Advantages of the Depository System The advantages of dematerialization of securities are as follows: Share certificates, on dematerialization, are cancelled and the same will not be sent back to the investor. The shares, represented by dematerialized share certificates are fungible and, therefore, certificate numbers and distinctive numbers are cancelled and become non-operative. It enables processing of share trading and transfers electronically without involving share certificates and transfer deeds, thus eliminating the paper work involved in scrip-based trading and share transfer system. Transfer of dematerialized securities is immediate and unlike in the case of physical transfer where the change of ownership has to be informed to the company in order to be registered as such, in case of transfer in dematerialized form, beneficial ownership will be transferred as soon as the shares are transferred from one account to another. The investor is also relieved of problems like bad delivery, fake certificates, Continue reading
Investment Management
Depositories in India
At present there are two depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (CDS). NSDL is the first Indian depository, it was inaugurated in November 1996. NSDL was set up with an initial capital of US$28mn, promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI) and National Stock Exchange of India Ltd. (NSE). Later, State Bank of India (SBI) also became a shareholder. The other depository is Central Depository Services (CDS). It is still in the process of linking with the stock exchanges. It has registered around 20 DPs and has signed up with 40 companies. It had received a certificate of commencement of business from Sebi on February 8, 1999. These depositories have appointed different Depository Participants (DP) for them. An investor can open an account with any of the depositories’ DP. But transfers arising out of trades on the stock Continue reading
Types of Mutual Fund Schemes: By 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: 1. Growth / Equity Oriented Schemes 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. Equity funds As explained earlier, such Continue reading
Issue of a share at par and at a premium
In general, an ordinary share in India is said to have a par value (face value) of Rs.10, though some shares issued earlier still carry a par value of Rs.100. Par value implies the value at which a share is originally recorded in the balance sheet as equity capital. Equity capital is the same as ordinary share capital. The SEBI guidelines for public issues by new companies established by individual promoters and entrepreneurs, require all new companies to offer their shares to the public at par, i.e. at Rs.10. However, a new company set up by existing companies (and of course existing companies themselves) with a track record of at least five years of consistent profitability are allowed by the SEBI guidelines to issue shares at a premium. It should be noted that when a company issues shares at a premium, it is able to raise the required Continue reading
International Diversification of Investments
In recent years international business activity has been characterized by a dramatic increase in cross-border financial activity. International flows of financial securities have outstripped gains from goods and services trade and, consequently, investment opportunities were no longer constrained by domestic markets. These significant changes gave impetus to the popularity of direct or portfolio investments in foreign countries. Foreign portfolio investment (FPI) is short- or long-term investing activity in corporate stocks and bonds, mutual and hedge funds, government bonds, pension and sovereign funds, various financial derivatives, certificates of deposit, real estate investment trusts, etc. Foreign portfolio investment is relatively liquid, mostly depending on the riskiness of the market where securities and other financial assets are held in. Moreover, FPI is the best choice for investors who are not willing to manage direct ownership rights of a foreign company. The benefits of diversification are well perceived by portfolio managers, that many in Continue reading
Different Types of Stock Beta
Beta coefficient is a comparative measure of how the stock performs relative to the market as a whole. It is determined by plotting the stock’s and market’s returns at discrete intervals over a period of time and fitting (regressing) a line through the resulting data points. The slope of that line is the levered equity beta. When the slope of the line is 1.00, the returns of the stock are no more or less volatile than returns on the market. When the slope exceeds 1.00, the stock’s returns are more volatile than the market’s returns. The beta coefficient is a key component for the Capital Asset Pricing Model (CAPM), which describes the relationship between risk and expected return and that is used in the pricing of risky securities. The important types of stock beta used in financial analysis are historical beta, adjusted beta and fundamental beta. An historical betas are Continue reading