marketing of securities including basic definations and methods of marketing and types of risk involved etc for Bcom students

1. Presented to : mam nisha aggarwal

2.  It is a procedure to approach a large number of
investors to invest their funds or savings in the
shares or debentures of a company.

3.  Securities are a form of ownership that can be
easily traded on a secondary market.
 Securities allow investors to own the
underlying asset without taking possession.
 Defined as financial instruements that have
some financial value, and they can be traded
amongst investors, government and private
enterprises.

4. Risk
Liquidity
Return on
Investment

5.  All investments carry some degree of risk.
 Higher the risk , Higher are the profits. And
vice- versa.
 Many people stake a significant fraction of
their money in stock markets when they are
aware of the risks ! If their estimate works, they
earn many times their investments but if it
fails, they go bankrupt.
So risk in securities is another factor which
promotes its buying and selling.

6. Product
knowledge
and risk
tolerance
Counter
Party
risk
Price and
liquidity
risk

7.  Before trading in any security, investors should
carefully read the most up-to-date
prospectuses/listing documents, financial
statements, announcements and other
information published either on the issuer’s
websites.
 Investors should not trade any security unless
it suits their investment objectives, financial
resources and risk tolerance.

8.  Price of any security may go up or down so there is an
inherent risk that losses may be incurred as a result of
buying and selling securities .
 Securities Price may also fluctuate due to various market
factors, and investors exposure to risk may vary according
to type of orders they input , the way the transaction is
financed and the nature of the security concerned.
 Liquidity of securities may also fluctuate, resulting in
situations where an investor may not be able to buy or sell
the security in a timely manner at their preferred price range
if the turnover volume were to drop significantly.

9.  Some securities such as structured products
and Exchange Traded Funds may carry
exposure to counterparty risk of financial
intermediaries involved in structuring or
managing the products concerned or providing
liquidity to support trading of the securities.

10.  Liquidity of a financial product or asset or
financial instruements is the ease with which it
is traded in the market.
 It means that there are lots of potential buyers
and sellers who are interested in that particular
security and so, it can be traded frequently,
thereby, increasing the scope of negotiation in
price of the security .
Generally, investors prefer to have assets with
high liquidity.

11.  It’s a human habit to calculate the gains or
losses incurred in a transaction.ROI is a factor
that motivates people to buy and sell securities.
 Before investing in securities an investor
always determine the rate of return associate
with company in which securities he/she
wants to invest.

12. ROI = Gain from investment –Cost of investment
Cost of investment
Gain from investment refers to the proceeds
obtained from selling the investment of
interest.
Higher ROI then the investment should be made.

15.  A segment of the financial market in which
financial instruments with high liquidity and
very short maturities are traded.
 Money market is used by participants as a
means for borrowing and lending in the short
term, from several days to just under a year.
 Money market securities consist of negotiable
certificate of deposits, treasury bills,
commercial paper etc,.

17.  A market in which individuals and institutions
trade financial securities.
 In such securities, the maturity period is
greater than one year and for some securities,
there is no definite maturity period.

18.  Fixed income Securities
 Bonds
 Treasury Notes and Bonds
 Federal agencies securities
 Municipal Bonds
 Corporate Bonds
 Common Stocks

19. Derivatives
Options Futures
Rights
and
Warrants

20. An option is contract that gives the holder the right to buy or sell underlying assets
at some fixed time in the futures. It is completely an option to the holder weather to
buy or sell the assets or not.

21. Important Terminology
• UNDERLYING - The specific security / asset on which an options contract is
based.
• OPTION PREMIUM - This is the price paid by the buyer to the seller to acquire
the right to buy or sell.
•STRIKE PRICE OR EXERCISE PRICE - The strike or exercise price of an option
is the specified/ pre-determined price of the underlying asset at which the same can
be bought or sold if the option buyer exercises his right to buy/ sell on or before the
expiration day.
• EXPIRATION DATE - The date on which the option expires is known as
Expiration Date. On Expiration date, either the option is exercised or it expires
worthless.

22. What are Call Options?
A call option gives the holder (buyer/ one who is long call), the right to buy specified
quantity of the underlying asset at the strike price on or before expiration date.
The seller (one who is short call) however, has the obligation to sell the underlying asset
if the buyer of the call option decides to exercise his option to buy.
Example: An investor buys One European call option on Infosys at the strike price of
Rs. 3500 at a premium of Rs. 100. If the market price of Infosys on the day of expiry is
more than Rs. 3500, the option will be exercised.
The investor will earn profits once the share price crosses Rs. 3600 (Strike Price +
Premium i.e. 3500+100).
Suppose stock price is Rs. 3800, the option will be exercised and the investor will buy 1
share of Infosys from the seller of the option at Rs 3500 and sell it in the market at Rs
3800 making a profit of Rs. 200 { (Spot price - Strike price) - Premium}.
In another scenario, if at the time of expiry stock price falls below Rs. 3500 say suppose
it touches Rs. 3000, the buyer of the call option will choose not to exercise his option. In
this case the investor loses the premium (Rs 100), paid which shall be the profit earned
by the seller of the call option.

23. What are Put Options?
A Put option gives the holder (buyer/ one who is long Put), the right to sell specified
quantity of the underlying asset at the strike price on or before a expiry date.
The seller of the put option (one who is short Put) however, has the obligation to buy
the underlying asset at the strike price if the buyer decides to exercise his option to sell.
Example: An investor buys one European Put option on Reliance at the strike price of
Rs. 300/-, at a premium of Rs. 25/-. If the market price of Reliance, on the day of expiry
is less than Rs. 300, the option can be exercised as it is 'in the money'.
The investor's Break even point is Rs. 275/ (Strike Price - premium paid) i.e., investor
will earn profits if the market falls below 275.
Suppose stock price is Rs. 260, the buyer of the Put option immediately buys Reliance
share in the market @ Rs. 260/- & exercises his option selling the Reliance share at Rs
300 to the option writer thus making a net profit of Rs. 15 {(Strike price - Spot Price) -
Premium paid}.
In another scenario, if at the time of expiry, market price of Reliance is Rs 320/ - , the
buyer of the Put option will choose not to exercise his option to sell as he can sell in the
market at a higher rate. In this case the investor loses the premium paid (i.e Rs 25/-),
which shall be the profit earned by the seller of the Put option.

26. So, a futures contract is an agreement between two parties: a short position - the
party who agrees to deliver a commodity - and a long position - the party who
agrees to receive a commodity. In the above scenario, the farmer would be the
holder of the short position (agreeing to sell) while the bread maker would be the
holder of the long (agreeing to buy). We will talk more about the outlooks of the
long and short positions in the section on strategies, but for now it's important to
know that every contract involves both positions.
In every futures contract, everything is specified: the quantity and quality of the
commodity, the specific price per unit, and the date and method of delivery. The
"price" of a futures contract is represented by the agreed-upon price of the
underlying commodity or financial instrument that will be delivered in the future.
The only difference between the options contract and the futures contract is – The
buyer has to fulfill the obligation he has created by the way of futures contract
while the other provides just an option to buy or sell , which may or may not
happen.

27. Stock rights are instruments issued by companies to provide current
shareholders with the opportunity to preserve their fraction of corporate
ownership. A single right is issued for each share of stock, and each right
can typically purchase a fraction of a share, so that multiple rights are
required to purchase a single share. The underlying stock will trade with
the right attached immediately after the right is issued, which is referred to
as “rights on”. Then the right will detach from the stock and trade
separately, and the stock then trades “rights off” until the rights
expire. Rights are short-term instruments that expire quickly, usually
within 30-60 days of issuance. The exercise price of rights is always set
below the current market price, and no commission is charged for their
redemption.

28. Warrants are long-term instruments that also allow shareholders to
purchase additional shares of stock at a discounted price, but they are
typically issued with an exercise price above the current market price. A
waiting period of perhaps six months to a year is thus assigned to
warrants, which gives the stock price time to rise enough to exceed the
exercise price and provide an intrinsic value. Warrants are usually
offered in conjunction with fixed income securities and act as a
“sweetener”, or financial enticement to purchase a bond or preferred
stock. A single warrant can usually purchase a single share of stock,
although they are structured to purchase more or less than this in some
instances. Warrants have also been used on rare occasions to purchase
other types of securities such as preferred offerings or bonds. Warrants
differ from rights in that they must be purchased from a broker for a
commission and usually qualify as marginable securities.

29. Rights and warrants differ from market options in that they are initially issued only to
existing shareholders, although a secondary market typically springs up that allows
other buyers to acquire these securities. Shareholders who receive rights and warrants
have four options available to them. They can:
1)Hold their rights or warrants for the time being
2)Purchase additional rights or warrants in the secondary market
3)Sell their rights or warrants to another investor
4)Simply allow their rights or warrants to expire
The final option listed here is never a wise one for investors. If the current market price
of the stock exceeds the exercise price, then investors who do not wish to exercise them
should always sell them in the secondary market to receive their intrinsic value.
Tax Treatment
Rights and warrants are taxed in the same manner as any other security. The
difference between the exercise and sale prices of these securities is taxed as a long-
or short-term gain. Any gain or loss realized from trading rights or warrants in the
secondary market is taxed in the same manner (except that all gains and losses will
be short-term).
Conclusion
Rights and warrants can allow current shareholders to purchase additional shares
at a discount and maintain their share of ownership in the company. However,
neither of these instruments is used much today, as stock and market options have
become much more popular.

31. Classification
of investors
Joint Stock
Company
Individuals
Institutional
Buyers

32. REAL INVESTORS
SPECULATORS
AFF. TO COMPANIES*
*INDIVIDUALS WHO ARE AFFILIATED WITH ISSUING
COMPANY

33. • Invest past surplus income for future income
• Take minimum risk
• Want to earn fair, regular, stable returns
• Invest in liquid and easily marketable
• Capital appreciation and growth
• Lesser tax burden
• Favourable denomination and period of maturity
• Pride of ownership
• Preference varies as per age, income, habits,
education etc.

34. • Are not real investors.
• Aim is to sell the securities and make capital gains through
fluctuations.
BULLS
BEARS

35.  The term bull market means the market is
doing well because investors are optimistic
about the economy and are purchasing stocks
• The term bear market
means the market is doing
poorly and investors are
not purchasing stocks or
selling stocks already
owned

36. Existing companies usually prefer to sell their fresh issues to its customers,
employers, creditors and existing shareholders etc. This category of individuals
investing in securities includes those persons who are affiliated with the issuing
company in one way or the other.
The major advantage of selling securities to customers include:
• Wide distribution of securities
• Reduces chances of speculation
• lesser costs and easier price fixation etc.
DRAWBACKS
1) Lacks flexibility.
2) Company has to maintain satisfactory relations and prestige with customers ,
for that it has to pay a minimum fixed dividend or interest .

37. • These are corporations or partnerships of two or more
persons that own shares of stocking company .
• CERTIFICATES OF OWNERSHIP are issued by the
company in return for each financial contribution .
• Share holders are free to transfer their ownership interest
any time by selling their shareholding.

38. Private Ins. investors
Public Financial Ins.
Foregin Ins. investors

39. PRIVATE INSTITUTIONAL INVESTORS
These incl. One hand Ins. Such as life insurance corporations, investment
trusts, U.T.I, Commercial banks, P.P.Fs etc.
Invest their own funds.
They also invest on the behalf of their clients or their own funds for short term.
The other type of private ins. Investors includes Underwriters, Issue Houses,
Issue Investment ,Bankers and Trustee companies.
PUBLIC INSTITUTIONS
These various government agencies engaged in promotion and financing
Of business enterprises. These include IDBI, NIDC, I.F.C, ICICI, SIDC, SIICs.

41. 1. GET A BROKER
People like you and me cannot just go to a stock exchange and
buy and sell shares.
Only the members of the stock exchange can. These members are
called brokers and they buy and sell shares on our behalf.
So, if you want to start investing in shares, you can do it only
through a broker.
Every stockbroker has to be registered with the Securities and
Exchange Board of India, which is the stock market regulator.
You can either choose a broker (who is directly registered with
SEBI) or a sub-broker (people licensed by brokers to work under
them).
The Bombay Stock Exchange directory or the National Stock
Exchange Web site will give you a list of brokers affiliated to
them. Most of them entertain retail clients.
If you want an online broker, you can start by looking at the Web
sites of some well-known online players:Sharekhan, Kotak
Securities, ICICI Direct, 5paise and India Bulls.

42. 2. GET A DEMAT ACCOUNT
Gone are the days when shares were held as physical certificates.
Today, they are held in an electronic form in demat accounts.
Demat refers to a dematerialised account.
Let's say your portfolio of shares looks like this: 40 shares of Infosys, 25 of Wipro, 45 of
HLL and 100 of ACC.
They will show in your demat account. You don't have to possess any physical
certificates showing you own these shares. They are all held electronically in your
account.
Periodically, you will get a demat statement telling you what shares you have in your
demat account.
How to get a demat account
To get a demat account, you will have to approach a Depository Participant.
A depository is a place where an investor's stocks are held in electronic form.
There are only two depositories in India -- the National Securities Depository Ltd and
the Central Depository Services Ltd.
The depository has agents who are called Depository Participants. In India, there are
over a hundred DPs.
Think of it like a bank. The head office, where all the technology rests and the details of
all the accounts are held, is like the depository. The DPs are like the branches of banks
that cater to individuals.
A broker, however, is not similar to a DP. A broker is a member of the stock exchange
and he buys and sells shares for his clients and for himself. A DP, on the other
hand, gives you an account where you can hold those shares.
To get a list of the registered DPs, visit the NSDL and CDSL Web sites.

43. How to get a demat account ?
To get a demat account, you will have to approach a Depository Participant.
A depository is a place where an investor's stocks are held in electronic form.
There are only two depositories in India -- the National Securities Depository
Ltd and the Central Depository Services Ltd.
The depository has agents who are called Depository Participants. In India,
there are over a hundred DPs.
Think of it like a bank. The head office, where all the technology rests and the
details of all the accounts are held, is like the depository. The DPs are like the
branches of banks that cater to individuals.
A broker, however, is not similar to a DP. A broker is a member of the stock
exchange and he buys and sells shares for his clients and for himself. A DP, on
the other hand, gives you an account where you can hold those shares.
To get a list of the registered DPs, visit the NSDL and CDSL Web sites.

44. Get a PAN
The taxman demands that you get yourself a Permanent Account
Number.
This is a unique 10-digit alphanumeric number (AABPS1205E, for
example) that identifies and tracks an individual in the taxman's
database.

45. Check if you need a UIN
This depends on how much you plan to invest.
The Unique Identification Number is the identification
an investor needs to buy and sell shares or mutual fund
units.
It is part of the Security and Exchange Board of India's
attempt to create a database of all Market Participants
and Investors, called MAPIN.
Who needs a UIN?
An investor who is involved in a single transaction of Rs
1,00,000 or more will have to quote his/ her UIN.
If you plan to be a prominent stock market player or a
mutual fund investor and expect to deal with such huge
amounts in the near future, you should get a UIN.

47. • 9) Red
Herring
Prospectus
• 8) Book
building
process
• 2)Right
issue & 3)
Bonus share
• 1)Over the
counter
Placement
4) Public
issue by
prospectus
5) Offer for
sale
7)
Placement
method
6) Tender
method

48.  Most popular method of raising capital or marketing of
securities for the public limited companies.
 A Public Ltd. Co. issues a document, called prospectus,
containing information about the company and
inviting public to apply for shares or debentures of the
companies.
 Company may issue a prospectus inviting applications
direct from the public or through some intermediaries
such as brokers, investment bankers and underwriters,
etc.

49. A)
•Direct Selling Of Securities
B)
•Sale through Investment
intermediaries
c)
•Underwritten placement

50.  This method can be successfully employed if
the company wants to approach only a small
number of institutional or other large investors.
 This method is economical as it saves expenses
and commission or profit of the intermediaries.
 But if company wants to approach a large
number of small investors, direct saving of
securities may not be a sufficient method.

51.  To remove the difficulties of direct selling a
company may take help of intermediaries and
specialized agencies in marketing of securities.
 There are brokers, merchant bankers and
others who provide specialized services and
help company in selling its securities on
commission basis.
 These agencies may not guarantee the issue of
securities or invest their own funds in purchase
of securities but attract investors for the
company.

52.  A company may approach a firm of
underwriters who guarantee the issue of
securities for a fixed commission payable to
them.
 In case a company is not able to sell its
securities in full, the underwriters purchase the
unsubscribed securities out of their own funds.

53.  Adopted in case of large issue of companies.
 The issuing company sells or agrees to sell the
securities for sale to certain issue houses or the
specialized financial institutions at a fixed price.
 The issue house or the financial institutions then issue
advertisements making offer for sale of such securities
at a price higher than the price at which they obtain the
securities.

54. Company
Promoter
Investment
Dealers
Public

55.  The securities are sold by the issuing
companies to certain intermediaries such as
brokers, issue houses or financial institutions ,
etc.
 Cheap way of marketing securities as it saves
in issuing costs but the securities are sold to
only a selected group of investors.

56.  The issue price is not pre determined like the other
usual methods of public issues.
 The company announces the public issue without
indicating the issue price inviting bids from
various interested parties. The parties participating
in the tender submit their maximum offers they are
willing to pay as well as the number of shares they
are interested to buy.
 The company, after receiving various offers, may
decide about the price in such a manner that the
entire issue is fairly subscribed or sold to the
parties participating in the tender.

57.  It is an invitation to the existing shareholders to
subscribe for further shares to be issued by a
company.
 A right simply means an option to buy certain
privileged price within a certain specific period.
 Section 81 of the Companies Act 1956 has provided
a pre emptive to the existing shareholders of a
company to purchase shares in further issues of
the company.

58.  A company having free reserves built out of genuine
profits or share premium collected in cash may issue
bonus shares to its existing shareholders
 The companies which have huge accumulated profits
and reserves but not so good liquidity position prefer
to capitalize profits by the issue of bonus shares.
 Bonus issue does not bring in fresh capital for the
company, it only enables a company to restructure its
capital.

59.  It permits smaller companies to raise funds. A
company may place its issue through OTC Exchange.
The procedure involved under this method is that the
company wishing to raise funds through OTC
Exchange appoints a member of OTCEI as a sponsor.
The sponsor appraises the project and values the share
of the company.
 The sponsor ensures the success of the issue even if it
has to subscribe to all the shares by itself.

60.  Book Building is the process of determining the price at
which an Initial Public Offering will be offered.
 SEBI guidelines, 1995 defined book-building as “a
process undertaken by which a demand for the
securities proposed to be issued by a body of corporate
is elicited and built up and the price for such securities
is assessed for the determination of the quantum of
such securities to be issued by means of a notice,
circular, advertisement, document or information
memoranda or offer document”.

61.  Book building is actually a price discovery
method.
 In this method, the company doesn't fix up a
particular price for the shares, but instead gives a
price range, e.g. Rs 80-100.
 When bidding for the shares, investors have to
decide at which price they would like to bid for the
shares, for e.g. Rs 80, Rs 90 or Rs 100. They can bid
for the shares at any price within this range. Based
on the demand and supply of the shares, the final
price is fixed.
 The lowest price (Rs 80) is known as the floor price
and the highest price (Rs 100) is known as cap
price.
 The price at which the shares are allotted is
known as cut off price .

63.  It is the preliminary registration submitted to Securities and
Exchange Commission by the companies intending public
offerings of securities.
 It outlines the important information about the new issue,
including proposed price range and balance sheet and other
relevant information about the company.
 Red herring prospectus means a prospectus that does not have
complete particulars of the price of the securities offered and
quantum of securities offered.