PRESENTATION ON

Important tools of investments and

operations of Share Market

Prepared by: Sheetal Verma

WHAT IS INVESTMENT?

Investment is a sacrifice of present money

for future benefits
Better investment plan gives you maximum
income/return
No gain without risk
Never keep much cash in your home, it
affects the rotation of currency which caused
increase in inflation
Investment gives you Passive Income
Passive Income is that income which dont
derived by direct efforts in a job

INVESTMENT PLANNER

Keep your 1 month salary multiplied by 6 in

your bank account (Which can be convert
into cash anytime)
Rest of the amount invest in different
instruments

CONTD

Chose right combination of risk and return

Like: 40 to 50% of your investment put into
secure instruments like Govt. securities, FD.
20-30% of the investment in balanced
instruments like ULIP, SIP(Systematic
Investment Plan), Life Insurance
Rest of percentage invest in high return
instruments. Like shares
Always keep some of your investment
equivalent to cash like FD (for emergencies)

ABOUT NSE AND BSE

On April 2010, there were 2990 companies

listed in BSE and 1354 companies listed in
NSE.
BSE established in 1875, oldest Stock
Exchange of Asia
NSE Came in April-1994

SENSEX

It is the benchmark index of the Bombay Stock

Exchange (BSE)
It is composed of 30 of the largest and most
actively-traded stocks on the BSE
Initially compiled in 1986, the Sensex is the
oldest stockindex in India
The index is calculated based on afree-float
capitalization method when weighting the
effect of a company on the index
Instead of using a company's outstanding shares
itusesitsfloat, or shares that are readily
available for trading.

NIFTY

TheS&P CNX Nifty(Nifty 50or simplyNifty)

is a composite of the top 50 stocks listed on
the National Stock Exchange (NSE),
representing 24 different sectors of the
economy.
Nifty was developed by the economists Ajay
Shah and Susan Thomas, then at IGIDR(Indira
Gandhi Institute of Development Research).
Later on, it came to be owned and managed
by India Index Services and Products Ltd.
(IISL), which is a joint venture between NSE
and CRISIL

CONTD
Criteria for inclusion of Stock in Nifty50
Average market capitalization of ` 5,000
million or more during the last six months.
Liquidity: Cost of transaction (impact cost)
of less than 0.75% for more than 90% of
trades, over six months.
At least 12% floating stock (not held by
promoters of the company or their
associates)

BSE
SENSEX
30
Companies
NSE
NIFTY
50
Companies

HOW DO SENSEX AND NIFTY

FLUCTUATE

Simply demand and supply functions affect

the stock indexes like Sensex and Nifty

INDEX
Index

helps you to take the investment decision

in share market.
It is number used to represent the change in a
set of values between a base time period and
another time period.
Stock Index: represents changes in value of a
set of stocks which constitute the index over a
base year.

HOW INDEX IS CALCULATED

Company

Price

Share
Outstanding
10

100

Markt Capt.
(`)
1000

150

150

Base

1150

Suppose Currently
A is traded at ` 200 = 2000
B is traded at ` 200 = 200

BASE YEAR FOR SENSEX- 197879 & NIFTY- 1995

Index

= Current Market Capitalization X 100

Base Market Capitalization

Index = 2200
1150

X 100= 191.40

Now suppose in the very next day both A and

B rise with 2% respectively.
So the current market capitalization would
be:
A 10 X 204 = 2040
B 1 X 204 = 204
And Index would be as follows:
Index = 2244 X 100 = 195.13
1150

BEFORE INVESTING IN SHARES

WHAT SHOULD BE CONSIDERED?

Fundamental Analysis
(Balance sheet & P/L account)
Benchmark
Bottom line growth (Net Profit)
Volume
Company Management
Return on Equity (around 20% is considered good)
Debt-to-Equity Ratio
(Total Debt / Equity Capital)
1 is Okay, more than 2 or greater is risky

CONTD

Earning Per Share (EPS)

What the company is earning for every share.
Net Profit divide by no. of equity share
Price/ Earning Ratio (P/E Ratio)
CMP / EPS
(CMP-Current Market Price)

BEHIND THE INVESTMENT

INSTRUMENTS

LIQUIDIT
Y

RETURN

ULIP (Unit Linked Insurance Plan)

SIP(Systematic Investment Plan)/Mutual Fund
Traditional Insurance Plan
Equities
Bank FD
1-5
1-5
1-5
Govt. Securities
Post Office Savings
Gold
Properties
RIS
K

SYSTEMATIC INVESTMENT PLAN

Mutual Fund Investment
Suppose you are investing ` 2000 per month
for 5 years
Expected return after 5 years
` 1,47,933 @ 8%
5
4
4
` 1,56,165 @ 10%
` 1,64,973 @ 12%
` 1,79,363 @ 15%
` 1,95,316 @ 18%
` 2,06,908 @ 20%

ILLUSTRATION

UNIT LINKED INSURANCE PLAN

(ULIP)

According to new guidelines of Insurance Regulatory

and Development Authority (IRDA):
ULIP Pension/Annuity Products to offer guarantee of
4.5%/Year
Insurers to distribute overall charges evenly during
lock-in period
ULIP charge structure evened out over tenure of
product
For policies < 10 yrs, 3% p.a can be levied as
charges
For policies > 10 yrs, 2.25% can be levied as charges

FEATURES OF ULIP
Partial withdrawal- minimum ` 5000 and
maximum No limit (But required to maintain
minimum fund value of ` 25000)
Premium Allocation Charges 7.50% - first policy year
6.50% - second policy year
3
4
3
5.00% - third year onwards

CONTD

Fund management charge- 1.25% p.a

Policy Administration Charge- ` 20 per month
to 5% p.a
Mortality Charge- 0.15 to 1.62% of Basic Sum
Assured
For life cover of ` 5,00,000 Mortality charge
will be min. ` 750 p.a
Miscellaneous Charges- ` 50 to ` 100
Service tax ( As per IRDA guidelines)

CONTD
Assumed that yearly premium is ` 24000
Then invested amount would be
1st 24000 (2280+273+240+365+68) = 20774
2nd 24000 (2040+557+240+368+100) = 20695
3rd 24000- (1680+859+240+371+134) = 20716
4th 24000- (1680+1175+240+373+169) = 20363
5th 24000- (1680+1506+240+375+208) = 19991
Total Invested amount in 5 years- 102539
Life cover- ` 240000
Assumed return ranging @6% to 10% will be `
123193 to ` 138523 respectively.

CONTD

Return percentage in ULIP plan after 5 years2.66% to 15.43%

Return percentage in SIP after 5 years30.13%
Term Plan. Cover of ` 20 Lac
ADDD- ` 5 Lac
CI- ` 5 Lac
Premium- ` 4395

COMPARISON BETWEEN THE

TWO
Term Plan + SIP Cost
` 4395 + 19200=23595

ULIP Cost
` 24000

Life Cover= ` 20 Lac

Life Cover= ` 2.4 Lac
ADD= ` 5 Lac
ADD= (Optional)
CI= ` 5 Lac
CI= (Optional)
Return= Expected to be Equal

TRADITIONAL INSURANCE PLAN

Premium is to be calculated based on the

sum assured unlike the ULIP.
As per the IRDA guidelines at least 85% of the
amount must be invested in Govt. bonds
Low liquidity
There are six types of traditional plans:
endowment plan, money-back plan, wholelife plan, pension plan, childrens plan and
term plan.
Return 4-6%
1
1
2

EQUITIES

Demat account required

Deep research should be done before
investing
Cash, Derivatives, F&O are available

BANK DEPOSITS (FIXED

DEPOSITS)
Tenure can be 1 to 8 years
Interest rates vary according to RBI base rate
If invested amount ` 500000 for 8 years.
Amount Earned:359753.59
Ending Balance:859753.59

GOVERNMENT SECURITIES

Fixed maturity
Healthy rate of interest i.e. 7 to 9%. But
varies bond wise
Interest rate is called coupon rate
Interest is payable on half yearly basis on tha
face value
No tax deducted at source
3
1
3
Can be dematerialize
Redeemed at face value on maturity
Maturity ranges from of 2-30 years.

POST OFFICE SAVINGS

Recurring deposit, time deposit, Kisan Vikas

Patra, monthly income scheme etc. are
available
KVP- Money doubles in 8 years & 7 months.
Rate of interest 8.4% (compounded yearly)
Tax benefit under sec. 80C

GOLD

Thegoldfutures market is one of the most

heavily invested markets in the world
India is the world's largest consumer of gold
Indians normally buy about 25 per cent of
the world's gold, purchasing around 700 - 750
tonnes of gold every year.
Can be invested or traded
Gold trading is done through commodity
account
Gold futures & options is available
Margin is available by brokers up to 15%

CONTD

India's domestic primary production of gold is

very less, at around 2-3 tonnes a year
Thus, India is also the largest importer of the
yellow metal and has averaged imports of
around 600 tonnes a year

4
2

GOLD FUTURES

The contract expires on 3rd of the expiry month.

If 3rd happens to be a Saturday or holiday then
the contract will expire on the succeeding
working day. (20th of the month in the case of
Gold 100 Gms)
Trading in lots. Lot sizes are 1kg. And 100 grams
Base daily price fluctuation limit is (+/-) 3%. If
the trade hits the prescribed base daily price
limit, the limit will be relaxed up to (+/-) 6%
without any break/ cooling off period in the
trade
Brokerage varies through broker to broker

PROPERTIES

ALWAYS INVEST YOUR EXCESS

MONEY!