PKMS

Zerodha Varsity

4 min read

index

Invest in Assest Classes:

  • Real Estate Commercial or Residential Two ways to earn → Rental Income or Capital Appreciation

  • Fixed Income (We receive a fixed interest on some principal investment), gives about 5% returns

    • Government Bonds
    • Fixed Deposit account in bank
    • Corporate Bonds

  • Commodities (precious metals) Most popular → Gold and Silver → invest in jewelry, Exchange Traded Funds(ETF), or Sovereign Gold Bonds(SGBs) In simple words, government sovereign gold bond scheme is where instead of having physical gold sitting idle in your house, you can invest in gold bonds.

  • Equity (shares/stocks of any company) Two Indian Stock Exchange markets: NSE(National Stock Exchange) and BSE(Bombay Stock Exchange) Nifty → weightage average of top 50 stocks

Journey of a Trade:

  • Broker (like Zerodha Kite) → place an order through an broker, which is a corporate entity registered as a trading member with Stock Exchange. Broker holds a stockbroking license through which our orders are placed in actual market. Broker follows SEBI guidelines. Broker charges Brokerage / fee for it’s servvice.
  • Stock Exchange (BSE, NSE) → bid and asks are listed, if they match trade is executed. This is an orderbook
  • Clearing Corporation (NSCCL(NSE), ICCL(BSE)) → where the trade is cleared, make sure buyer pays and trader transfer shares.
  • Depository (NSDL(NSE), CDSL(BSE)) → digital place where all stocks details are stored. Brokers are usually connected directly to this Depository by Depository Participants to show it’s users their stock infos.

IPO, why companies list their stocks ?

Origins of a a Business:

Suppose a person want’s to start it’s company for which he needs intial investment, which is generally raised by friends / family / network or Angel Investors in exchange of some shares of that company, these is Seed Round funding. The money raised in seed round is also called Initial Share Capital.

Now after initial success he wants to add more production units therefore needs more money, so he goes to Venture Capitals(VCs), which specialized in investing startups, and in exchange gives VCs company stocks, note that this stocks are not from existing pool rather new stocks are issued as company has grown.

After this, person can go on multiple funding rounds called Series A, Series B and so on…

Now after few years of huge successes he want to expand let’s say globally, so a very large investment is required. For this there are few ways to raise this money and one of them is Initial public offering (IPO) where companies stocks are publically listed on Stock Exchanges.

Initial public offering (IPO) process:

  • Appoint a Merchant Banker: he make sure company is following all rules
  • Approval from SEBI: Merchant Banker and company go and apply to SEBI with a registration statement which contains all information about company health, financial conditions, departments and managements.
  • Draft Red Herring Prospectus (DRHP): all information about company health, financial conditions, departments and managements, their estimated risks and return formated in a single document.
  • Market the IPO: spread awareness about companies going public through IPO.
  • Book Building: Company fixes a price band which is range for initial bids.
  • Closure: According to median bids in book building stage initial price of stock in Stock Market is finalized
  • Listing day : when company share/stocks are listed and tradable on stock exchanges.

Stock Market:

the stock market is an electronic marketplace. Buyers and sellers electronically express their points of view in terms of trade. news or events about company causes fluctuation in market.

Stock Market Index:

Order Types:

  • Limit → we specify the bid/ask price and if it’s lower(for bids) or higher(for asks) than LTP (Last Traded Price) then trade is just registered in orderbook.
  • Market → we are matched with best price i.e. lowest(asks) or highest (bids).

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