M1 ch1

WHY to invest –

Fight inflation Create wealth

Where to-

1. Fixed income instruments 8-11% return

2. Equity 14-15% cagr
3. Real estate can’t say very unpredictable return
4. Commodities (precious metals) – approx. 8

Investments optimally should have a strong mix of all asset classes. It is smart to diversify
your investment among the various asset classes. The technique of allocating money
across assets classes is termed as ‘Asset Allocation’.

For instance, a young professional may be able take a higher amount of risk given his age
and years of investment available to him. Typically investor should allocate around 70% of
his investable amount in Equity, 20% in Precious metals, and the rest in Fixed income
investments.

Alongside the same rationale, a retired person could invest 80 percent of his saving in fixed
income, 10 percent in equity markets and a 10 percent in precious metals. The ratio in
which one allocates investments across asset classes is dependent on the risk appetite of
the investor.

Equity should be a part of your investment if you want to beat the inflation in the long run
Some of the categories of market participants are as follows:

1. Domestic Retail Participants – These are people like you and me transacting in markets
2. NRI’s and OCI – These are people of Indian origin but based outside India
3. Domestic Institutions – These are large corporate entities based in India. Classic example
would be the LIC of India.
4. Domestic Asset Management Companies (AMC) – Typical participants in this category
would be the mutual fund companies such as SBI Mutual Fund, DSP Black Rock, Fidelity
Investments, HDFC AMC etc.
5. Foreign Institutional Investors – Non Indian corporate entities. These could be foreign
asset management companies, hedge funds and other investors

irrespective of the category of market participant the agenda for everyone is the same –
to make profitable transactions. More bluntly put – to make money.
In India the stock market regulator is called The Securities and Exchange board of
India often referred to as SEBI
 Example of
Entity What do they do? In simpler words
companies

They rate the

Credit Rating CRISIL, ICRA,
Agency (CRA) CARE
If a corporate or Govt entity wants to
credit worthiness
avail loan, CRA checks if the entity is
of corporate and
worthy of giving a loan
governments

When companies want to raise a loan

they can issue debenture against which
Act as a trustee to they promise to pay an interest. These
Debenture Almost all banks
corporate debentures can be subscribed by
Trustees in India
debenture public. A Debenture Trustee ensures
that the
debenture obligation is honored

Acts like a vault for the shares that you

buy. The depositories hold your shares
and facilitate exchange of your
Safekeeping,
securities. When you buy shares these
reporting and
Depositories NSDL and CDSL shares sit in your Depositary account
settlement of
usually referred to as the DEMAT
clients securities
account. This is maintained
electronically by only two companies in
India

You cannot directly interact with NSDL

Depositary Most of the Act as an agent to
or CDSL. You need to liaison with a DP
Participant banks and few the two
to open and maintain you DEMAT
(DP) stock brokers depositories
account

These are foreign entities with an

interest to invest in India. They usually
Foreign Foreign
Make investments transact in large amounts of money,
Institutional corporate, funds
in India and hence their activity in the markets
Investors and individuals
have an impact in terms of market
sentiment
 Help companies If a company plans to raise money by
Karvy, Axis
Merchant raise money in floating an IPO, then merchant bankers
Bank, Edelweiss
Bankers the primary are the ones who help companies with
Capital
markets the IPO process

An AMC collects money from the public,

Asset puts that money in a single account and
HDFC AMC,
Management Offer Mutual Fund then invest that money in markets with
Reliance Capital,
Companies Schemes an objective of making the investments
SBI Capital
(AMC) grow and thereby generate wealth to its
investors.

Portfolio
Managers/ Religare Wealth They work similar to a mutual fund
Portfolio Management, Offer PMS except in a PMS you have to invest a
Management Parag Parikh schemes minimum of Rs.25,00,000 however
System PMS there is no such cap in a mutual fund
(PMS)

Act as a Whenever you want to buy or sell

Stock Brokers Zerodha, intermediary shares from the stock exchange you
and Sub Sharekhan, between an have to do so through registered stock
Brokers ICICI Direct investor and the brokers. A sub broker is like an agent to
stock exchange a stock broker

A stock broker is your gateway to stock exchanges. To begin with, you need to open
something called as a ‘Trading Account’ with a broker who meets your requirement. Your
requirement could be as simple as the proximity between the broker’s office and your
house.