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Equity is the amount of capital invested or owned by the owner of a company. In the terms of the stock market, equity refers to the share in a company’s ownership. It is typically the shareholders' equity which represents the amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was paid off. Owners of the equity shares of any company also possess right to vote in matters pertaining to board of directors.

Investing in the equity market have now become more popular among the retail or small investors as they have potential to provide high returns on the capital invested. Though on the flip side, they equally possess the same degree of risk. On investing in the company’s stock or popularly known as shares, he/she can earn profit via fluctuations in the share prices in both short term as well as long term period.

Equity investments seem very lucrative for any investor but they are market linked investments with no assurance of any minimum return and have a high rate of risk. Returns in the equity market are totally dependent on the performance of the respective companies.

In India, the gauge to measure the performance of the equity markets is done by calculating the return generated by Nifty Index. Nifty is the basket of the top fifty listed companies in India and the fluctuation of the price of this index happens depending on the performance of the companies.

Below is the chart of the returns generated by Nifty in different time frames:

Time Frame Returns generated by Nifty (Till January 2022)
Last 1 year24%
Last 5 years39%
Last 10 Years65%
Last 20 Years94%

In the above chart, we can see the mesmerising returns generated by the Indian equity market over the years but these figures are achieved after witnessing lots of up and downs during the respective time periods. Hence, the moral of the story is to invest in the equity markets for a long term to achieve higher returns in the long run.

Factors effecting equity markets:

Market participants

Information & Market News

Money flows into Equities

Global Market Volatility

Government Policies

Advantages of Equity:

Highly Liquid

Potential to generate high returns


Easy way to invest

Disadvantages of Equity:

Highly Risky

Can underperform Inflation

Macro and Micro risk factors like War, Recession can dent the returns

Risk of Political and policy changes

How to invest in the Equity Markets:

Equities are mostly traded on the stock exchanges in India and are available for trading at the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the latest entrant, Metropolitan Stock Exchange of India (MSE).The market allows sellers and buyers to deal in equity or shares in the same platform.

To trade or invest in the equity market, you need to follow few simple steps after which you will be ready to ride on to the equity markets. In India, an investor can trade or invest only through a registered broker who is registered with the stock exchanges and the market regulator.

  • Keep all the KYC related documents ready
  • Contact Registered Broker
  • Open Demat and Trading Account with any broker
  • Transfer funds into the account
  • Start buying and selling the shares

A vehicle to invest indirectly in various asset classes:

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Buying a mutual fund is like buying a small slice of a big pizza. The owner of a mutual fund unit gets a proportional share of the fund’s gains, losses, income and expenses.

Objective of the Mutual Fund:

Before investing in any of the mutual fund, the investor has to thoroughly go through the objective laid down in the prospectus of the fund. Prospectus is the legal document that contains information about the fund, the related information, benchmarking, history, fund manager and its performance.

Some popular objectives/Types of the mutual funds:

Objective / Type of Fund Where it Invest
EquityIn Equity Stocks
DebtIn Fixed Income Securities
Money MarketIn government Securities
BalancedPartly in stocks and fixed income securities

Who manages the Mutual funds:

Asset Management Company which is popularly known as AMC manages the portfolio of the mutual fund. AMC can have several mutual fund schemes with different investment objectives. These companies will hire fund managers to handle their mutual fund schemes who buys and sells the underlying asset of the mutual fund scheme.The Asset Managementcompanies is regulated by the Securities Exchange Board of India popularly knownas SEBI.

Broader types of Mutual Funds:

Open Ended Mutual Funds:In an open-ended mutual fund, an investor can invest or enter and redeem or exit at any point of time. It does not have a fixed maturity period.

Closed Ended Mutual Funds:Close-ended mutual funds have a fixed maturity date. An investor can only invest or enter in these types of schemes during the initial period known as the New Fund Offer or NFO period. His/her investment will automatically be redeemed on the maturity date.

Types of Mutual Funds available in India:

  • Equity Funds
  • Sector Funds
  • Index Funds
  • Tax Saving Funds
  • Liquid Funds
  • Debt Funds
  • Balanced Funds
  • Gilt Funds

Advantages of Mutual Funds:

  • Professionally Managed Fund:When you buy a mutual fund, you pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds and any other asset classes.
  • Reduced Risk:Reduced portfolio risk is achieved through the use of diversification, as most mutual funds will invest in anywhere from 50 to 200 different securities depending on the objective of the mutual fund.
  • Dividend Reinvestment: As dividends and other interest income sources are declared for the fund, they can be used to purchase additional shares in the mutual fund, therefore helping your investment grow.
  • Easy to Invest: Investing in mutual funds is as easy as buying stocks from the market. The process is now electronic and can be bought and sold at a single click on the system.

Disadvantages of Mutual Funds:

  • Higher Costs: Whenever any investor buys a mutual fund, they should track the expense ratios and sales charges. An expense ratiohigher than 1.50%are considered to be on the higher cost end.
  • Tax Inefficiency: Investors do not have a choice when it comes to capital gains payoutsfrom mutual funds. Due to the turnover, redemptions, gains, and losses in security holdings throughout the year, investors typically receive distributions from the fund that are an uncontrollable tax event.

How to Buy and Sell Mutual Funds:

Investors buy mutual fund shares from the fund itself or through a broker for the fund, rather than from other investors. The price that investors pay for the mutual fund is the fund’s per share net asset value plus any fees charged at the time of purchase, such as sales loads.

Mutual fund shares are “redeemable,” meaning investors can sell the shares back to the fund at any time

What is an IPO:

An unlisted company (A company which is not listed on the stock exchange) announces initial public offering (IPO) when it decides to raise funds through sale of securities or shares for the first time to the general public. In other words, IPO is the selling of securities to the public in the primary market. A primary market is place where the share of the company is issued for the first time. After listing, the company’s shares are now freely tradable on the exchange which is called the secondary market.

Investing in an IPO is a good step from an investor if he is well informed about the background and fundamentals of the company which he is going to invest in. Every IPO may not be a profitable one and has its own risks and rewards. One must have a basic understanding of the IPO before he starts investing.

Types of IPOs:

There are two types of IPOs which a company can come up with the offering:

Book Building Offering: In this type of offering, the company provides a price band to the investors. The interested investor will have a choice within the price band to chose the price to invest where they have to specify the number of shares they want to bid for and the amount they want to pay per share of the company.

How IPO Works:

In simple terms, an IPO is the process by which a company issues its share to the public to raise capital. Many big institutional investors, HNIs and retail investors will have an option to invest in the company at their initial stages.

The company comes out with a prospectus with the IPO details, the price and the size of the issue, the objective for raising the funds, the financial performance statements and the future prospects. The investors will have their choice to invest or not after analysing the future prospects of the company.

Once the IPO process is completed, the shares of the company are listed on the stock exchanges and now is available for daily trading.

How to Invest in an IPO:

IPO is one the typical type of investment where the investors are investing in the company for the first time. To invest in an IPO, the investor should have aDemat Account without which an IPO can’t be applied for.

After opening a Demat Account, the investor has to apply of the IPO by a process already set by the relevant regulators. The ASBA application forms are available to the applicants both in physical and the online form. The investor needs to specify its Demat account number followed by the PAN number, Bank Account number and the share bidding details in the application form.

Introduction to Derivatives:

Derivatives are the most important innovation which has happened in the past few years when it comes to financial markets. It has changed the whole way of operations of stock, commodities and currency market.

Originally, derivatives were used to ensure balanced exchange rates for goods traded internationally. With differing values of different national currencies, international traders needed a system of accounting for these differences. Today, derivatives are based upon a wide variety of transactions and have many more uses.

Types of Derivatives:

  • Forwards
  • Futures
  • Options
  • Swaps

What are Futures:

A futures contract is an agreement between two parties – a buyer and a seller – wherein the former agrees to purchase from the latter, a fixed number of shares or an index at a specific time in the future for a pre-determined price.

As futures contracts are standardized in terms of expiry dates and contract sizes, they can be freely traded on exchanges. A buyer may not know the identity of the seller and vice versa.

Types of Future Contracts:

  • Stock Futures
  • Index Futures
  • Currency Futures
  • Commodity Futures

What are Options:

Options is a contractual agreement between two parties to buy/sell the underlying asset at a pre- determined price on a pre-determined date.Buyer- has the right but not an obligation to fulfil his contractual obligation while Seller- has an obligation to fulfil his contractual obligation.

The terms and conditions of the contract are standardized and are determined by the stock exchange.The pre-determined date in options contract is the expiry date before which the parties to the contract have to fulfil their obligation.

Types of Options:

Call Option (CE): It gives the buyer the right to buy the underlying asset

Put Option (PE): It gives the buyer the right to sell the underlying asset

Four Basic trading positions in Option trading:

Call Buying

Call Selling

Put Buying

Put Selling

Advantages of F&O:

Good instrument for Hedging

Highly Liquid

Good for Portfolio Management

Helps in price discovery

Less Capital required

Disadvantaged of F&O:

Highly Risky

Heavy Leverage Product

Time decay factor

Quite Complex to understand

Contractual life

Highly volatile asset class

How to trade in F&O:

F&O contracts are traded on the exchange and was launched in India in the year 2000. You would need a trading account, also known as derivative trading account, to start your F&O trading. You can trade in F&O from anywhere with the help of such an account.

It has to be noted that futures are not available on all stocks but a select set of stocks.You would also need to understand the concept of margins when you begin trading in F&O. We suggest that a beginner in the market could start by cash trading first before moving on to the futures and options segment. Trading in derivatives is notrocket science, provided you have the right broking team and access to in-depth research and advice on the trades.

What is Commodity trading:

Commodity markets have seen tremendous growth in India and the world over the past several years. While equity markets are the most talked about in India, the significance of commodity market is often understated. This is in contrast to global trends where currency and commodity markets see higher trading and turnover compared to equities.

Commodities’ trading involves trading in every kind of movable property other than actionable claims, money and securities. These include gold, silver and other metals and select agricultural commodities. Currency trading refers to the exchange of currencies, where the difference in the currency value is used to make profits. It is a huge market, with traded value being higher than equities.

When it comes to trading, the dynamics of every asset class differ and therefore it is imperative to understand the drivers behind price movements. In that sense, both commodities and currency markets are largely driven by macro-economic factors which drive demand and supply.

Where are Commodities available to trade?

Just like the equity stock market, there are commodity exchanges that enable the market participants to easily buy and sell commodities on a dedicated platform. Three primary commodity exchanges are currently operational in India - the Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), and Indian Commodity Exchange (ICEX).

Over the Globe, there are currently around 50 commodity markets that allow trading in around 100 different types of commodities. In a market like India, there are a lot of ways of investing into the commodities but the most direct and easy way to invest is buying a future commodity contract.

Types of Commodities available for trading:

We can classify the different commodities into agricultural and non-agricultural commodities. The non-agricultural commodities can be further sub-divided into three different categories - bullion, energy, and base metals.

Here’s a brief list of the different types of commodities under each category that is regularly traded on the commodity exchanges:

  • Bullion – Gold & Silver
  • Energy – Crude Oil & Natural Gas
  • Agriculture – Black Pepper, Castor Seeds, Palm Oil, Kapas, Chana and many other commodities
  • Base Metals – Aluminium, Copper, Lead, Nickel and Zinc

Types of players in the commodity markets:

  • Speculators
  • Commercial participants
  • HNI Speculators
  • Hedgers

Benefits of trading in Commodity Markets:

  • Alternate trading tool
  • Good for Hedging
  • Exposure to Global price movement
  • Low transaction Costs
  • Good tool for carry forward positions

How to invest or trade in commodities market:

In line with most of the investment in equity markets and other asset classes, your journey into the commodities market will start once you open a commodity trading account with a brokerage firm like Bigul. Once you have your trading account set up and ready, you can start investing in various commodities of your choice through derivative contracts such as futures and options.

If you purchase commodity derivative contracts and want to hold them till expiry, thenthe contracts are mandatorily settled through physical delivery. Therefore, if you don’t want to take physical delivery of the commodities then make sure that you close all your open positions well ahead of the contract expiry.

What is Currency trading:

The currency market, also known as the Foreign Exchange market, is essentially a global, decentralized market that serves as a platform to trade in currencies. Trading in the currency market always works in pairs and this applies to both buying and selling of the currencies. The value of these trades is determined by the exchange rate, which is the value of a currency with respect to another.

The currencies are traded in pairs and have their exact symbols. For instance, INR stands for the Indian Rupee while USD stands for the American dollar. Now if you want to trade Indian Rupees against American Dollars, the trade would be denoted as such – INR/USD.Similarly, every currency in the world is denoted by three unique letters and the direction of the trade is denoted with a ‘/’ sign.

Currency trading or forex trading is to buy or sell currency in pairs. For example, today the US dollar stands at 79.37 Indian rupees – if you expect the dollar to appreciate against the rupee, you buy more dollars and vice versa if you expect the dollar to depreciate against the rupee, you will buy rupees.

Currency trading in India is allowed in the following pairs only: (USD/INR); (EUR/INR); (JPY/INR);(GBP/INR); (EUR/USD); (GBP/USD) and (USD/JPY).

Uses of Currency Markets:

Currency Markets facilitates to settle payments by transferring foreign currency from one country to another. It converts one currency into another and facilitates international transactions.

The currency market also provides credit in matters of international trade. For instance, an importer can utilise the credit from the currency market to purchase foreign goods and pay off later.

Frequent fluctuations in exchange rates may cause heavy damage to counter parties and the industries depending on these rates to stay constant. Therefore, currency markets provide the facility to such market players to hedge foreign exchange risks. A forward contract is an agreement to buy or sell foreign exchange for another currency at a predetermined price on a fixed date in the future.

How to do Currency trading:

In India, the NSE and the BSE offer currency futures and also currency options. Currently, the USD/INR pair is the most liquid contract but other contracts are also catching up.

To start trading in to the currency market, one has to open a currency trading account with a broker and submit the relevant KYC documents. Once the account is activated, the investor or the trader has to transfer the amount into the trading account and can start their own trading/investment journey into currency markets.

Currency futures are traded on platforms offered by exchanges like the NSE, Bombay Stock Exchange (BSE), MCX-SX, and United Stock Exchange (USE).Currency trading hour is 9.00 am to 5.00 pm. There is no cash or equity form like we use in Indian stock market, for trading this currency market.The Currency market is regulated by SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India) jointly.

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