s risk profile,
investment horizon, and style of investments. Therefore, you have to
assess your profile and risk-taking abilities carefully so that you can pick
the most suitable fund plan.
 7. Diversification
Unlike stocks, mutual funds invest across asset classes and shares of
several companies, thereby providing you with the benefit of
diversification. Also, this reduces the concentration risk to a great
extent. If one asset class fails to perform up to the expectations, then
the other asset classes would make up for the losses. Therefore,
investors need not worry about market volatility as the diversified
portfolio would provide some stability.
8. Flexibility
Mutual funds are buzzing these days because they provide the much-
needed flexibility to the investors, which most investment options lack
in. The combination of investing via an SIP and no lock-in period has
made mutual funds an even more lucrative investment option. This
means that people may consider investing in mutual funds to
accumulate an emergency fund. Also, you can enter and exit a mutual
fund plan at any time, which may not be the case with most other
investment options. It is for this reason that millennials are preferring
mutual funds over any other investment vehicle.
9. Liquidity
Since most mutual funds come with no lock-in period, it provides
investors with a high degree of liquidity. This makes it easier for the
investor to fall back on their mutual fund investment at times of financial
crisis. The redemption request can be placed in just a few clicks, and
the requests are processed quickly, unlike other investment options. On
placing the redemption request, the fund house or the asset
management company would credit your money to your bank account in
just business 3-7 days.
Q.17) WHAT IS ETF?

ANS: An ETF is an Exchange Traded Fund, which unlike regular Mutual Funds trades like
a common stock on a stock exchange.

The units of an ETF are usually bought and sold through a registered broker of a recognised
stock exchange. The units of an ETF are listed in stock exchanges and the NAV varies as per
market movements. Since units of an ETF are listed in the stock exchange only, they are not
bought and sold like any normal open end equity fund. An investor can buy as many units as she
wishes without any restriction through the exchange.

In the simple terms, ETFs are funds that track indexes such as CNX Nifty or BSE Sensex, etc.
When you buy shares/units of an ETF, you are buying shares/units of a portfolio that tracks the
yield and return of its native index. The main difference between ETFs and other types of index
funds is that ETFs don't try to outperform their corresponding index, but simply replicate the
performance of the Index. They don't try to beat the market, they try to be the market.

ETFs typically have higher daily liquidity and lower fees than Mutual Fund schemes, making
them an attractive alternative for individual investors.

Q.18) CAN I BUY AT NSE AND SELL AT BSE?

ANS: The short answer is yes. But this question conceals far more profound and
fundamental matters than has to do with buying and selling shares.

Q.19) CAN I TRADE AFTER 3:30PM? IF YES THEN IN WHICH SEGMENT?

ANS: Yes, you can place an After market Order (AMO) 4:05 PM onwards
for Cash and NSE Futures & Options and 5 PM for Currency Derivatives
and 12 AM onwards for Commodities. On the next trading day, the
orders will first get validated and then go to the exchange.

All the AMO orders of the scrips, which are allowed to trade in the pre-
open market (9 AM to 9:07 AM), will get validated and placed in the
market at 9 AM. Those scrips, which are not allowed in the pre-open
market, will get rejected at the same time. However, clients can place
the AMO orders for all the scrips (including non pre-open market scrips)
between 9.07 AM to 9.15 AM. Those AMO orders placed between 9.07
AM and 9.15 AM will get validated and placed in the market at 9.15
AM.