What are securities?

·       Debentures or Bonds

·       Equity Shares or Common stock
·       Preference Shares
·       Derived Securities

s n tara 1
• Introduction to Asset Allocation
• : Asset allocation is an investment strategy that
attempts to balance risk versus reward by adjusting
the percentage of each asset in an investment
portfolio according to the investors risk tolerance,
goals and investment time frame. In other words, it
is an investment strategy that aims to balance risk
and reward b apportioning a portfolio's assets
according to an individual's goals, risk tolerance and
investment horizon.
• There is no simple formula that can find the right asset allocation for every
individual. However, the consensus among most financial professionals is that
asset allocation is one of the most important decisions that investors make.
In other words, your selection of individual securities is secondary to the way
you allocate your investment in stocks, bonds, and cash and equivalents,
which will be the principal determinants of your investment results. Asset
allocation is based on the principle that different assets perform differently in
different market and economic conditions. A fundamental justification for
asset allocation is the notion that different asset classes offer returns that are
not perfectly correlated, hence
diversification reduces the
overall risk in terms of the variability of returns for a
given level of expected return.
• Stocks – Highest Risk – Return Potential Stock investment can earn
and lose money based on the increasing or decreasing market value
of the share. The price movement of stocks are very drastic, which
can make or lose money very fast. Hence it is the most riskiest one.
• Bonds – Low Risk – Return potential Bonds or fixed income
investments are money loaned to the government, municipalities or
other entities). They can earn money from the interest paid on that
loan. Since the money is borrowed by government authorities the
investment risk is very less. Cash – Lowest Risk – Return potential
Cash or Cash equivalents are Treasury bills, certificates of deposits
and other short term securities. They earn you money through
interest, which is usually set at a guarantee rate. -
• Yearly returns of Equity, Debt (Income Funds)
and Gold (Ref : Economic Wealth Feb 2013)
• Returns across various periods
• From Livemint’s
Why you shouldn’t buy only equities even for t
he long term
, Returns of equity, gold, fixed deposit from
Jan 1983 to Dec 2012 in 4 year time period
Stock Market Returns
Stock market returns from 1 Dec 2007 to Dec
2012, annual returns,monthly returns are given
below (Ref : Capital Mind  The Nifty in 2014)
• Name

Primary and Secondary mkt What is NFO

What Is FPO
What is index
Name Two indicies
What is depository
What is the role of a Broker
What is ISIN
 Equity Shares or Common stock

• In the world of financial and investment management, ‘equity share’ is a big

word frequently used. We call it stock, ordinary share, or shares, all are one
and the same. Explaining equity shares in a page or a bunch of pages is very
difficult. Let us still try to define it in as summarized manner as possible.

• Equity share is one of the main sources of finance for any company. Normally,
a company is started with equity shares as its first source of capital from the
owners or promoters of that company. After a certain level of growth, more
capital is required for further growth. The company then finds investor in the
form of friends, relatives, venture capitalists, mutual funds, or any such small
group of investors and issue fresh equity shares to these investors.
• A point comes where the company reaches a
very big level and requires huge capital
investment for business growth. It then offers
its equity share to general public. This is called
Initial Public Offer (IPO). More such issues in
future are called Follow on Public Offer (FPO).
  
• Equity Shares:
• They are categorized under long term sources of
finance because legally they are irredeemable in
nature. For an investor, these shares are a certificate
of ownership in the company by virtue of which
investors are entitled to share the net profits and
have a residual claim over the assets of the company
in the event of liquidation. Investors have voting
rights in the company and their liability to company
is limited to the amount of investment
 Classification based on capitalisation

• Large Cap
• Medium Cap
• Small Cap
 Equities – Groups & Segments
• Segment
– Rolling Market Segment
– Limited Physical Market Segment
– Institutional Segment
– Trade for Trade Segment
 Equities – Groups
Group (BSE) Type of Security
A Liquid and highly traded stocks

B1 and B2 Stocks traded regularly but less liquid relative to

group A stocks
F Debt securities

G Government securities

T Trade for Trade securities

Z Securities of non-compliant companies

 Market Capitalisation
• Number of Outstanding Shares x CMP
– Large Cap Stocks
– Mid Cap Stocks
– Small Cap Stocks

• Market Capitalisation and Liquidity

Other types of securities
 government Securities
 

• The debt securities issued by the government and

semi-government bodies are called gilt-edged
securities. They comprise the treasury bills and the
dated securities (also called bonds or dated loans)
of the central government, state government, and
semi-government bodies like Port Trusts and State
Electricity Boards

s n TARA 25
 Central Government Dated Securities
• 1.     These securities of the central government have a
maturity period longer than one year and carry a fixed rate
of interest.
• 2.     The interest is payable semi-annually and the payment
is usually make by issuing coupons which can be encashed at
any bank.
• 3.     Though these securities are redeemed at par, their issue
price can be higher or lower than the face value depending
upon the prevailing market conditions.

s n TARA 26
 Corporate Debentures
 

• 1.     Corporate debentures are the promissory notes

issued by the joint stock companies in the private
sector.
• 2.     They are thus the debt obligations of the
issuing corporation.
• 3.     Like government securities, they have an issue
price at which they are originally issued, a coupon
interest rate, and a specified maturity date.

s n TARA 27
 Preference Shares

• 1.     These are a hybrid variety of securities which have

some features of equity shares and some features of
debentures.
• 2.     Preference shares carry a fixed rate of dividend and
preference dividend is payable only out of distributable
profits.
• 3.     Generally, dividend on preference shares is cumulative.
Hence dividend skipped in one year has to be paid during
the subsequent years before equity dividend is paid.
• 4.     All preference shares are redeemable after 12 years as
per government regulations now.

s n TARA 28
 GDR

• Global Depositary Receipt. A negotiable certificate held in the

bank of one country representing a specific number of shares
of a stock traded on an exchange of another country.
American Depositary Receipts make it easier for individuals to
invest in foreign companies, due to the widespread availability
of price information, lower transaction costs, and timely
dividend distributions. also called European Depositary
Receipt.

s n TARA 29
 American Depositary Receipt

• ADR. A negotiable certificate issued by a U.S. bank

representing a specific number of shares of a foreign
stock traded on a U.S. stock exchange. ADRs make it
easier for Americans to invest in foreign companies,
due to the widespread availability of dollar-
denominated price information, lower transaction
costs, and timely dividend distributions.

s n TARA 30
 Derivatives
• Futures
• Options
 Other Types Of Investments
National Savings Schemes
 Public Provident Fund Scheme
 Post Office Savings Deposits Scheme
 Deposits with Commercial/Co-operative Banks
 Corporate Fixed Deposits
 Units of UTI
Unit Scheme, 1964
Mutual Funds
ETF

s n TARA 32
 some basic terminology

Bonds:
Face value
Coupon annual rate of interest and coupon period
Maturity date
YTM ( the return obtained in holding a bond till
maturity)
Basis Points 100th of 1 percent for example a rise from
8.25% to 8.4% is a rise of 15 basis points
 
 
s n TARA 33
 Shares

• Face value
• Cum Rights and DIV
• Partly and fully paid
• EPS (profit after tax by no of shares)
• PE ratio ( price of a share by EPS) indicates
how highly a share is valued.

s n TARA 34
 What is a Portfolio ?
• A portfolio refers to a collection of investment
assets such as stocks, shares, mutual funds,
bonds, cash and so on depending on the
investor’s income, budget and convenient time
frame.

• A portfolio is a group of investments. A well-

managed portfolio is diversified to ensure a
continuous return on investment over time.
s n tara 35