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1. Financial Market Know how
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2. This session will help you understand
The component and Structure of financial market.
The working of the equity as an asset class.
The working of the Fixed Income Securities.
The working of mutual fund products.
Economic Environment and indicators.
How to recommend a investment portfolio.
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3. Financial Markets
3
Organizations that facilitate the trade in financial products. i.e.
Stock exchanges facilitate the trade in stocks, bonds and
warrants
4. Types of financial markets
The financial markets can be divided into different
categories:
Capital Market
Stock markets, which provide financing through the issuance of
shares and enable the subsequent trading.
Bond markets, which provide financing through the issuance of
Bonds, and enable the subsequent trading.
Money markets, which provide short term debt financing and
investment.
Derivatives markets, which provide instruments for the management
of financial risk.
Foreign exchange markets, which facilitate the trading of foreign
exchange.
Commodity markets, which facilitate the trading of
commodities.
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5. Capital Market
The capital market is the market for securities, where companies
and governments can raise long-term funds.
The capital market includes the stock market and the bond
market.
Financial regulators oversee the capital markets to ensure that
investors are protected against fraud.
The capital markets consist of primary markets and secondary
markets.
Primary markets: Newly formed (issued) securities are bought or
sold.
Secondary markets allow investors to sell securities that they hold
or buy existing securities.
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6. Primary Market
It deals with the issuance of new securities. Companies,
governments or public sector institutions can obtain funding
through the sale of a new stock or bond issue.
In the case of a new stock issue, this sale is an initial public
offering (IPO).
Features Of Primary Market are:
Market for new long term capital.
Securities are sold for the first time.
Issued by the company directly to investors
Methods of issuing securities in the Primary Market
Initial Public Offer;
Rights Issue (For existing Companies); and
Preferential Issue.
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7. Secondary Market
It is the market for trading of securities that have already been
issued in an initial offering
Once a newly issued stock is listed on a stock exchange, investors
and speculators can easily trade on the exchange
A stock exchange is an organization which provides facilities for
stock brokers and traders, to trade company stocks and other
securities.
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8. 8
Equity
9. Understanding Equity
Equity is the form of shares of common stock. As a unit of
ownership, common stock typically carries voting rights that can be
exercised in company decisions
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10. Ordinary shares - Equities
Part Owners of Company
Voting
receive annual report and accounts
entitlement to residual assets in case of winding up
No Actual Ownership of Company Assets
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11. Preference shares
Fixed Dividend
Priority for dividend
Priority on liquidation of company
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12. Terminology
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13. EPS: Earning per Share
Earning per share: PAT/ No of equity share
PAT: Profit after tax of the company
It denote the how much the company has earned on per share.
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14. P/E Ratio
Market price / number of shares outstanding
P/E could be either trailing or forward, depending on the type of
earnings used in the denominator.
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15. Dividend Yield
Dividend is declared on the face value of the share.
The market price and face value of the share differs
Divided yield: Dividend/ price
In case of a dividend paying company, there is a cut off day till
the cut off day the price is CUM-dividend and after that
EX-dividend.
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High D/Y paying
Company
Low D/Y paying
Company
16. Market capitalization
It gives the idea as how big the company.
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Price x No. of share
Where,
Price: Market price
No of share: No of fully diluted share
Large Cap
Small Cap
17. Index
A broad-base index represents the performance of a whole stock
market and by proxy, reflects investor sentiment on the state of
the economy.
Meaning represents the value of a set of stocks; relative in
value
Importance
Barometer for market behavior
Benchmark portfolio performance
Underlying in derivative instruments like index futures
Passive fund management (index funds)
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18. Index: Sensex
Short form of the BSE-Sensitive Index
Is a "Market Capitalization-Weighted" index of 30 stocks
representing a sample of large, well-established and financially
sound companies.
Base period of SENSEX is 1978-79. Actual total market value of the
stocks in the Index during the base period is equal to an indexed
value of 100.
Calculation:
Divide the total market capitalization of 30 companies in the Index
by the Index Divisor. The Divisor is the only link to the original
base period value of the SENSEX.
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19. Types of equity research
Fundamental analysis Future earnings and risk profile considered (
whether to buy or not)
Technical analysis Study of historic data on the companys share
price movements and volume (To find timing)
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20. Valuations
Valuation - process of determining the fair value of a financial
asset.
Also referred to as valuing or pricing.
The fundamental principle of valuation - value is equal to present
value of expected cash flows.
Valuations of financial assets involve the following three
steps:
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Step 1: Estimate the expected cash flows
Step 2: Determine the appropriate interest rate that should be used
to discount the cash flows.
Step 3: Calculate the present value of expected cash flows found in
Step 1, using the interest rate or interest rate determined in Step
2.
21. Equity Valuation
The valuation of equity share is more difficult.
The difficulties arise because of two factors first the rate of
dividend on equity share is not known also the payment of equity
dividend is discretionary.
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22. Valuation Process
There are two general approaches to the valuation process
Top- Down (three step) Approach
Bottom Up/ Stock Picking Approach
Three step approach believe that the economy/ market and the
industry effect have a significant impact on the total returns for
the individual stock.
The stock picking contend that it is possible to find stocks that
are undervalued relative to their market price and these will
provide superior returns regardless of the market and industry
outlook.
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23. The Bulls
Abull market is when everything in the economy is great, people are
finding jobs,gross domestic product (GDP) is growing, and stocks
are rising.
Picking stocks during a bull market is easier because everything is
going up.
Bull markets cannot last forever though, and sometimes they can
lead to dangerous situations if stocks become overvalued.
If a person is optimistic andbelieves that stocks will go up, he or
she is called a "bull" and is said to have a "bullish
outlook".
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24. The Bears
Abear market is when the economy is bad, recession is looming and
stock prices are falling.
Bear markets make it tough for investors to pick profitable
stocks.
One solution to this is to make money when stocks are falling using
a technique called short selling.
Another strategy is to wait on the sidelines until you feel that
the bear market is nearing its end, only starting to buy in
anticipation of a bull market.
If a person is pessimistic, believing that stocks are going to
drop, he or she is called a "bear" and said to have a "bearish
outlook".
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25. Risk consideration
Investment Risk: It is the total risk of the investment in stock
which is measured by Standard deviation. It can be separated into
systematic risk (non diversifiable risk) Plus Unsystematic Risk
(Diversifiable Risk)
A) Systematic Risk: It includes risks that affect the entire market
e.g. market risk, interest rate risk. Systematic risk cannot be
eliminated through diversification because it affects the entire
market. Beta is a measure by which systematic risk is
determined.
B) Unsystematic risk: It is unique to a single business or
industry, such as operations and methods of financing. Unlike
systematic risk, unsystematic risk can be eliminated through
diversification.
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26. Beta
Beta is a measure of the systematic risk of a security that cannot
be avoided through diversification.
Beta is a relative measure of risk-the risk of an individual stock
relative to the market portfolio of all stocks.
If the stock has a beta of 1, the implication is that the stock
moves exactly with the market.
A beta of 1.2 is 20 percent riskier than the market and 0.8 is 20
percent less risky than the market.
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27. Return Computation
Total return or Holding period return:The period during which the
investment is held by the investor is known as holding period and
the return generated on that investment is called as holding period
return during that period.
Compounded Annual Growth Rate (CAGR):The year-over-year growth rate
of an investment over a specified period of time.
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28. CAGR Computation
Suppose you invested Rs. 10,000 in a portfolio on Jan 1, 2005.
Let's say by Jan 1, 2006, your portfoliohad grownto Rs. 13,000,
then Rs. 14,000 by 2007, and finally ended up at Rs. 19,500 by
2008. Your CAGR would be the ratio of your ending value to
beginning value (Rs. 19,500 / Rs. 10,000 = 1.95) raised to the
power of 1/3 (since 1/#of years= 1/3), then subtracting1 from the
resulting number:1.95 raised to 1/3 power = 1.2493. (This could be
written as 1.95^0.3333).1.2493- 1 = 0.2493
Another way of writing 0.2493is 24.93%. Thus, your CAGR for your
three-year investment is equal to 24.93%, representing the smoothed
annualized gain you earned over your investment time horizon.
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29. Risk Adjusted Return
A higher return by itself is not necessarily indicative of superior
performance.
Alternately, a lower return is not indicative of inferior
performance.
There are composite equity portfolio measures that combine risk and
return to give quantifiable risk-adjusted numbers.
The most important and widely used measures of performance
are:
The Sharpe Measure
The Treynor Measure
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30. The Treynor Measure
Relative measure of the risk adjusted performance of a portfolio
based on the market risk (i.e. the systematic risk).
Treynor Index (Ti) = (Ri - Rf)/Bi.
Where, Rp represents return on portfolio, Rf is risk free rate of
return and Bi is beta of the portfolio.
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31. The Sharpe Measure
Relative measure of risk adjusted performance of a portfolio based
on total risk (systematic risk + nonsystematic risk).
Standard deviation is used as the measure for the total risk. In
comparing, bigger is better
Sharpe Index (SI) = (Rp - Rf)/SD
Where, SD is standard deviation of the fund, Rp is the portfolio
rate of return and Rf is the risk free rate of return.
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32. 32
Long Term Investors Get Rewarded
33. 33
Fixed Income Securities
34. Introduction to Bonds
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A financial obligation to pay a specified sum of money at specified
future date- Fixed Income Investment
35. Basic Features
Term to Maturity: The number of years the debt is
outstanding.
Par Value: The agreed repayment amount to the bondholder at or by
maturity date.
Coupon Rate (Nominal Rate): The interest rate that the issuer
agrees to pay each year.
Zero Coupon Bond: Bonds that are not contracted to make periodic
coupon payment.
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36. Floating Rate Securities
Coupon rate need not be fixed over the bonds life.
Floating rate securities - coupon payments reset periodically
according to some reference rate.
Calculated as
Coupon rate = reference rate x Quoted margin
Quoted margin: additional amount that the issuer agrees to pay
above the reference rate.
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Coupon rate = 1 month MIBOR +Quoted Basis point
37. Classification of Bonds
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38. Risk associated with Fixed Income Securities
Interest rate risk: Inverse Relationship between Interest or Yield
and bond price.
Following relationship will hold:
Price of a bond = par if coupon rate = yield.
Price of a bond can be < par (sell at discount) or > par
(sell at a premium) if the coupon rate is different from
yield.
Maturity Effect: All other factors constant, the longer maturity,
greater the price sensitivity to interest rates changes.
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39. Risk associated with Fixed Income Securities
Reinvestment risk: Risk of reinvestment of interest income or
principal repayments at lower rates in a declining rate
environment.
Credit risk: An investor who lends funds by purchasing a bond issue
is exposed to credit risk.
There are two types of credit risk:
Default Risk: Risk that the issuer will not meet the obligation of
timely payment of interest & principle.
Downgrade Risk: Risk that one or more of the rating agencies will
reduce the credit rating of an issue or issuer.
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40. What is a credit rating ?
Rating organizations evaluate credit worthiness of an issuer
.
Evaluation on ability to pay back debt.
The rating is an alphanumeric code representing
creditworthiness.
The highest credit rating - AAA & lowest - D (for
default).
Short-term instruments* rating symbol - "P" (varies depending on
the rating agency).
In India, we have 4 rating agencies:
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ICRA
CRISIL
CARE
Fitch
*of less than one year
41. Credit Rating
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An important tool used to gauge the default risk of an issue -
credit ratings by rating companies.
42. Risk associated with Fixed Income Securities
Inflation Risk/Purchasing power risk: Risk of decline in the real
value of the security due to inflation.
Liquidity Risk: Liquidity risk is the risk that the investor will
have to sell a bond below its expected value.
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43. Relationship between parameters
The relationship between coupon rate, yield, price and par value
are as follows:
Coupon rate = Yield required by market, therefore price = par
value
Coupon rate < Yield required by market, therefore price < par
value (discount)
Coupon rate > Yield required by market, therefore price > par
value (premium)
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44. Yield Measures
Investor should value bonds in terms of Yields and in not rupee
terms.
For fixed income instruments, returns can be from :
Coupon interest payment
Capital gain on sale or maturity
Reinvestment of interim cash flow.
Current Yield: relates coupon interest to bonds market price.
Same as dividend yield to stocks.
Computed as follows
Current yield= Annual coupon / market price
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45. Yield to Maturity
The Yield to maturity is interest rate that will make the present
value of the cash flow equal to price plus accrued interest. It is
also known as IRR of bond.
It takes in to account all three sources of return.
The most widely used bond yield figure as it indicates the fully
compounded rate of return promised to an investor who buys the bond
at prevailing prices, if two assumptions hold true.
The first assumption is that the investor holds the bond to
maturity.
Investors reinvest all the interim cash flows at the computed YTM
rate.
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46. Debt Markets
Capital Markets comprise of :
Equities Market &
Debt Markets.
The Debt Market - where fixed income securities of various types
and features are issued and traded.
Fixed income securities can be issued by:
Central and State Governments,
Public Bodies,
Statutory corporations and corporate bodies.
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47. Indian Debt Markets
Indian Debt Markets - one of the largest in Asia today.
Government Securities (G-Secs) market - the oldest & largest
component of Indian Debt Market in terms of capitalization,
outstanding securities & trading volumes.
G-Secs- Benchmark for determining level of interest rates in the
country are the yields on government securities , referred to as
the risk-free rate of return.
The Indian Debt Market structure was a wholesale market with
participation largely restricted to the Banks, Institutions and the
Primary Dealers.
The Retail Debt Market in India has been created recently.
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48. Segments in the secondary debt market
The segments in the secondary debt market based on the
characteristics of the investors and the structure of the market
are:
Wholesale Debt Market - investors are mostly Banks, Financial
Institutions, the RBI, Primary Dealers, Insurance companies, MFs,
Corporates and FIIs.
Retail Debt Market involving participation by individual investors,
provident funds, pension funds, private trusts, NBFCs and other
legal entities in addition to the wholesale investor classes
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49. Money Market Instruments
Money markets - markets for debt instruments with maturity up to
one year.
Money markets allow banks to manage their liquidity as well as
provide central bank a means to implement monetary policy.
The most active part of the money market - call money market (i.e.
market for overnight and term money between banks and institutions)
and the market for repo transactions.
The former is in the form of loans and the latter are sale and
buyback agreements - both are obviously not traded.
The main traded instruments are Commercial Papers (CPs),
Certificates of Deposit (CDs) and Treasury Bills (T-Bills).
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50. Commercial Paper
A Commercial Paper is a short term unsecured promissory note issued
by the raiser of debt to the investor.
In India; corporate & Financial Institutions (FIs) can issue
these notes.
Generally companies with very good ratings are active in the CP
market, though RBI permits a minimum credit rating of
Crisil-P2.
Tenure of CPs - anything between 15 days to one year, the most
popular duration being 90 days.
Companies use CPs to save interest costs.
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51. Certificates of Deposit
Issued by banks in denominations of Rs.5 lakhs & have maturity
ranging from 30 days to 3 years.
Banks are allowed to issue CDs with a maturity of less than one
year
Financial institutions are allowed to issue CDs with a maturity of
at least one year.
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52. Treasury Bills (T-Bills)
T- Bills: instruments issued by RBI at a discount to face
value
Form an integral part of the money market.
In India treasury bills are issued in four different maturities14
days, 90 days, 182 days and 364 days.
Apart from these, certain other short-term instruments are also
popular with investors.
These include short-term corporate debentures, bills of exchange
and promissory notes.
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53. 53
Mutual Fund
54. Introduction
It is a pool of money, collected from investors, and is invested
according to certain investment objectives
The ownership of the fund is thus joint or mutual, the fund belongs
to all investors.
A mutual funds business is to invest the funds thus collected,
according to the wishes of the investors who created the pool
e.g. money market mutual fund seeks investors to invest
predominantly in Money Market Instruments
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55. Important characteristics
The ownership is in the hands of the investors who have pooled in
their funds.
It is managed by a team of investment professionals and other
service providers.
The pool of funds is invested in a portfolio of marketable
investments.
The investors share is denominated by units whose value is called
as Net Asset Value (NAV) which changes everyday.
The investment portfolio is created according to the stated
investment objectives of the fund.
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56. Advantages & Disadvantages
Advantage:
Portfolio diversification
Professional Management
Reduction in Risk
Reduction in Transaction costs
Liquidity
Convenience and Flexibility
Safety Well regulated by SEBI
Disadvantage:
No control over the costs. Regulators limit the expenses of Mutual
Funds. Fees are paid as percentage of the value of
investment.
No tailor made portfolios.
Managing a portfolio of funds. (Investor has to hold a portfolio
for funds for different objectives)
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57. Type of mutual Fund: By Structure
57
Open Ended Fund:
Investors can buy and sell units of the fund, at NAV related
prices, at any time, directly from the fund.
Open ended scheme are offered for sale at a pre- specified price,
say Rs. 10, in the initial offer period. After a pre-specified
period say 30 days, the fund is declared open for further sales and
repurchases
Investors receive account statements of their holdings,
The number of outstanding units goes up and down
The unit capital is not fixed but variable.
58. Type of mutual Fund: By Structure
Closed Ended fund:
A closed -end fund is open for sale to investors for a specified
period, after which further sales are closed.
Any further transactions happen in the secondary market where
closed-end funds are listed.
The price at which the units are sold or redeemed depends on the
market prices, which are fundamentally linked to the NAV.
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59. Types of Funds - By Investment Objective
59
Equity
Debt
Money Market
Equity Funds
Index Funds
Sector Funds
Fixed Income
Funds
GILT Funds
Money Market
Mutual Funds
Balanced Funds
60. Gilt Funds
Invests only in securities that are issued by the Government and
therefore do not carry any credit risk.
Government papers are called as dated securities also.
It invests in both long-term and short-term paper.
Ideal for institutional investors who have to invest in Govt.
Securities.
Enables retail Participation
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61. ELSS (Equity Linked Saving Scheme)
3 year lock in period
Minimum investment of 90% in equity markets at all times
So ELSS investment automatically leads to investment in equity
shares.
Open or closed ended.
Eligible under Section 80 C
Dividends are tax free.
Benefit of Long term Capital gain taxation.
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62. Fixed Term Plan Series
FTPs are closed ended in nature.
AMC issues a fixed number of units for each series only once and
closes the issue after an initial offering period.
Fixed Term plan are usually for shorter term less than a
year.
They are not listed on a stock exchange.
FTP series are likely to be an Income scheme.
Good alternate of Bank deposits/ corporate deposits.
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63. Money Market Mutual Fund
Money funds provide investors with current income and are managed
to maintain a stable share price.
Because of their stability, money funds are often used for cash
reserves or money that might be needed right away.
Money funds typically invest in short-term, high-quality,
fixed-income securities, such as T-Bills, CDs and CPs
Income from money funds is generally determined by short-term
interest rates.
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64. 64
AMC
Savings
Investments
Trust
Units
Unit holders
Returns
Registrar
Trust
SEBI
AMC
Custodian
How does a Mutual Fund work?
65. Loads
Load is charged to investor when the investor buys or redeems
units. It is primarily used to meet the expenses related to sale
and distribution of units
Load charged on sale of units is entry load. It increases the price
above the NAV for new investor.
Load charged on redemption is exit load. It reduces price.
Maximum Entry load or Exit load is 7%.( For Open ended Funds)
Max. Entry or Exit load for closed ended funds is 5%
CDSC is an exit load that varies with holding period.
Load is an amount which is recovered from the investor.
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66. Net Assets Value
The net assets represent the market value of assets which belong to
the investors, on a given date.
Net assets are calculated as:
Market value of investments
Plus(+) current assets and other assets
Plus(+) accrued income
Less(-) current liabilities and other liabilities
Less(-) accrued expenses
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67. NAV Computation
Unit capital of a MF scheme is Rs.20 million. The market value of
investments is Rs. 55 million. The number of units is 1 million.
The NAV is
Rs. 20
Rs. 75
Rs.55
Not possible to say
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68. Fund Management
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69. Active fund management
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What are the basic active equity fund management style?
Fund manager tends to look at specific attributes in selecting
stocks.
Active fund manager believes, that his ability to buy right stock
at the right time, can translate into superior performance for his
portfolio.
Growth Investment style Objective is capital appreciation, look for
companies that are expected to give above average earnings growth,
The shares are more risky and thus expected to offer higher returns
over a long investment horizons. Relatively higher P/E ratio and
have lower dividend yield
Value Investment Style Look for companies that are currently
undervalued but whose worth will be recognized
eventually.
70. Passive fund management
Fund manager believes, that holding a well diversified portfolio is
the cost efficient way ,to better returns, he would tend to mimic
the market index.
It requires limited research and monitoring costs and is therefore
cheaper.
Fund manager may choose to mimic a index, or a subset of the index
or choose a basket of shares from multiple indices.
A passive fund manager has to rebalance his portfolio every time
changes are made in the index.
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71. Performance Measurement
Returns comes form dividend or capital gains.
Rate of Return =(Income Earned/Amount invested)x100
Simple total return=
{NAV(end) NAV ( begin)}+ Dividend paid x100NAV at beginning
Rule of 72 is a thumb rule used in finding doubling period. If Rate
= 12%, then money will double in 72/12 = 6 years.
CAGR
While comparing funds performance with peer group funds, size and
composition of the portfolios should be comparable.
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72. Investment Plans
Broadly 2 options- Growth option and Dividend Option
Automatic Reinvestment Plans Benefit of Power of Compounding.
Systematic Investment Plans For regular investment
Systematic Withdrawal Plan For regular income ( it is not similar
to MIP)
Systematic Transfer Plan
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73. Wealth cycle for investors
73
74. Financial Planning Strategies
Power of Compounding
Buy and hold
Rupee cost averaging:
A fixed amount is invested at regular intervals
More units are bought when prices are low and fewer units are
bought when prices are high. Over a period of time, the average
purchase price of investor is lower than average NAV.
Its disadvantage : Does not indicate when to sell or switch.
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75. 75
Economic Environment and Indicators
76. Importance of Economic and Business Environment
Significant implications on the investment recommendation.
Recommendations depend on a number of assumptions about the future
performance of the economy.
Financial advisors should always keep a track of economic
environment to make reasonable assumptions.
A thorough understanding of economic environment helps in reviewing
the existing financial situation.
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77. Gross Domestic Product
There are three ways to derive GDP:
The sum of all expenditures,
The sum of all incomes, and
The sum of all value added by business
77
78. ECONOMIC FACTORS: GNP & GDP
78
Gross National
Product (GNP)
This is the value of output of goods and services
produced by Indian companies, regardless of whether
the production is inside or outside the India
The value of output of goods and services produced
in the country, regardless of whether businesses are
owned and operated by Indians or foreigners.
Gross Domestic
Product (GDP)
-
+
profits on Indian owned businesses outside India
=
profits on foreign owned businesses
Gross National
Product (GNP)
Gross Domestic
Product (GDP)
79. GDP
GDP is the measure of total value of final goods and services
produced in the domestic economy each year. The following is often
used
79
GDP=
C + I + G +
(X- M)
C = personal consumption spending on goods and services
I = Private sector fixed capital expenditure
G = Government expenditure
(X-M)= Net of export receipts (X) and import payments (M)
The relationship highlights actual rupee expenditure for goods and
services produced in the economy for measuring GDP.
This equation includes all key players involved in the economy
consumers / households, business (private sector) and
government.
For living standards to rise in India, GDP must grow at a faster
rate than the population. This way, there is greater quantity of
goods and services per person.
80. Example
The following information is available for an economy.
Consumption (C) = Rs 3000
Private Investment (I) = Rs 500
Government Expenditure (G) = Rs 2000
Exports (E) = Rs 1000
Imports = Rs 1500
Calculate the GDP for the economy?
Answer:
GDP= 3000 + 500 + 2000 + (1000-1500)
= 5500 500
= 5000
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81. Inflation
A situation of rising prices. Inflation refers to a persistent rise
in prices. Simply put, it is a situation of too much money and too
few goods.
The most popular measure of inflation in India is change in the
Whole Price Index (WPI) over a period of time.
The WPI is an index measure of the wholesale prices of a selected
basket of goods and services in the economy. The WPI is expressed
as a percentage with reference to some base year, according to a
formula
WPI= (aggregate price for current year/aggregate price for the base
year)* 100
An alternative measure is consumer price Index, which is concerned
with the consumer market for goods and services.
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82. Monetary Policy
Monetary policy is the process by which the central bank of a
country controls the supply of money, cost of money or rate of
interest.
The Reserve Bank of India (RBI) controls and influences the economy
by means of monetary and credit policy.
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83. Some Monetary Policy terms
Bank Rate
Bank rate is the minimum rate at which the central bank provides
loans to the commercial banks. It is also called the discount
rate.
Usually, an increase in bank rate results in commercial banks
increasing their lending rates. Changes in bank rate affect credit
creation by banks through altering the cost of credit.
Bank Rate is at 6.0 per cent.
Cash Reserve Ratio
All commercial banks are required to keep a certain amount of its
deposits in cash with RBI. This percentage is called the cash
reserve ratio.
It is cash as a percentage of demand and time liabilities that bank
maimtain with RBI
Cash reserve ratio (CRR) of scheduled banks increased to 8.25 per
cent with effect from the fortnight beginning May 24, 2008.
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84. Some Monetary Policy terms
Open Market Operations
An important instrument of credit control, the Reserve Bank of
India purchases and sells securities in open market
operations.
In times of inflation, RBI sells securities to mop up the excess
money in the market. Similarly, to increase the supply of money,
RBI purchases securities.
Statutory Liquidity Ratio
Banks in India are required to maintain 25 per cent of their
deposits in government securities and certain approved
securities.
These are collectively known as SLR securities.
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85. RakeshChandrayan
THANK YOU
By
RakeshChandrayan
PGDF Batch-(2008-09)
SCMHRD