### Chapter 1: Investment Basics
#### Definitions
1. Investment: Using savings to earn returns in the future.
2. Inflation: The rate at which the cost of living increases, reducing money's purchasing power.
#### Why Should One Invest?
- Earn returns on idle resources.
- Achieve specific financial goals.
- Safeguard against an uncertain future.
- Beat inflation by earning a return above the inflation rate.
#### Golden Rules of Investment
1. Invest early.
2. Invest regularly.
3. Invest long-term rather than short-term.
#### Types of Investments
- Physical Assets: Real estate, gold, and commodities.
- Financial Assets:
- Fixed deposits, small savings schemes, provident funds.
- Securities market instruments: shares, bonds, and debentures.
#### Factors Affecting Interest Rates
1. Demand and supply of money.
2. Government borrowings.
3. Inflation rate.
4. Reserve Bank of India (RBI) policies.
#### Twelve Important Steps for Investing
1. Obtain and read investment documents.
2. Verify legitimacy.
3. Compare costs, risks, and benefits.
4. Assess liquidity and safety.
5. Deal with authorized intermediaries.
6. Know investment goals and suitability.
### Chapter 2: Securities
#### Definitions
1. Securities: Marketable financial instruments like shares, bonds, and derivatives as defined by the
Securities Contracts (Regulation) Act, 1956.
2. Securities Market: A platform for buying and selling securities and reallocating savings to
investments.
#### Functions of the Securities Market
- Channel savings into investments.
- Help businesses raise resources through public issues.
- Provide a mechanism for price discovery.
#### Types of Securities
- Shares (Equity)
- Government securities
- Derivatives
- Mutual fund units
#### Segments of the Securities Market
1. Primary Market: Where new securities are issued (e.g., IPOs).
2. Secondary Market: Where existing securities are traded among investors.
#### Regulators of the Securities Market
- SEBI: The primary regulatory authority, established under the SEBI Act, 1992.
- Other Regulators:
- Department of Economic Affairs (DEA).
- Department of Company Affairs (DCA).
- Reserve Bank of India (RBI).
#### Role of SEBI
1. Protect investors' interests.
2. Promote and regulate the securities market.
3. Prevent fraudulent practices.
4. Regulate stock exchanges, brokers, and intermediaries.
#### Participants in the Securities Market
- Issuers: Corporates and governments raising funds.
- Investors: Individuals or entities investing their savings.
- Intermediaries: Brokers, sub-brokers, merchant bankers.
### Chapter 3: Primary Market
#### Definitions
1. Primary Market: A market for issuing new securities to raise capital.
2. Face Value: The nominal value of a share or bond.
3. Premium/Discount: Securities issued above or below face value.
#### Types of Issues
1. Public Issue: Securities offered to the public.
2. Rights Issue: Offered to existing shareholders.
3. Preferential Issue: Offered to a select group of people.
#### Key Concepts
1. IPO (Initial Public Offering): When an unlisted company offers shares to the public for the first
time.
2. Issue Price: The price at which securities are initially offered.
3. Market Capitalization: Total value of a company's shares (share price × number of shares).
#### Book Building Process
- A method to determine the issue price based on investor demand.
- Involves a price band or floor price for bidding.
#### Role of SEBI in Public Issues
- Ensures adequate disclosure in offer documents.
- Regulates the public issue process.
#### Lock-In Period
- A freeze on the sale of promoters' shares for a certain period to ensure their commitment.
### Chapter 4: Secondary Market
#### Definitions
1. Secondary Market: A marketplace for trading existing securities after they are initially issued in
the primary market.
2. Stock Exchange: A platform for buying and selling securities under SEBI supervision.
3. Demutualization: Separation of ownership, management, and trading rights in a stock exchange.
#### Key Concepts
1. NEAT (National Exchange for Automated Trading): A state-of-the-art electronic trading system
used by NSE.
2. Contract Note: A document confirming trades, issued by brokers to clients.
3. Screen-Based Trading System (SBTS): An automated system for trading securities.
#### Differences Between Primary and Secondary Markets
| **Primary Market** | **Secondary Market** |
|---------------------|-----------------------|
| New securities are issued. | Existing securities are traded. |
| Raises capital for companies. | Facilitates liquidity for investors. |
| Transactions occur directly between issuers and investors. | Transactions occur between investors.
#### Participants in the Secondary Market
- Individual investors
- Institutional investors (e.g., banks, mutual funds)
- Brokers and sub-brokers
#### Precautions Before Investing in Stock Markets
1. Verify broker registration with SEBI.
2. Avoid unverified "hot tips" or rumors.
3. Review company fundamentals and financial reports.
4. Use unique client codes for trades.
#### Products in the Secondary Market
1. Shares:
- Equity Shares
- Preference Shares
- Bonus Shares
- Rights Shares
2. Debt Instruments:
- Bonds
- Zero-Coupon Bonds
- Convertible Bonds
