IPO's

           Initial public offering is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.

Companies can raise equity capital through IPO’s by issuing new shares to the public. Once issuing the shares to public those companies called public limited campiness.

Example: XYZ textiles pvt ltd company and they making profits well but now they want to expand their business in other states, now they need capital to expand so they decided to go for IPO (initial public offering) to dilute the ownership into public. Now the company has value of 10 lacks and they divided into no.of shares using face value.

X  No of shares = 1000000 / 10

No of shares =100000

Each share value = 10 rs.

XYZ will issue the 50% of shares to the public means (50 k of shares), you will collect 5 lacks from the public and will use that money to your company expansion. Check below image how ipo thought will come to company.

IPO Thought Process:

Who can invest: everybody like Me, You, Your father, Your GF or BF (as the case might be) your neighbour, your maid, or any other you know.

What kind of returns we can expect in the market, here we can see below image of last one year ipo’s releases and its performance.

Here we have the list of good returns from Ipo’s for understanding.

If you can observe above image, you can see the returns from the Ipo’s. Everywhere profit is there means risk also is there, sometime the listing price will be less than offer price, means you will lose your money form the market .when you are investing in ipo’s also make sure you need to look the fundamentals of company and goodwill in the market.

I think you have some queries about ipo’s investment like how much we need to invest and how we can buy these ipo’s in the market.

Ipo’s always release in slots wise so we need to buy it in slots, (i.e. 1 slot = approx. 15000), as per recent releases of ipo’s the investment range from 14000-15000 per slot.

Where can I apply: if you want to buy ipo’s you should have demat account, you will get service from the brokers or you can apply from internet banking also .in your net banking we have option ASBA option , there you can have the online application form filling for ipo’s.

Here you can see the below image for applying ipo’s through net banking, I consider my SBI bank for buying ipo’s but my demat with different broker.

Through this process you can buy, once shares bought from the market it’s will delivered to you DEMAT account and once ipo’s completed those shares will register in exchange (NSE, BSE) for trading into the market.

Once stocks hit into market you can see the price movements and there you can sell otherwise you can hold till you want. You can see below image.

Isn’t it so simple and realistic to learn or earn.

Thank you for your time.

Apologies for any typos.

Mutual Funds Concept and functiong

What is a mutual fund?

A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

The pool money managed by portfolio managers, some one knows about market very well or certified financial analysts. The mangers to create a portfolio with investment objective and with respect to risk.

These Mutual funds will give the opportunity to retail investors to invest in the market with certified portfolio managers to manage these funds.

Who are the origins of these Mutual Funds?

Mutual funds created by AMC (Asset Management Companies), in India we have near about 40 asset management companies, those guys are launched more than 4000 funds with different objectives. 

We will consider one example and will discuss properly about the funds distribution.

Let me take one fund XYZ and the fund value 1000rs and these thousand rupees will invest in different stocks with different weightage or depends on risk profile .and this will be divided by 10rs as a face value.

No of units = Total fund/price of per unit

X = 1000/10

X= 100 units

Above 100 units will distribute or sell into the market (New fund offer) and after this will register in exchange for liquidity or trading purpose .once the funds will get any capital appreciation or depreciation into the market and that will distributed into equally.

Note: When a scheme is first made available for investment, it is called a ‘New Fund Offer’ (NFO). During the NFO, investors may have the chance of buying the units at their face value.

Types of Funds

Three types of funds having in the market

Open-Ended funds

Close-Ended funds

Interval Funds

Open ended Funds: The investors enter or exit any time, even after the NFO. if any investor want to exit from the fund he can sell at NAV price it’s called repurchase transaction. The fund will continue with remaining investors.

Closed ended Funds: Have fixed maturity .Investors can buy units form the fund during its NFO. In this case any investor wants to exit means he can sell his units from the exchange to other investor and the price will depends on Demand and supply situation .

Interval Funds: Combine feature of both open and close ended funds schemes. They are largely close ended but become open –ended at pre specified intervals.

Let me take any example: any fund might be open-ended scheme between Jan 1-15 and July 1-15 in a year and in case client want to exit in between he can exit from exchange also like close- ended funds.

Under these funds we have different options like Equity, Debt and balanced funds these funds will come under open-ended funds and capital protection, fixed maturity plans   will come under close –ended funds.

In India we have different AMC (Asset management company’s) in that we can have few top AMC. please check below one for top funds.

Advantages of Mutual Funds :

We have some benefits investing through mutual funds, as an investor will think below factors before investing in the market.

Diversification

High Returns

Economical

Liquidity 

Expertise.

My suggestion, as a newbi can prefer initally mutual funds for investing purpose after that you can start investing in stcok market directly.

How does the stock market work? Who decides the price of stocks?

What is Stock?  

Stock is piece or small part of the company to distributing to the Public (shareholders) who are invested in the company and to share company’s future profits. For instance, if you buy 1 stock of SBI now, you will be the shareholder and will get benefit of the company’s profit.

In otherworld’s, the capital raised by companies or corporation through issue and subscription of shares. The issuing shares and collecting capital through the market called IPO’s (Initial public offer).

Once the share issued to the public through IPO’s, these companies will list stocks in secondary market (NSE, BSE).these markets will help to the companies for free floating the stocks .this will maintain the supply and demand to the public.

How Buyers and Sellers do the transactions in Secondary Market.

Buyers and sellers will open the trading and demat account form the broker. The broker one who has membership with exchange to provide the platform for trading. Brokers are mediators for customers and exchange. As an exchange can’t manage the retail clients for these transactions, so will provide the service through authorized brokers (Zerodha, Rksv and ICICI etc.) 

Note : you can prefer account with Zerodha .india's first discount broker and nominal costing with better service.

How the Stock price decided?

In the market there are different methods to find the value of stock and future prospect price. This will help to judge the stock weather undervalued or overvalued. And this is called valuation of stock.

Stock valuation methods:

Stocks have a two types of valuations.one is a value created using some type of cash flows ,sales or fundamental earning analysis. The other value is dictated by how much an investor is willing to pay for a particular share of stock and how much other investors are willing to sell stock (supply and demand).

Fundamental valuation is the valuation that people used to justify stock price. This will be mostly depends on historic ratios and statistics and it will help for long- term stock prices.

The other way stocks are valued is based on supply and demand. The more people that want to buy the stock, the higher its price will be .And conversely, the more people that want to sell the stocks, the higher its price will be. This form valuation is very hard to predict and it will help full short term stock prices. 

Different methods:

    EPS(Earning per Share )

    P/E(Price to earnings)
   Growth Rate
   ROA (Return on Assets)
   P/S(Price to sales)
   EBITDA etc.

Factors effecting the stock prices:

Few factors will effect the stock prices but this will be depends on the factor weather permanent or temporary.

Political Stability: this will be the one reason for company performance .weather the ruling party supporting to the industry polices or any changes in polices.so this will shows the price movements.

Macroeconomics: the economy of the world weather supporting to this industry or not and the supply and demand uncertainty in exporting countries.

Microeconomics: Within the industry any competitor come up with new methodology and low cost productions .this will effect the price movements.

Industry Trends:  The current trend markets will support this industry will be positive otherwise it will show the bad results.

Company Management:  Company itself occurs any management stability issues and new reforms and employee satisfaction levels also will play the main role in stock price movements.

All the above things will help you to understand the stock valuations but there is no guaranty for the price movements and we need to believe and proceed.

Nobody knows the right price of a stock, it’s always a mystery!

"In the short term, the market is a voting machine. But, in the long term, the market is a weighing machine".  -- Ben Graham

Debt Market

Definition : 

               This is financial market in which the participants are provided with the issuance and trading of  debt securities.This market is also called Bond market or credit market. 


Examples : Loans,Bonds and Debentures etc..

It is consist of bond and money markets,the essence is borrowing and lending of cash.

Difference between Money and Bond market :

Money market : 

           The lending or borrowing money is lessthan one year by participants.

Bond Market :

           The lending or borrowing money is morethan one year or more by participants.

The other name of debt market is Fixed income securities because the size of cash flow and and time period will be fixed before enter into agreement.It does not necessarily guarantee a fixed returns.

For example, consider a 7-year bond that pays 9% per annum interest and issued by a company. The 9% per annum interest is not the guaranteed return for the following reasons.

These debt market returns will be depends on the below factors:

Credit risk : The companey may not able to pay interest and principal on time.

Market Risk :In the above senario, the invstor hold the above bond for 7 years but investor want that money end of the 5 th year the sale price may be higher or lower than the initail purchaes price this called capital gain or loss. this will be happen by market risk.

Reinvestment risk : if your investment horizonis seven years,there should be no interm payments. but incase your investment are to  be reinvested untile the horizonat unknown future interest rates.

In this above example, the 9% coupon in the first year will have to reinvested for six years at the end of one year; the 9% coupon in the second year will have to be reinvested for five years at the of second year; and so on.

Above debt market clasified many categories based on different parameters.

a. Cash flow pattern

b.Tenure 

c.Issuer

d.Credit quality

e.Interest rate Types

Basics of Capital market

Definition 

     The place where you can buy and sell financial instruments (Equity and Debt) .It is a channel of saving and investments between suppliers of capital such as reatil and instiutional investors,and users of capital like Business,Governement and individuals. 

  Capital Market is Broad concept, we can devide into two parts 

* Debt Market 

* Equity Market 

Debt Market:

It is financial market in which the participants are provided with the issuance and trading of debt securiteies.This market is also called Bond market or credit market.

Examples : Loans,Bonds and Debentures etc..

Equity Market :

The Market in which shares are issued and traded. either through exchanges or over the counter markets.also known as the stock market . 

Examples :Stocks, Convertible Debentures and Prefered stocks etc..   

In Any market either debt or eqity,they classified two ways 

*Primary Market

Primary marekt deals with issuing new securieties and raise the capital from the investors. 

                    if you considering the debt market,they will issue the bonds to investors and raise the capital.

Ex :Government ,coorporate bodies.

                  if you considering the equity market, will share the partnership to investors form their companey through Ipo's (Initail public offer).

Ex: companies .

*Secondary Market

Secondary market provide the opportunity  to trade these instruments issued by primary market. this will help to freefloating the instruments.