Capital Market Awareness

What is a Stock Market ? Bombay Stock Exchange (BSE)

First and Oldest Stock Exchange in Asia –

Founded as The Native Stocks & Share Brokers Association in 1875

Largest number of listed companies - 5,249

7th largest exchange in Asia in terms of Market Capitalization

8th Largest Exchange in World – number of trades in Equity Shares

New Platform for trading in equities of SMEs

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BSE Market Offerings Cash Market

Derivatives

Currency Derivatives

Interest Rate Derivatives

Debt Market segment

ETFs/Mutual Funds

BSE SME Platform

How the Capital Market Operates

Settlement System: T+2 Settlement System

Day Time Description of activity

T 9:15 a.m. – 3:30 p.m. Trade Day

T+1

By 11:00 a.m.

Confirmation of all trades (including custodial trades) Facility

of an exceptional window for late confirmations would be

made available by the exchanges

By 1:30 p.m.Processing and downloading of obligation files to brokers /

custodians

T+2By 11:00 a.m. Pay-in of securities and funds

By 1:30 p.m. Pay-out of securities and funds

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How the Capital Market Operates e-trading

BOLT on-line Trading System at BSE

Benefits :

Lower Transaction Costs

Increased Liquidity & Transparency

Greater Competition

Time Efficient & Automated

De-materialization (Demat)

Shares held in electronic format (Non-Physical)

Facilitates electronic settlement of trades

Maintained & monitored by Depository Participant (DP)

e-trading Screen

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Capital Market Regulator - SEBI

Capital Market Watchdog

Established under SEBI Act, 1992

Promotes Investor Education

Monitors Insider Trading

Regulates Stock Exchanges

Working of all Intermediaries, Stock Brokers

Prohibits Fraudulent and Unfair Trade Practices

Asset Class Offerings Equity

Direct Equity Equity Mutual Funds

Debt Bank FDs Corporate FDs Debt Mutual Funds Government Instruments (PPF, NSC, Post Office Savings)

Gold ETFs Fund of Funds

100 = 20 .…. How ?

Now that Rs. 100 has become 20, how will one make Rs. 20 work optimally ???

Illustration Amount

Base Income 100

Less : Direct Tax 30

Post Direct Tax Income 70

Non - Discretionary Expenses 35

Indirect Taxes 5

Net Income 30

Net Investible Income 20

Demon of Inflation

1200.00

300.00

50.00

40.00

22.20

48.35

2008

830.85LPG Cylinder

2620.27Zodiac Men’s shirt

259.12Petrol (per litre)

224.00Masala Dosa

52.00Hamam Soap

104.0018.90Colgate toothpaste (100 gm tube)

2017?Item 1987

8.05

3.05

3.50

7.99

56.15

225.00

7.85

14.00

25.48

137.85

510.00

1997

You Have to Invest to Beat InflationFD Returns = 9%

Interest is taxable

Clearly, ONLY Low Risk FDs Clearly, ONLY Low Risk FDs will erode your capitalwill erode your capital

More than ~70% of Investors Funds find their way More than ~70% of Investors Funds find their way to FD’sto FD’s

Equity v/s Debt – Performance RecoEquity v/s Debt – Performance Recordrd

Equity

Rs. 813 in August 2014 at a CAGR Return of 20.1% After Tax

DebtRs. 236 in August 2014 at a CAGR

Return of 6.2% After Tax**

Investment of Rs. 100 invested in March 2003 would have been

** assumed investor is in Highest Tax Bracket

BEATING INFLATION – Equity Investing BEATING INFLATION – Equity Investing High Risk

Two year Bull Run in a 7-8 years7-8 years

Pulls up overall average returns

* Minimum period of remaining invested is 7-10 years

Returns Difference – Over the Longer TermReturns Difference – Over the Longer Term

HUGE

Scheme Category / Benchmark Indices CAGR % Returns (10th October, 2014)

1 year 2 years 3 years 5 years 7 years 10 years

Large Cap Funds 53% 24% 22% 16% 13% 22%

Mid Cap Funds 94% 37% 33% 23% 20% 24%

Balanced Funds 64% 25% 23% 18% 15% 22%

Ways of Participating in the Equity Market

Direct Equity

Through Mutual Funds

Selecting a Stock

Management

Business Model

Numbers

Story behind the Numbers

Industry Outlook

Annual Report

Investing v/s Trading Time Frame v/s Immediate

Level of Market Expertise

Long Term v/s Speculative

Delivery v/s Square Off

Returns v/s Zero Sum Game

Capital Markets – Road Ahead Current Participation – 2%; Year 2025 – 10-15%

participation

Indian Equity Market - Strong Potential for Growth

Investment Cycle has to re-start

Sheer Size of Indian Economy

Changing Demographics in India

InvestingInvesting in Mutual Funds in Mutual Funds

What are Mutual Funds

Pool of Money

Professionally Managed

Governed by AMFI and SEBI

Sponsor / Trustee, AMC

Mutual Fund Terms AMC

Corpus

AUM

NAV & Units

Fund Factsheet

Expense Ratio

NFO

Types of Mutual Fund Schemes

Equity Mutual Fund Schemes

Large Cap / Multi Cap / Mid & Small cap / Sectoral Funds

Debt Mutual Fund Schemes

Liquid / Ultra Short Term / Dynamic Bond / Income / Gilt

Balanced Funds

Gold Fund of Funds

Tax Saving Schemes

Advantages of Investing through MFs

Wide choice of products

Relatively easier to invest – in terms of operations

Less Volatile

Possible to invest small sums

Facilitates disciplined investing

Mutual Fund Taxation

LTCG = Long Term Capital Gains, STCG = Short Term Capital Gains; ** With effect from 11th July, 2014

Ways of Investing in Mutual Funds

Systematic Investment Plan

Systematic Transfer Plan

Systematic Withdrawal Plan

Lumpsum

KYC & Procedures

No need to time the market

Buy more for less when the markets are down and less for more when the markets are up

Rupee Cost Averaging

   

  

The above investment simulation, is purely for illustrative purpose only and shall not be deemed as guarantee/promise of minimum returns and safeguard of capital or to depict performance of any mutual fund scheme.  SIP does not assure a profit or guarantee protection against loss in a declining market.

Mutual Fund Investment Options

Growth

Dividend

Dividend Re-investment

MF Portfolio Creation – Key Parameters

Goals & Objectives

Risk Appetite

Allocation & Diversification

Consistent Performance Track Record

Fund Manager Performance Record

AMC Experience & Total Corpus

Measuring MF Performance Benchmarking

Peer Group Performance Comparison

Understanding Strategies

Statistical Measures

Equity - Sharpe Ratio

Debt - Duration, Credit Quality

Financial Planning using Financial Planning using

Asset AllocationAsset Allocation

What is Financial Planning

Achieving Financial Goals

An Individual has to deal with

Investments

Insurance

Taxes

Retirement

Financial Planning Concerns

Do I need to look at my PF everyday

Equity is very risky !!!!

FD is the best

I must take a money back 

insurance policy

It is too late / It is too early to plan my finances

Is it only for wealthy people

I have a very small amount to 

invest

Steps in Financial Planning Financial Goals

Buying a house Children's Education Children’s Marriage

Insurance Planning

Tax Planning

Retirement Planning

Estate Planning

Risk Profiling / Questionnaire

Risk profiling is a process for finding

Optimal Level of Investment Risk

Assessing Risk required

Risk Appetite

Risk Tolerance Levels

Financial Products

Equity Markets

Insurance Policies

Mutual Funds (Equity & Debt)

Fixed Deposits

Commodities

Small Saving Schemes

Real Estate

Financial Planning Life Cycle StagesWealth Creation Wealth Consolidation Wealth Protection

Power of Compounding

Monthly SIP Amount ( )̀

Expected Rate of Return

Estimated Corpus over 10 years

2,0002,000 15%15% Rs. 5.6 lakhRs. 5.6 lakh

3,5003,500 15%15% Rs. 9.8 lakh Rs. 9.8 lakh

5,0005,000 15%15% Rs. 13.9 lakh Rs. 13.9 lakh

Bull Cycle once in 7-8 years pulls up Average ReturnsBull Cycle once in 7-8 years pulls up Average Returns

Power of Compounding

What you save every day

How much it could earn every year

...and after... You will have*

Rs. 30 10% 25 years Rs. 1,18,640

Rs. 30 12% 25 years Rs. 1,86,151

Rs. 30 15% 25 years Rs. 3,60,463

*(Compounded Annually)

Let us assume that instead of spending on coffee at the nearest café which costs Rs. 30, you decide to forego the coffee and invest the amount, here is what it could add up to after 25 years...

Clearly, the table shows that the longer you leave your money invested and the higher the rate of return, the faster your wealth will grow.

Three Pillars of Investing Safety

Liquidity

Returns

Right Approach to Financial Planning

Prepare Comprehensive Financial Plan

List down all Assets

List down all Liabilities

Set Achievable Financial Goals

Asset Allocation- ImportanceEQUITY if : Relatively High Risk Appetite Relatively longer time frame for

achieving goals Higher Investible Amount High Risk – High Reward

DEBT if : Non-Discretionary Nature of

Goals Diversification of Risks Low Risk – Low Returns Potential to provide Regular

Income

GOLD if : Asset Class of the Last

Resort Optimizes Portfolio Returns Traditional Hedge

CASH if : Foreseeable Near Term Goal Contingency Funds

Re-balancing Asset Allocation Allocate based on Economic & Market conditions

Provide Weightages based on Outlook

Create Asset Class Boundaries

Rebalance based on

Breaching Boundaries

Changing Outlook

Portfolio Monitoring Periodically Monitor

Adopt well defined strategy

Review Annually

Returns Consistency

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FINANCIAL PLANNING IS A FINANCIAL PLANNING IS A FULL TIME ACTIVITYFULL TIME ACTIVITY

THERE IS NO SHORT CUT THERE IS NO SHORT CUT TO MAKING MONEYTO MAKING MONEY