R.V BROOKING SOLUTIONS..

By, Hamza Shah (Founder and C.E.O)

-----------------------------------------

All basic
Knowledge about
 TRADING and STOCK MARKET.

Presented by : 
MUHAMMAD HAMZA AKBAR.
CONTACT# 03093953808.
 INTRODUCTORY
---------------------------------
• 1. What is a stock market?
The stock market is like any other market, except that no
tangible things (such as clothes or food items) are sold.
Instead, the stock market facilitates the buying and selling of
shares of the company. Like an apparel market where a person
is selling a piece of cloth, the other person is buying that piece
of cloth. Similarly, some people are selling the shares in the
stock market, and some are buying these shares. The price at
which the seller is selling the shares is called the 'Ask Price,'
and the price at which the buyer wants to buy that shares is
called the 'Bid Price.' Similar to any usual trading experience,
there is always a gap between these two prices, where the Ask
Price is always a little higher than the Bid Price.
The case of Pakistan:-
In the case of Pakistan, as mentioned in the previous video,
we have the Pakistan Stock Exchange, where all the stocks of
the public listed companies of Pakistan are traded. However,
till 2015, Pakistan had three different stock exchanges, i.e.,
Karachi Stock Exchange, Lahore Stock Exchange, and
Islamabad Stock Exchange. In December 2015, the
government at the time merged all three Exchanges to form
Pakistan Stock Exchange. But one thing that has remained the
same throughout this transition is the market index, KSE-100,
where KSE means Karachi Stock Exchange and 100 represents
the top-performing 100 companies of Pakistan based on the
market capitalization of free float shares. Index refers to a
mathematical calculation that reflects the average
performance of the overall market.
Since the companies inthe index are the top performing
companies based on market capitalization, looking at their
activity through an index can generally measure the market
performance. You may have often heard that KSE-100 has
moved up by X number of points; this means that the stock
market is typically moving up and performing well.
How to start trading?
For a new investor, the most critical stock market player is a
broker, as he is responsible for facilitating the trading of
stocks. Traditionally, the investor was required to go to a
broker and open their trading account with the brokerage
firm. However, with the online apps such as Fin-Pocket app,
investors no longer need to visit the branch for physical
verification and open their trading account digitally from
anywhere in Pakistan. FinPocket is a mobile application that is
easy to use and works from anywhere in the world.
2.Where you can invest ?
What is a return?
In finance, return refers to the money earned or lost on an
investment over a period of time. It usually includes interest
or dividend income an investment pays, as well as the capital
gains. Capital gain is the increase in the value of the assets.
For example, you buy a stock of PKR 100 that pays a dividend
of PKR 10 a year. Next year you sell the stock at PKR 150, so
your capital gain is PKR 50, and dividend income is PKR 10,
and so the total return is PKR 60.
Why are there differences in rates?
You must have noticed that different financial instruments
(i.e., bank accounts, bonds, equity, Foreign Currency, Real
Estate) have different rates of return. This is due to the
difference in volatility in them. Volatility is the degree of
change in the asset's price in either direction in a very short
period due to any uncertainty. For example, stocks are the
riskiest financial assets among (bonds, real estate, foreign
currency & commodities). Therefore, they had the highest
return, an average of 18%, over the past few years.
Where should I invest?
Investors should keep in mind that whenever and wherever
they are investing, they must beat inflation. Since the inflation
rate of Pakistan is 8%, to have a positive adjusted return, the
return should be over 8%. For example, the dollar appreciated
around an average of 7% in the last 20 years, which is less
than the inflation rate. Hence, it is not favorable to invest in
dollars. The following table shows different investments and
their returns in Pakistan for the last 20 years:
For the last 20 years:

Financial Assets Return

Regular income certificates9%
Behbood Certificates 12%
real Esate 14.3%
Gold bars 15%
stocks 18%.
How do I allocate my assets?
The following table shows how your portfolio should look
like depending upon your age:
Age where to invest?
Under 35 Risk Taker 80-90% in stocks 10-20% in treasury
45 or older Risk Averse 50-60% stocks, 20-30% in bonds
(government and corporate) 10%
in Real estate
Retired person Not willing
to take risks Risk free bonds only.
3. How to start investing in PSX?
What are securities?
In finance, Securities refer to financial instruments that hold a
monetary value and can be interchanged with other
instruments. There are different types of securities, but the
two most common types are Equity and Debt. Equity security
gives ownership to shareholder, while Debt security
represents money lent to a governmental or private
institution to receive payments at exclusive interest rates till a
specific date in the future where total money lent is also paid
What are stocks and bonds?
A common example of Equity security is stocks/shares of the
publicly listed companies that one can invest in to get
ownership in the company. A private company becomes
public when it issues its stocks for the public to buy. The
transition is mainly done to raise capital for the company's
expansion. The said stocks can then be traded amongst
investors on the Stock Exchange.
A typical example of a Debt Security is a bond, i.e., a fixed-
income instrument representing a loan made by an investor
to a borrower. These bonds can be issued by both
governments and corporations to borrow money and raise
funds. As explained above, a bond would include the terms of
the loan, variable or fixed interest amount, and the maturity
date when the loan's principal is due to be paid to the bond
owner.
What happens when a new company is listed on PSX?
As mentioned earlier, a company can raise money by issuing
either shares/stocks or bonds. The above chart shows how
the company issues its shares. After the company is registered
on PSX, it then offers its stocks to the general public. This
process of offering is called IPO, Initial Public Offering. Hence,
if a company wants to issue additional shares, they are
administered via Secondary Public Offering. Interestingly, PSX
can not only trade shares but bonds as well. In this way, the
company raises the capital in return for fixed periodic
payments as mark-up and the eventual return of principal to
the investor.
What is a stock exchange, and how is it managed?
A stock exchange is a platform where shares can be publicly
traded. FOR PAKISTAN , there is only one stock exchange
called PSX.
 Pakistan Stock Exchange, where the shares of public listed
companies are bought and sold daily. Several institutions like
CDC, NCCPL, SECP work together to ensure its smooth
functioning. The stocks are delivered via Central Depository
Company (CDC) and settled through the National Clearing
Company of Pakistan Limited (NCCPL). Securities Exchange
Commission of Pakistan(SECP) keeps check and balance on
the overall process of the stock exchange, making sure that all
rules and regulations are being followed.
However, not everyone has to personally deal with these
bodies to trade stocks; they can simply contact a broker to get
involved in the stock market. They can contact the Trading
Right Entitlement Certificate holder or any licensed brokerage
firm to hire a broker. For example, the broker Fortune
Securities, which is a licensed and registered firm with PSX
and SECP.
4.What influences the stock price?
What affects the stock price?
Before you start investing in stocks, you should have a little
know-how about how a stock is valued. Even though huge
organizations solely work on complex valuations and analysis
of companies and their stock values, new investors should
have a broad idea of what influences the stock price. Demand
and supply of shares in the market generally affects the price
of shares. To understand this concept in a better way, let's
break it down into three main categories - Company
Financials, Growth Trajectory and Macro Variables.
(a) Company Financials:
Company Financial statements are the reports that tell us
about its revenues, costs, gross profit, net profit, and
other complex factors that go into its finances.
The vital thing to note here is that while these reports tell us
about the company's past trends and standings, they also
present its future goals and directions. And it is mainly the
future that an investor should be concerned with. The stock
price, when valued, is projected keeping in mind the future of
the company and the overall market.

Every public listed company is required to release its financial

statements quarterly (after every four months). These
financials enable the investors to do a cash flow analysis that
helps understand how the company is managing its cash
flows.
(b) Growth Trajectory:
Since the future is what we are mainly concerned with, the
company's growth trajectory becomes one of the key factors
that affect its stock price.
How well the company is performing in the current scenario
and how well it will grow in the future determine its stocks'
value. A new and small company may have a lagging revenue
but it is expected to have a higher growth trajectory than an
already well-established business because they grow out of a
small base , can take risks and they also reach an audience for
the first time.

To show how important growth trajectory is, let's take the

example of a tissue paper company. During COVID, the tissue
paper company gave an excellent performance, but as COVID
began to subside, people reduced the purchase of tissue
papers. Even though the company finances showed a boost,
the stock price dropped significantly because investors were
not expecting a high cash flow and projected a decreasing
growing curve.
Another example could be Pakistan's construction sector. Last
year Prime Minister Imran khan announced incentives to the
construction sector which led to a rise in share prices of
cement industry.
(c) Macro Variables:
Macro variables refer to those factors that affect the overall
market and national economy. They usually comprise wide
phenomena such as inflation, GDP, price levels, government's
economic policies, and risk-free rates. While they are not
directly linked to the stock value, they have an indirect and
deep connection with the overall stock market. Without
getting into complex calculations, let's take the example of
risk-free rates. A risk-free rate means the guaranteed return of
an investment with no risk of loss. They are determined by
the governmental bodies in their policies when they issue
interest rates for Treasury Bills and Government Bonds.
If the risk-free rate goes up, the risk attached with stocks also
goes up. 'How?' you might ask. Basically, if government
security provides a guaranteed higher return, investors would
require an even higher return for taking on extra risk by
investing in stocks instead of treasury notes. And eventually, a
high required return would mean a drop in stock prices. If
nothing else changes, the price has to be lowered to have a
high return.

All in all, the value of a stock is determined by multiple,

complex factors. However, the investor should know about
the three prominent influencers – Company financials, growth
trajectory, and macro variables. All three of them tell the
investor how much profit the stock would return in the
coming future, and based on that, the stock's value is
determined.
END OF THE INTRODUCTORY PART
(1ST-PART) OF THE COURSE OF
“THE BASIC KNOWLEDGE ABOUT
STOCK MARKET AND TRADING”
WRITTEN BY :- M.HAMZA AKBAR.
 INTERMEDIATE
-----------------------------------------
1. What is an income statement?
As mentioned, Company Financials is one of the key
influencers determining a stock's value. It includes a bunch of
reports such as income statements, balance sheets, and cash
flow statements. An investor should know the basics of these
statements and what they signify to understand the
company's position when it releases these reports.

Let's start with the income statement. An Income Statement

is one of the most important statements that reveals the
company's income and expenditure and shows how profitable
it has been over a specific period. Because of this reason, it is
also known as the Profit and Loss (P&L) Statement.
While Income Statement covers a lot of information and
contains several sections and subsections, the three main
headings to keep in mind are Revenues, Expenses, and Net
Income.
Revenues:
Revenue refers to the total income a company generates.
Because it appears at the top of an income statementit is also
referred to as 'top line.' Another word synonymously used
with revenue is 'sales.' While it can be true for certain income
statements, it is inaccurate because a company’s revenue
might differ from its sales. A core difference between
'revenue' and 'sales' is that the former is the entire income a
company makes, and the latter is the income it generates
solely from selling goods and/or services to its customers. You
might wonder how a company produces extra income without
selling its goods and services.
While 'sales' is part of the 'revenues,' it might not be the 'only'
part. There are non-operating revenues that a company may
make from occasional events. These can be the sale of assets,
investment windfalls, the money awarded through litigation,
and many more.
Within sales, we have other categories, but the two most
important are Gross sales and Net sales. The sales that we just
talked about are Gross Sales, i.e., the total sale transactions
within a specific period for a company. On the other hand,
Net Sales takes sales allowances, sales discounts, and sales
returns into account and deducts them from Gross Sales. It
gives a much clearer picture of the Company's sales
performance and the revenue generated from it.
Expenses: Next comes Expenses. Expenses are mentioned in
an income statement to calculate the sustaining and
operating costs of the company.
There are two main terms to remember within the ‘Expenses’:
Cost of Sales and Operating Expenses.
Cost of Sales, also called Cost of Goods Sold (COGS), is the
direct lft67cost associated with producing goods and services
sold by a company. The amount includes the cost of raw
material and direct labor. For example, for a French Fries stall,
COGS would be the cost of potatoes, oil, salt, spices, and any
direct labor associated with the production of French fries.
Side Note:
When you remove the Cost of Sales from Revenues, you get
Gross Profit.
Gross Profit= Revenues - COGS
As a percentage of sales, this Gross Profit is called Gross
Margin.
transportation.
Gross Margin = (Revenues – COGS)/Revenues
In addition to COGS, Operating Expenses (OPEX) are the
indirect costs associated with producing goods and services.
They are operational expenses that the company bears to
keep the business going. There can be many operating
expenses, but the common examples are utility bills, rent, and
Net Income:
Lastly, when these operating expenses are deducted from
Gross Profit, you get Profit Before Tax. And when taxes are
subtracted, we finally get our Net Income, also known as Net
Profit.
2.What is a balance sheet?
Balance sheet is another important financial statement that
gives a snapshot of a company’s financial position and reports
on its assets, liabilities and equities.
These three are related by the following formula:
Assets= Liabilities + Equity.
This formula is quite intuitive. Anything you own (assets)
needs to be financed by money that you either borrowed
(liabilities) or that you received from investors (equity).
To better understand, let's further break down each of the
three types.
What are assets?
Assets refer to any resource that a company owns and has an
economic value attached to it. Assets, for a company, are
those resources that the company utilizes to fulfill its
operative needs and generate cash flows in the future.
Examples of such assets can be - cash, investments, inventory
(raw materials/ component parts), equipment, furniture,
machinery, etc.
Recorded on the left side of the balance sheet, they are
divided into current and fixed assets. Fixed and current assets
are differentiated based on liquidity. The term liquidity means
how easily an asset can be converted into cash.
Current assets are those assets that can be cashed out within
one year. It means they are short-term economic resources
that are expected to convert into cash quickly. These include
cash, cash equivalent, accounts receivable (balance to be paid
by other institutions/bodies to the company), inventory, etc.
Fixed assets or non-current assets are long-term, valuable
resources that have a useful life of more than a year. They
cannot be converted to cash quickly and are mentioned at the
price the company purchased them. Examples include land,
building, heavyequipment, and machinery. However, a section
of depreciation is added to compensate for their time and
usage. Depreciation is the revaluation of fixed assets for their
useful life and is calculated by subtracting resale value from
purchase value. The difference is depreciated evenly over the
expected years of life.
What are liabilities?
Liabilities, on the other hand, are something that the
company owes to other institutions and is recorded on the
right side of the balance sheet. They show how a company
finances its assets and are settled through different means
such as money, goods, and services. Common examples of
liabilities are loans, mortgages, and accrued expenses
(accumulated over time).
Like assets, liabilities are also of two kinds: current liabilities
and non-current/long-term liabilities
Current liabilities are debts that the company needs to pay
within one year, ideally with cash. Common examples are
money owed to vendors, utilities, employees' wages etc.
Non-current liabilities, on the other hand, are debts payable
in 12 months or more. For example, if a company raises
money through bonds with a maturity date of more than a
year, it must pay back its investors in the long term. Hence,
these bonds can come under non-current liabilities. Other
common examples can be a large loan taken from a bank,
warranties, and pension obligations.
What is equity?
Lastly, the equity section in the balance sheet refers to the
company's ownership and how much money it has put into
the business. If the company is small and private, it might not
have many shareholders and is owned by 2-3 people. The
money that they have invested, without taking loans, is
equity. For publicly listed companies, money received from
investors will come under equity because investors are now
shareholders and have put some money in it to buy their
shares.
An increase (+) in an asset account is a debit and an increase
(+) to a liability account is credit; conversely, a decrease (-) to
an asset account is a credit and a decrease (-) to a liability
account is a debit. They are recorded in a company’s balance
sheet.
3.What is a cash flow statement?
A cash flow statement tells us the amount of cash entering
and leaving the business. In other words, this statement gives
an idea about how the finances in your account have changed
this year as compared to last year. Cash flow statement uses
figures from other two statements i.e income statement and
balance sheet to assess cash utilization. Through a cash flow
statement, you get an idea of how efficiently a company is
managing its cash position and how much cash is needed to
raise when you are running low on funds. Moreover, through
a cash flow statement a company can re-evaluate changes in
assets, liabilities, and equity and how to fund its operating
expenses.
A cash flow statement is prepared using three core activities:
Operating cash flows:
These are day-to-day expenses of a business that include
buying and purchasing of goods, outflow of cash when you
pay employees, suppliers, taxes, or interest. Non-cash items
like depreciation are not included in the section. This is the
direct method of calculating cash flows from operating
activities. On the other hand, an indirect method of
calculating cash flows involves using profit/loss as the base
and then adjustments are made for items that affected the
income statement but not the cash for example it includes
adjustments for depreciation.
Negative cash flows occur when a business spends more
money than it actually makes. But it can be crucial to
understand the reason behind this negative figure. It can be
an alarming sign for some investors. However, it can be a
positive sign for some since it shows the company has made
some long-term investments and is positioning itself for
future growth.
Investing cash flows:
Cash flows from investing activities include purchase and sale
of assets such as plants, building, furniture, machinery etc.
This section typically involves cash payments made to acquire
fixed assets, cash outflow due to disposal of an asset,
investments made in shares etc. Long term investments made
by the company are a part of this section and it feeds in the
fixed assets of the balance sheet.
Financing cash flows:
Activities of a company that lead to a change in the size and
composition of owner’s capital and borrowing of a firm is all a
part of financing cash flow. Changes in long term liabilities like
bank loans received is considered positive financing and when
it is time to repay loans then that’s negative financing.
Another source of positive financing cash flow is selling shares
or going for IPO (initial public offering).

It is important to take analysis of all aspects of cash flow

statements. This statement is of great interest to the
investors. Operating and investing cash flows are focused
mainly on evaluation of a company's cash related
performance and financing cash flow is used to see how the
business is financed in terms of bank loan or equity. In easy
terms, we reconcile the difference of cash from last year to
this year using cash flow statement
 4.Key-ratios to Track :
Importance of Financial Ratios :
we went through three main financial statements of a business i.e
Income statement, balance sheet and cash flow statement. But the
question here arises are these statements enough for an investor to
make a decision whether to invest in a certain company? The answer
here is no. ratios are another helpful tool that aids in this decision
making related to investments.
Financial ratios of a company are used to compare a company’s
performance with its past, make future predictions by setting bench-
mark and goals, and to compare its growth with other companies in
the sector. These ratios are also used to identify changing trends in
the business and when it is the right time to make a move in/out of a
company. Basically, financial ratios influence the decision making of
investors by giving relevant information rather than raw financial
information, on whether to invest in a company.
There are different kinds of financial ratios. Let’s discuss them
individually:
Profitability Ratios
As the name suggests, these ratios are used to measure how
profitable a company has been over the past several years
using key figures from financial statements.
Net Profit Margin
Net Profit Margin = Net Profit After Tax⁄ Sales
It shows the net income was generated by the company from
each rupee spent on the sales.
Return on Shareholders Equity
Return on Shareholders Equity = Net Income ⁄ Shareholder's
equity
This is a measure of the rate of return shareholders earn on
their investment in the company. It is assumed that the higher
the ROE, the better the company is at generating profits.
Return on Total Assets
Return on Total Assets = Income from Operations⁄ Average
Total Assets
Another important ratio to analyse the efficiency of assets
employed in generating profit.
Liquidity Ratios
Through these financial ratios, it is easy to measure a
company’s ability to repay its short-term and long-term
obligations. Some common liquidity ratios are:
Current Ratio:
Current Ratio = Current Assets/Current Liabilities
This current ratio briefly describes how a company manages
to pay off current liabilities given its current assets, within a
year.
Acid-Test Ratio:Acid Test Ratio = Current Assets-Inventories/
Current liabilities
It measures how well current liabilities are covered by cash
and by items with ready cash since inventories take time to
liquidate.
Leverage Ratios :
This compares a company’s debt level to its assets, equity, and
earnings to evaluate how efficiently a company is likely to pay
off its long-term debts as well as interest on debt. It also
highlights how much of a company's capital comes from debt.
Examples of leverage ratios are:
Debt to Equity Ratio:
Debt to Equity Ratio= Total Debt⁄ Total Equity
Total Debt Ratio:
Total Debt Ratio = Total Assets - Total Equity⁄ Total Assets
Interest Coverage Ratio:
Interest Coverage Ratio = Earning Before Interest & Tax⁄
Interest Expense
It represents how successfully a company can pay out interest
expense from its profit.
Turnover Ratios
If a company wants to know how efficiently the assets and
liabilities are used to generate revenue then turnover ratios
are of great help. Types of turnover ratios are:
Fixed Asset Turnover Ratio:
Fixed Asset Turnover Ratio= Net sales/Average Fixed Assets
It represents the ability of a company to generate revenue
from its assets, after adjustments of depreciation are made.
Inventory Turnover:
Inventory Turnover = Cost of Goods sold/Average Inventory
It Represents how easily or fast the company is able to
convert its inventory into sales.
Receivable Turnover:
Receivable Turnover = Net Credit Sales/ Average Inventory
It measures how efficiently a company can collect its
receivables. A higher ratio indicates a company collecting its
receivables in cash.
--------------------------------------------------------------------------------
END OF THE INTERMEDIATE PART

(2ND-PART) OF THE COURSE OF

“THE BASIC KNOWLEDGE ABOUT
STOCK MARKET AND TRADING”
WRITTEN BY :- M.HAMZA AKBAR.
 ADVANCED
-------------------------------

1. How does a company raise money?

Why does a company choose to list itself on the stock
exchange?
For any start-up, finance is a key issue. Due to risk factors
associated with start-ups, it is not easy to attract a lot of
investors. Hence funding is typically divided into rounds
because it gives a clear picture to its investors of what stage a
start-up is at and what tasks it is currently solving. There are
certain companies who are a part of the stock exchange (public
companies) and some are not (private companies). What
makes these companies go from a private company to a public
company? First look at the difference between a public
company and a private company.
Private company: A private company is the one not listed on
the stock exchange, and it raises funds through private
investors or venture capitalists.

Public company: Public companies can raise new money by

listing themselves on the stock exchange. Their securities are
traded publicly, and companies can sell shares which means
they also have the benefit of liquidity. Through an IPO it
becomes easier for businesses to have access to large sums of
money which eventually helps in growth, mergers, and
acquisition. Public companies can raise new money by listing
themselves on the stock exchange. Their securities are traded
publicly, and companies can sell shares which means they also
have the benefit of liquidity. Through an IPO it becomes easier
for businesses to have access to large sums of money which
eventually helps in growth, mergers, and acquisition.
When a private company grows, before going for an IPO
(Initial public offering), it goes through a series of transitions
which helps it raise money better. As a business becomes
mature, it tends to advance through the funding rounds.
Following are the financing steps discussed in detail
1.Pre-seed: as a humble beginning, an idea of a company is
generated in the mind of an owner. The owner would need
funds to execute the plan and would ask friends and family for
funds to start working. Raising money is the basis of this step.
Mostly financing is done through the founder which is called
‘bootstrapping’. The main task of pre-seed funding is to test
the hypothesis of a business idea. Start-up founders must
prove the growth of their business enough to reach out to
investors for funding in the next stage.
2.Seed: At this second ; stage of funding, investing usually
stimulates substantial growth. Once the startup takes off,
founders may seek the need of potential investors to fund
their venture. Angel investors or venture capitalists may come
for help at this stage. These close network investors are high-
networked individuals with experience and contacts. They
would look at the potential in the idea and lend out money.
Before lending money, analysts would clearly examine the
business model, pros and cons, and other market factors. The
primary reason for raising money at this stage is for scaling
and marketing the product. Scaling occurs when a business
multiplies its sales volume without increasing staff or cost.
Founders must be aware of why they are willing to push their
concept further to the market.
3.Series A: As a company starts hiring and its expenses pile
up, it would need larger funds. If a company manages to get
to series A funding, then it is aware of the key parameters. At
this stage product testing is done to analyze its market fit. This
means a company has developed a product and the product is
also getting used to the market, so this test is done to see if
there’s any fit and if people are willing to buy the product.
The company is, however, still trying to figure out if the
business is going to work. Money is raised and the product is
launched through verified sales channels. Employment rises
and traction is received from the public. For a series A funding
round, a network of contacts with potential business partners
and investors must be well-nurtured. Lasting business
relationships don’t happen overnight. Once proven
trustworthy, by showing developmental process made with
seed capital, a business can attract new investors according to
growing business needs.
4.Series B: By the time a company reaches some stability,
processes are working well and customers show greater
interest in the product, a round of series B funding begins.
The key investors in series B are the same as series A funding.
Some of the investors from previous funding stages may be
willing to increase their stake in the company. These investors
can also help attract new investors into the company. The
main purpose of this type of financing is to aid the company
in expanding to new markets. Expanding the product locally
or intentionally after a successful trial helps the company
grow further. The amount is higher as compared to Series A.
Moreover, series B funding can help the venture increase its
scalability.
5.Series C: successfully entering this stage means investors
are convinced of the business’s ability to achieve long-term
growth. Series C funding typically caters to start-ups who
are to undergo large expansions for eg entering a new target
market or acquiring another business. This level requires large
and consistent funding. At this point, hedge funds, private
equity firms, and banks offer funds as investments.
Learning the difference between different stages of funding
helps a company reach its funding milestones. These series
can range from A to F onwards depending on the ticket size
which is the size of the firm and the amount of funds needed
for expansion. If we talk about recent funding in Pakistan,
then Airlift was able to raise $85 million in series B funding.
The company’s vision was to create 200,000 jobs in Pakistan
within the next five years and to build a platform for
consumers, drivers, and small business owners to move
consumer goods. Zameen.com has also been able to raise $29
million in disclosed venture capital funding in 2016.
On the contrary, the private market may not be able to lend
this high amount every time. Public markets have more
money and liquidity in comparison to private markets. Usually,
after series C funding companies usually prefer to
list themselves on the stock exchange for an IPO(initial public
offering). At IPOs, companies receive a large amount of funds
at easier terms. Through going public, these startups can also
return the favor of the investors who invested in the company
earlier. This is the basic transition of a company from a private
to a public market. All big names were once private
companies but as their need for expansion grows, they went
public.
2. Financial Instruments in Stock Market :-
Which investment options does PSX offer?
There are several investment options available for investors.
Let's discuss some of them:
Stocks: At the Pakistan stock exchange investors can invest in
reliable, liquid, and efficient stocks by buying or selling
shares/common stocks of listed companies. Stocks relatively
provide a higher return as compared to other investments for
e.g; government bonds.
Real estate investment trust (REIT):Real estate investment
trust is a scheme that focuses on investment in properties and
real estate and derives its income from such investments for
its investors. Types of REITs available in Pakistan are rental,
developmental, and hybrid (which is a combination of
developmental and income REIT). This also counts under the
equity scheme.
Bonds : PSX mostly offers corporate bonds. If well-settled
companies decide to take up a loan or debt from the public
market rather than turning towards banks with heavy
conditions, they can raise money through corporate bonds.
They are also called fixed-income securities.Not only a
company,but government can also raise funds through fixed
income securities. Last year, a government-owned company
raised money on Pakistan Stock Exchange through a
competitive process. This was the first time a government-
owned company listed itself on the stock exchange. The
competitive process here means asset managers like financial
institutions and mutual. funds could individual investors were
also given the opportunity to invest in a government-owned
company
What are mutual funds?
Mutual funds are the amalgamation of several stocks. Money
is pooled from different investors who have a common
investment objective. The collected investment is then
invested in different securities like equities, bonds, etc. In
other words, an asset management company manages funds
on behalf of its investors. The combination of securities is
called a portfolio. The gains or capital appreciation earned
from these investments is shared in whichever proportion of
funds are owned by investors after accounting for expenses
like Net asset value (NAV). Any fund’s net asset value depicts
its price per unit:
NAV= (Current market value of all the Assets-Liabilities)/Total
number of units outstanding
Mutual Funds Association of Pakistan (MUFAP) is a trade body
that manages multi billion rupees asset management industry
in Pakistan. A wide variety of assets are managed including
stocks, bonds, money market instruments, government
securities, etc. The main bit part of this body is to ensure
transparency, monitor ethical code of conduct, and work on
the growth of mutual fund investing in Pakistan.
One prime benefit of investing in mutual funds is it gives
early/individual investors easy access to the stock market as
all the financial analysis is already done by professional
experts on diversified portfolios which is readily available for
investors. Another advantage of investing in mutual funds is
that it reduces the risk of concentration by investing in
diversified portfolios. It is because of diversification the ups
and downs on different securities have a lesser effect on fund
performance hence gains. This ensures the stability of
investment and reduces chances of loss. Moreover, through
mutual funds, you can buy/sell or move funds easily which
means investors have the advantage of liquidity.
In addition, one of the biggest benefits of investing in mutual
funds is the tax benefit. The Government of Pakistan has
given this incentive to investors especially salaried investors.
Investors can claim tax rebates by investing in mutual funds
and reducing their tax liability to the government. Also,
General investments held by investors for a time duration of
48 months, or more are likely to qualify for exemption from
capital gain tax.
Types of mutual funds in Pakistan are given below:

Money market fund: Investment is made in low-risk

avenues but with high certainty of
target return achievement. They
invest in short term
securities like treasury bills.
Equity fund : It is a fund that invests in stocks.
The objective is to benefit from the
long-term growth of the company
Asset allocation fund :These funds invest in both stocks
and debt instruments.
Income fund: This fund invests in slightly riskier stocks
to provide a higher level of fixed income.
They are for investors who want to avoid

the volatility of the stock market for e.g:

PIBs.
Pension Fund: This type of fund is for old age people who
want a regular income at the time of
retirement.
Shariah Compliant fund: This type of Investment is made in
Shariah-compliant securities like
Sukuk, Ijara.
Commodity fund: These funds enable small investors to take
advantage of gains in commodities like
gold. Investment in futures contracts is
also made.
3.Portfolio Building:
How to build a profitable stock portfolio?
Portfolio diversification is the key to building a profitable
portfolio. Such a portfolio helps an investor achieve long-term
growth out of their investment. Asset allocation greatly
depends on investment goals and risk tolerance. Talking about
diversification, there are certain things to keep in mind but
first, let’s talk about risk. Risk is one thing that concerns an
investor the most. He/she is worried about the money they
put in an asset and if they are guaranteed a return out of that
asset. Risk is the possibility of the downside of an investment
made because it is related to returns. Some securities like
Bitcoin , crypto-currency have greater risk associated with
them hence returns are greater too. Similarly, stocks, do have
risk involved, but the returns generated are higher too.
On the other hand, low-risk assets like bonds are considered
safe but have a lower return too. These assets are essentially
risk-free but also come under fixed-income securities.
Therefore, we can say stocks have some risk relatively but
with higher risk comes more return too. Young investors in
their prime age bracket 20-40s generally have a high-risk
investment strategy because they would want to maximize
returns and they can overcome losses if any occur. However, a
person near retirement age would want to invest in assets
that would give a consistent return

Coming back to diversification, it is considered immensely

important to manage risk. Hence a clever investor will keep
balance across three major categories when building a
portfolio. They are as follow:
1. Balance across the type of assets: It is rightly said ‘Don’t put
all your eggs in one basket. Adequate quality and focused
assets in your portfolio will have an investor reap benefits for
years. A worthy portfolio can have a combination of low risk,
fixed-income securities like bonds, cash, or gold (for example
10-15% of the portfolio) so that there is surety of income, and
with the remaining (example 85-90% of the portfolio),
investors can have an aggressive approach by investing in
stocks and take upon some risk associated. But the question
here arises which stocks to invest in? The answer lies in
investing in stocks that will reduce risk but provide greater
returns. Stock performance is mostly evaluated through
financial analysis, growth trajectory, and market conditions or
macro factors therefore one must keep all these factors in
mind when making decisions regarding investing in stocks.
2. Balance across the size of the firms: Investments should be
made in both small and large firms. The growth trajectory and
long-term goals of the company are considered before
investing. Investing in big-sized, well-settled companies
doesn’t need much explanation. These companies are more
stable, so consistent dividends are guaranteed. Also, investors
can predict future goals and directions of the firm. At the
same time investing in small size, companies can also help
maximize overall benefits since these companies have the
potential to give higher returns as compared to other big-
sized companies which grow slowly, however with some risk
involved. So, an investor can allocate parts of their investment
portfolio to each type of stock so there are opportunities for
big profits and stability too.
3. Balance across the type of industry: It is important to keep
in mind to invest in companies that will benefit the investor in
different sort of macro environment changes that will happen
in the future. Industry diversification is, in fact, the key to
maximizing benefits out of your portfolio. To take an example,
if there is an interest rate fluctuation announced as a
monetary policy by the government, then there should be
companies in your portfolio that could benefit its investor due
to changes in interest rate.
For instance, banks. They do well when the policy rate goes
up however other companies are adversely affected in terms
of paying more as interest payment General hence cost of
financing rises. Another example could be a change in oil
prices. Not only will this affect oil stock prices, but it will also
have an impact on transportation-related companies. These
companies will gain or lose profitability accordingly.
To sum it up, a diversified portfolio will comprise a mixture of
investments. This not only helps an investor manage risk but
also reduces the impact of volatility of price movements on
portfolios. This diversification requires time and consistency,
however, it is hard to find assets that aren’t correlated but
with market research even new investors can mitigate risk for
any given return.
END OF THE ADVANCED PART(3rd- PART)

WHICH IS THE LAST PART OF

THE COURSE OF “THE BASIC
KNOWLEDGE ABOUT STOCK MARKET
AND TRADING”