Introduction to Stocks and Mutual Funds
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Transcript of Introduction to Stocks and Mutual Funds
Investments
Stocks & Mutual Funds
What is a stock?
Share of ownership in a company It is also a security by the definition of
“Securities” according to the Securities Act 1956.
What is a stock exchange?
A stock exchange is an organization that provides a marketplace for either physical or virtual trading shares, bonds and warrants and other financial products where investors (represented by stock brokers) may buy and sell shares of a wide range of companies.
Stock Exchanges in India
NSE BSE
Stock Exchanges in the US?
NSE-National Stock Exchange
More than 2000 listed stocks from different sectors.
Index : Nifty-comprises of 50 scripts from different sectors.
BSE:Bombay Stock Exchange
India’s oldest stock exchange. More than 4000 listed companies from
different sectors. Index:Sensex – 30 scripts from different
sectors.
Basic activities in stock market
Buying Selling
Either buy and then sell or Sell and then buy(????????????)
What governs stock prices??
Like for all other commodities and resources, stock prices are determined by demand and supply.
When does value of a commodity Increase? Decrease?
Study of price fluctuations
Factors which govern the demand and supply of shares are studied through two ways of analysis:
Fundamental analysis Technical analysis
Two ways of making money
Dividends– Buy and keep shares– When company makes profit , divided among
shareholders
Active Trading– Not interested in ownership– Buy and sell /sell and buy
What is an Index?
Collection of stocks of important companies which is a measure of how the stock market is performing.
NSE:Nifty BSE:Sensex US:DJIA,S&P 500,NASDAQ composite
Fundamental analysis
EPS PE ratio P/B ratio
If the PE ratio of a company is less , is the stock undervalued or overvalued? Would you buy or sell the stock?
Technical analysis
Support levels Resistance levels
Question: If support level for NIFTY on a given day is
4000 and resistance is 4400 , when would you buy to sell and sell to buy for profit??
Interesting trivia(questions really!!)
Who is known as the Oracle of Omaha and what is the name of the conglomerate holding company of which he is the chairman and CEO? (clue: 2nd richest man in the world)
Who is the author of THE INTELLIGENT INVESTOR , considered the first proponent of Value Investing?
Biggest difficulty in Stock Investing
Requires a lot of study and analysis by the individual investor in order to secure his capital and make profit
What if the investor does not have the time and aptitude to study the stock market??
The solution is………
Mutual Funds!!!!!!!!!
Funds collected from investors are pooled together by AMCs which allocate units to investors.
AMCs use the pooled funds to trade in the stock market and divide the profits earned among the mutual fund investors in proportion to the units held by investors.
Advantage of Mutual Funds
AMCs employ Fund Managers to manage your invested funds
Expertise and skill of the fund manager makes a big difference because it is his job to manage funds unlike the retail investor who has his own job to contend with..
Mutual fund most suitable for the common man..
Flowchart of mutual fund
Types of mutual funds
Based on structure– Open ended schemes– Close ended schemes
Based on investment objective– Growth schemes– Income schemes– Balanced schemes
Two ways of investing in MFs
Either as a one time outright investment or Periodic investment (SIP)
SIP
Benefits– Power of compounding– Rupee cost averaging– convenience
Important terms related to MFs
NAV– market value of the assets of the scheme minus
its liabilities.
Load– Fee charged by AMC when an investor purchases
or redeems units.
Regulatory bodies
SEBI– Responsible for regulating stock market in India.
AMFI– Trade association of MFs.
Questions again…
DSP Merill Lynch was recently acquired by which AMC?
What is a ULIP? Which of the following schemes is more likely
to have an exit load?– Open ended schemes– Close ended schemes