Wednesday, 31 August 2011

Shares and Mutual Funds-5

Greetings to fellow blog readers......

Mutual Fund: A mutual fund is a pool of money, collected from investors, and invested according to certain investment objectives.
Asset Management Company (AMC): A company set up under Indian company’s act, 1956 primarily for performing as the investment manager of mutual funds. It makes investment decisions and manages mutual funds in accordance with the scheme objectives, deed of trust and provisions of the investment management agreement.
Back-End Load: A kind of sales charge incurred when investors redeem or sell shares of a fund.
Front-End Load: A kind of sales charge that is paid before any amount gets invested into the mutual fund.
Off Shore Funds: The funds setup abroad to channalise foreign investment in the domestic capital markets.
Under Writer: The organization that acts as the distributor of mutual funds share to broker or dealers and investors.
Registrar: The institution that maintains a registry of shareholders of a fund and their share ownership. Normally the registrar also distributes dividends and provides periodic statements to shareholders.
Trustee: A person or a group of persons having an overall supervisory authority over the fund managers.
Bid (or Redemption) Price: In newspaper listings, the pre-share price that a fund will pay its shareholders when they sell back shares of a fund, usually the same as the net asset value of the fund.
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Monday, 29 August 2011

Shares and Mutual Funds-4

Greetings to fellow blog readers......

Debentures: Companies raise substantial amount of longterm funds through the issue of debentures. The amount to be raised by way of loan from the public is divided into small units called debentures. Debenture may be defined as written instrument acknowledging a debt issued under the seal of company containing provisions regarding the payment of interest, repayment of principal sum, and charge on the assets of the company etc…

Large Cap / Big Cap:   Companies having a large market capitalization
For example, In US companies with market capitalization between $10 billion and $20 billion, and in the Indian context companies market capitalization of above Rs. 1000 crore are considered large caps.

Mid Cap: Companies having a mid sized market capitalization, for example, In US companies with market capitalization between $2 billion and $10 billion, and in the Indian context companies market capitalization between Rs. 500 crore to Rs. 1000 crore are considered mid caps.

Small Cap: Refers to stocks with a relatively small market capitalization, i.e. lessthan $2 billion in US or lessthan Rs.500 crore in India.

Holding Company: A holding company is one which controls one or more companies either by holding shares in that company or companies are having power to appoint the directors of those company
                                                   The company controlled by holding company is known as the Subsidary Company.
Consolidated Balance Sheet: It is the b/s of the holding company and its subsidiary company taken together.

Partnership act 1932: Partnership means an association between two or more persons who agree to carry the business and to share profits and losses arising from it. 20 members in ordinary trade and 10 in banking business

IPO: First time when a company announces its shares to the public is called as an IPO. (Intial Public Offer)
A Further public offering (FPO): It is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.
Rights Issue (RI): It is when a listed company which proposes to issue fresh securities to its shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue.
Preferential Issue: It is an issue of shares or of convertible securities by listed companies to a select group of persons under sec.81 of the Indian companies act, 1956 which is neither a rights issue nor a public issue.This is a faster way for a company to raise equity capital.

Index: An index shows how specified portfolios of share prices are moving in order to give an indication of market trends. It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upward or downwards.
Dematerialisation: It is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investor’s account with his depository participant.

Bull and Bear Market: Bull market is where the prices go up and Bear market where the prices come down.

Exchange Rate: It is a rate at which the currencies are bought and sold.

FOREX: The Foreign Exchange Market is the place where currencies are traded. The overall FOREX markets is the largest, most liquid market in the world with an average traded value that exceeds $ 1.9 trillion per day and includes all of the currencies in the world.It is open 24 hours a day, five days a week. 

Thursday, 25 August 2011

Shares and Mutual Funds-3

Greetings to fellow blog readers......

Prospectus: Inviting of the public for subscribing on shares or debentures of the company. It is issued by the public companies.
The amount must be subscribed with in 120 days from the date of prospects.

Simple Interest: It is the interest paid only on the principal amount borrowed. No interest is paid on the interest accured during the term of the loan.
Compound Interest: It means that, the interest will include interest caliculated on interest.
Time Value of Money: Money has time value. A rupee today is more valuable than a rupee a year hence. The relation between value of a rupee today and value of a rupee in future is known as “Time Value of Money”.
NAV: Net Asset Value of the fund is the cumulative market value of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units out standing. Buying and Selling into funds is done on the basis of NAV related prices. The NAV of a mutual fund are required to be published in news papers. The NAV of an open end scheme should be disclosed ona daily basis and the NAV of a closed end scheme should be disclosed atleast on a weekly basis.

Financial markets: The financial markets can broadly be divided into money and capital market.
ü    Money Market: Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, banker’s acceptance, certificates of deposits, etc.

ü    Capital Market: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

Primary Market: It provides the channel for sale of new securities. Primary Market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment and/or discharge some obligation.
                                          They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.
Secondary Market: It refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. Majority of the trading is done in the secondary market. It comprises of equity markets and the debt markets.

Difference between the primary market and the secondary market: In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

SEBI and its role: The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

Portfolio: A portfolio is a combination of investment assets mixed and matched for the purpose of investor’s goal.

Market Capitalisation: The market value of a quoted company, which is caliculated by multiplying its current share price (market price) by the number of shares in issue, is called as market capitalization.

Book Building Process: It is basically a process used in IPOs for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.

Cut off Price: In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called “Cut off price”. This is decided by the issuer and LM after considering the book and investors’ appetite for the stock. SEBI (DIP) guidelines permit only retail individual investors to have an option of applying at cut off price.
Bluechip Stock: Stock of a recognized, well established and financially sound company.

Penny Stock: Penny stocks are any stock that trades at very low prices, but subject to extremely high risk.

Monday, 8 August 2011

Shares and Mutual Funds-2

Greetings to fellow blog readers......

Authorized Capital: The amount of capital that a company can potentially issue, as per its memorandum, represents the authorized capital.

Issued Capital: The amount offered by the company to the investors.

Subscribed capital: The part of issued capital which has been subscribed to by the investors

Paid-up Capital: The actual amount paid up by the investors.
Typically the issued, subscribed, paid-up capitals are the same.

Par Value: The par value of an equity share is the value stated in the memorandum and written on the share scrip. The par value of equity share is generally Rs.10 or Rs.100.
Issued price:  It is the price at which the equity share is issued often, the issue price is higher than the Par Value

Book Value:   The book value of an equity share is
                                    = Paid – up equity Capital + Reserve and Surplus / No. Of outstanding shares equity

Market Value (M.V): The Market Value of an equity share is the price at which it is traded in the market.

Preference Capital: It represents a hybrid form of financing it par takes some characteristics of equity and some attributes of debentures. It resembles equity in the following ways
1.                    Preference dividend is payable only out of distributable profits.
2.                    Preference dividend is not an obligatory payment.
3.                    Preference dividend is not a tax –deductible payment.

Preference capital is similar to debentures in several ways.

1.                    The dividend rate of Preference Capital is fixed.
2.                    Preference Capital is redeemable in nature.
3.                    Preference Shareholders do not normally enjoy the right to vote.

Debenture:  For large publicly traded firms. These are viable alternative to term loans.  Skin to promissory note, debentures is instruments for raising long term debt. Debenture holders are creditors of company.

Stock Split: The dividing of a company’s existing stock into multiple stocks.  When the Par Value of share is reduced and the number of share is increased.

Calls-in-Arrears: It means that amount which is not yet been paid by share holders till the last day for the payment.

Calls-in-advance: When a shareholder pays with an instalment in respect of call yet to make the amount so received is known as calls-in-advance. Calls-in-advance can be accepted by a company when it is authorized by the articles.

Forfeiture of share: It means the cancellation or allotment of unpaid shareholders.
Forfeiture and reissue of shares allotted on pro – rata basis in case of over subscription.

Friday, 5 August 2011

Finance Glossaory-5

Greetings to fellow blog readers......

Warrants: Options generally have lives of upto one year. The majority of options traded on exchanges have maximum maturity of nine months. Longer dated options are called warrants and are generally traded over- the- counter.

American Depository Receipts (ADR): It is a dollar denominated negotiable instruments or certificate. It represents non-US companies publicly traded equity. It was devised into late 1920’s. To help American investors to invest in overseas securities and to assist non –US companies wishing to have their stock traded in the American markets. These are listed in American stock market or exchanges.

Global DepositoryReceipts (GDR): GDR’s are essentially those instruments which posseses the certain number of underline shares in the custodial domestic bank of the company i.e., GDR is a negotiable instrument in the form of depository receipt or certificate created by the overseas depository bank out side India and issued to non-resident investors against the issue of ordinary share or foreign currency convertible bonds of the issuing company. GDR’s are entitled to dividends and voting rights since the date of its issue.

Capital account and Current account: The capital account of international purchase or sale of assets. The assets include any form which wealth may be held. Money held as cash or in the form of bank deposits, shares, debentures, debt instruments, real estate, land, antiques, etc…
                                                 The current account records all income related flows. These flows could arise on account of trade in goods and services and transfer payment among countries. A net outflow after taking all entries in current account is a current account deficit. Govt. expenditure and tax revenues do not fall in the current account.
Dividend Yield: It gives the relationship between the current price of a stock and the dividend paid by its issuing company during the last 12 months. It is caliculated by aggregating past year’s dividend and dividing it by the current stock price.
 Historically, a higher dividend yield has been considered to be desirable among investors. A high dividend yield is considered to be evidence that a stock is under priced, where as a low dividend yield is considered evidence that a stock is over priced.
BridgeFinancing: It refers to loans taken by a company normally from commercial banks for a short period, pending disbursement of loans sanctioned by financial institutions. Generally, the rate of interest on bridge finance is higher as compared with term loans.