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Investment FAQs

Investment FAQs

  • Who are the investors in the Equity Markets?

    Primarily there are 3 types of Investors in Equity market:

    • Retail Investors
    • Institutional Investors (DII's and FII's)
    • High net worth individuals (HNI's)
  • Who regulates the Indian stock market?

    The Indian stock market is regulated as per the guidelines laid down by the Securities and Exchange Board of India (SEBI).

  • What is stock market index? What are the different types of indices where stocks are traded in India?

    A stock market index is a group of company stocks (also known as company shares) selected to represent a particular market or sector, and is used as a benchmark. It represents the overall performance of the stock market on a daily basis. The two major indices in India which are widely followed:

    • S&P BSE Sensex – made of 30 stocks.
    • NSE CNX Nifty – made of 50 stocks.
  • What is the past performance of the Indian equity market?

    The performance of Sensex is one of the best across major global indices in developing and developed countries. As on June 30, 2014, it has given CAGR returns of:

    • 18% - during last 10 years and
    • 17% - during last 30 years
  • What are the instruments traded in the stock markets?

    There are various types of instruments in the stock market. Few of them are:

    • Shares
    • Futures
    • Options
  • What are modes of investing in market?

    You may invest through many modes in the stock market. The various channels available are:

    1. Direct Trading – You can open a demat account and trade directly on the exchange.
    2. ULIP Funds – You can invest in insurance plans which provide integrated investment schemes along with life cover.
    3. Mutual Funds – You can purchase schemes that invest a pool of funds in equity markets, on your behalf.
    4. Portfolio Management Schemes – You can get your investment portfolio managed by professionals.
  • What kind of returns can be earned from the equity market?

    Two types of returns can be earned from investing in equity markets:

    • Dividend Returns: Dividends are distributed to the equity shareholders of a company. Dividend declaration depends on the profits earned by the company and the decision of its management.
    • Capital Gain Returns: An investor can sell his/her shares on the exchange. Capital gains accrue if the sale is profitable. In short, capital gain is the difference between the Market Price and Purchase Price of the share.
  • What determines a stock’s price (also known as Market Price)?

    The market price of a stock is dependent on

    Macro Factors (these may have an immediate or long term affect on the company or industry)

    • Domestic and Global Economic Scenarios
    • Monetary Policy
    • Inflation
    • GDP (Gross Domestic Product) Growth Rate
    • Political Scenario

    Micro Factors (these show the company's present and future outlook)

    • Financial Performance of The Company
    • Capex/ Growth Plans
    • Earnings
    • Valuations

    Apart from this, stock's price also depends on its demand and supply.

  • What is a Bull market and Bear market?

    In a bull market, prices are rising or expected to rise. They are characterized by optimism, investor confidence and expectations that strong results will continue (price pattern known as 'Higher Highs and Higher Lows').

    In a bear market, prices are falling and widespread pessimism causes the negative sentiment to be self-sustaining (price pattern known as 'Lower Highs and Lower Lows').

  • What is Fundamental Analysis?

    Fundamental  Analysis

    Fundamental analysis of a company involves understanding:

    • The nature of the company
    • The health of its business
    • Its future prospects

    Such an analysis provides knowledge about the company's comparative advantages, competitors and its market environment.

  • What is an Initial Public Offering (IPO)?

    A company or a promoter may decide to raise capital. It may do so either by borrowing an amount or by issuing shares to the general public. Such issuance of stocks to general public for the first time is called an Initial Public Offering. This is also referred to as - issuance of shares in primary market. SEBI has strict guidelines on IPO. The company can further issue stocks in the future, which is called a Follow on Public Offering (FPO).

  • What is Technical Analysis?

    Technical Analysis is a method for forecasting the trend of prices through the study of past market data, primarily price and volume. It is based on these fundamental assumptions:

    • Market action discounts every information on the stock
    • Movement of stock prices follow a trend
    • History of prices tends to repeat itself
  • What is a dividend?

    Dividend is the amount that a company distributes to its shareholders, when it has surplus profit. Shareholders are the owners of the company and hence deserve a share in its profits.

    Note: Distribution of dividend is at the sole discretion of the company management.

  • What are the parameters of valuation?

    Few of the valuation parameters used to determine a stock price are:

    • Price/Earnings ratio
    • Price/Book ratio
    • Enterprise Value/EBITDA ratio

    Price to Earnings ratio (P/E ratio) is the most widely used parameter. It is often used as an indicator of whether a stock is overpriced, underpriced, or at par.

    P = Stock or Share Price
    E = Earnings (the profits of a company) per Share

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