Preference Shares

When an individual holds preference shares, they have a preferential right to:

 Receive dividends at a fixed rate. When a company books profits and extends the
same to its shareholders, the amount thus distributed is called a dividend. This is
usually calculated from net profits after deducting essential expenses. The rate at
which the dividend will be handed out is determined by the company’s board.
 Receive repayment of the capital if the company winds up. Winding up is a
process of dissolving a company. When a company winds up, it stops doing
business and sells its assets to pay off creditors, partners, and shareholders.

Preference shareholders have limited voting rights as compared to equity shareholders

and they can vote only on matters affecting their rights.

Equity Shares

All shares that are not preferential shares are equity shares and are also known as ordinary
shares.

A person who holds equity shares has the right to vote in the company’s decisions. 

As an equity shareholder, you are entitled to receive a claim to any profits paid by the
company in the form of dividends. It is important to note here that when a company
books profits, its management has the right to decide if:

1. It wants to reinvest the money into the business for growth and/or expansion; or
2. Pay out a part of the profits to shareholders in the form of dividend. 

This is decided by the board of directors and shareholders have no influence over this
decision. 

BONDS
  Bonds are units of corporate debt issued by companies and
securitized as tradeable assets.
 A bond is referred to as a fixed-income instrument since bonds
traditionally paid a fixed interest rate (coupon) to debtholders.
 Variable or floating interest rates are also now quite common.
 Bond prices are inversely correlated with interest rates: when rates
go up, bond prices fall and vice-versa.
 Bonds have maturity dates at which point the principal amount must
be paid back in full or risk default.

TYPES OF BONDS

1. Fixed Rate Bonds

In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond.
Owing to a constant interest rate, fixed rate bonds are resistant to changes and
fluctuations in the market.

2. Floating Rate Bonds

Floating rate bonds have a fluctuating interest rate (coupons) as per the current market
reference rate.

3. Zero Interest Rate Bonds

Zero Interest Rate Bonds do not pay any regular interest to the investors. In such types
of bonds, issuers only pay the principal amount to the bond holders.

4. Inflation Linked Bonds

Bonds linked to inflation are called inflation linked bonds. The interest rate of Inflation
linked bonds is generally lower than fixed rate bonds.

5. Perpetual Bonds
Bonds with no maturity dates are called perpetual bonds. Holders of perpetual bonds
enjoy interest throughout.

6. Subordinated Bonds
Bonds which are given less priority as compared to other bonds of the company in cases
of a close down are called subordinated bonds. In cases of liquidation, subordinated
bonds are given less importance as compared to senior bonds which are paid first.

7. Bearer Bonds
 Bearer Bonds do not carry the name of the bond holder and anyone who possesses the
bond certificate can claim the amount. If the bond certificate gets stolen or misplaced by
the bond holder, anyone else with the paper can claim the bond amount.

8. War Bonds
War Bonds are issued by any government to raise funds in cases of war.

9. Serial Bonds
Bonds maturing over a period of time in installments are called serial bonds.

10. Climate Bonds

Climate Bonds are issued by any government to raise funds when the country concerned
faces any adverse changes in climatic conditions.

DEBENTURE
A debenture is a type of long-term business debt not secured by any collateral. It is a
funding option for companies with solid finances that want to avoid issuing shares and
diluting their equity.

DIVIDENDS
A dividend is a distribution of profits by a corporation to its shareholders. When a
corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend
to shareholders. Any amount not distributed is taken to be re-invested in the business (called
retained earnings).

DERIVATIVES
 Derivatives are financial contracts, set between two or more parties,
that derive their value from an underlying asset, group of assets, or
benchmark.
 A derivative can trade on an exchange or over-the-counter.
 Prices for derivatives derive from fluctuations in the underlying asset.
 Derivatives are usually leveraged instruments, which increases their
potential risks and rewards.
 Common derivatives include futures contracts, forwards, options,
and swaps.
INDEXES
An index is a method to track the performance of a group of assets in a
standardized way. Indexes typically measure the performance of a basket
of securities intended to replicate a certain area of the market.
 the Dow Jones, S&P 500, and Nasdaq Composite are three popular U.S. indexes.

Mutual Funds
 A mutual fund is a type of investment vehicle consisting of a portfolio
of stocks, bonds, or other securities. 
 Mutual funds give small or individual investors access to diversified,
professionally managed portfolios.
 Mutual funds are divided into several kinds of categories,
representing the kinds of securities they invest in, their investment
objectives, and the type of returns they seek.
 Mutual funds charge annual fees, expense ratios, or commissions,
which may affect their overall returns.
 Employer-sponsored retirement plans commonly invest in mutual
funds.
WHAT IS A CAPITAL MARKET?
Capital market is a place where buyers and sellers indulge in trade (buying/selling) of financial securities
like bonds, stocks, etc. The trading is undertaken by participants such as individuals and institutions.

Capital market trades mostly in long-term securities. The magnitude of a nation’s capital markets is
directly interconnected to the size of its economy which means that ripples in one corner can cause major
waves somewhere else.

Types of Capital Market

Capital market consists of two types i.e., Primary and Secondary.

1. Primary Market

Primary market is the market for new shares or securities. A primary market is one in which a
company issues new securities in exchange for cash from an investor (buyer).It deals with trade of
new issues of stocks and other securities sold to the investors.

2. Secondary Market

Secondary market deals with the exchange of prevailing or previously-issued securities among
investors. Once new securities have been sold in the primary market, an efficient manner must
 exist for their resale. Secondary markets give investors the means to resell/ trade existing
securities. Another important division in the capital market is made on the basis of the nature of
security sold or bought, i.e., stock market and bond market.

What is working capital?

Working capital indicates the liquidity levels of businesses for managing day-to-day
expenses and covers inventory, cash, accounts payable, accounts receivable and
short-term debt. It is an indicator of the short-term financial position of an
organisation and is also a measure of its overall efficiency.

Working Capital = Current Assets – Current Liabilities

What is an IPO?
An Initial Public Offering is the first offer of shares made by a private company to the general
public. In an IPO, the private company offers new shares to the public in exchange for capital. This
capital is then used by the company for growth. IPOs are therefore a valuable tool for rapidly
expanding companies in need of capital and an opportunity for the public to profit from holding
shares of profitable companies.

Basic terminology
When it comes to IPOs, the following are some of the technical terms (jargon) used that you might
want to be familiar with:

 Primary market - Shares offered in the IPO. Capital goes to the company’s coffers which is used
by the company for stated purposes.
 Secondary market- Day to day trading on the share market between public entities. Doesn’t add
to company’s capital since this is between individual sellers and buyers - this is what you’re likely
to be dealing with on platforms like Upstox Pro.
 Red herring prospectus - A public document published by the company seeking bids for IPO.
 Equity IPO - If equity is offered in the IPO.
 Bond/Debt IPO - If it is bond/debt that is sold in the IPO to raise capital.
 Underwriter - The institution in charge of conducting the IPO proceedings at the behest of the
company.
 Qualified institutional buyers - Financial organizations with expertise and financial muscle
which bid on IPOs.
 Oversubscription - A situation where the number of bids outstrip the amount of shares offered.
This is common with popular and hyped companies.
 Issue price - Price fixed for one share of the traded company.
 Float- Number of shares in circulation, that is, amount held by the public.
 Flipping - Selling shares bought in the IPO on the first day of trade.
 Secondary offering - new stock offered later on to the public after the IPO.
STOCK MARKET

INTRODUCTION A Stock market is a place where two parties (buyer and seller) involve
themselves in a transaction of securities. Securities are meant by a financial instrument which is
allowed to transferable by/after sale. E.g. Stocks (shares), Bonds, Debentures and any other
marketable securities. Share refers to small denominations of a company’s Share Capital. The
price at which share is issued is known as Issue price which can be more than or equal to face
value of each share.

Securities market is divided into 2 segments namely:-

Primary Market:- refer to a market where the securities are issued for the first time by the
organization to the general public in form of Initial Public Offering (IPO).

Secondary Market: – refer to a market place where securities are traded after being initially
offered to the public in primary market.

Securities And Exchange Board of India (SEBI) established under SEBI Act 1992, is the principal
regulator of all the stock exchanges in India.

The primary function of SEBI includes: –

Protecting the interest of investors in securities

Promoting the development of the securities market

Regulating the securities market. (Eg. prohibiting fraudulent and unfair trade practices)

Depository is like a Bank wherein the deposits are securities (viz. shares, debentures, bonds
etc.). At present in India there are two Depositories which handles all the electronic form of
shares that are: –

National Securities Depository Limited (NSDL)

Central Depository Service (India) Limited (CDSL)

If any investor wants to convert his shares from physical form to electronic form then such
investor is required to undergo a process named Dematerialization and if any investor wants to
convert its electronic holding to a physical form then such investor is required to undergo a
process named Rematerialization.

HISTORY

Bombay Stock Exchange (BSE) was the first Stock Exchange recognized by the Indian
government in the year 1957. All the shares’ certificates were transferred physically to the
purchasing party thus resulting in long Trading Cycle. Today’s leading Stock Exchange National
Stock Exchange (NSE) was established in year 1992 and was established as the first
electronically traded Stock Exchange in India. Thus, it reduces the Trading Cycle which at
present is T+2days.