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| What is an Equity Share? | |
| An equity share represents a form of ownership of a company. The holder of a share is deemed to be a member of the company and has voting rights as per his shareholding in the companys | |
| What is a Stock Exchange? | |
| It is a common platform where buyers and sellers come together to transact in stocks and shares. It may be a physical entity where brokers trade on a physical trading floor via an “open outcry” system or a virtual environment. | |
| What are the functions of the Capital Market? | |
| Capital Market enhances capital formation in the economy and comprises of – a) Primary Market – This is a place where new offers by Companies are made either as an Initial Public Offering (IPO) or as an Rights Issue. b) Secondary Market – This is a market where securities are traded after being initially offered to the public in the Primary Market and/or listed on the Stock Exchange. Majority of trading is done in this market, which comprises of equity and debt market. | |
| How does the Stock Exchange function? | |
| A Stock Exchange is a place where the buyer and seller meet to trade in shares in an organized manner. There are at present 25 recognized stock exchanges in the country that are governed by the Securities Contact (Regulation) Act, 1956. | |
| How is a stock’s price determined? | |
| The price of a stock trade depends upon how little the seller will accept and how much the buyer is willing to pay. You can also find the best price that buyers will pay for a share at the current time, as well as the best price that sellers will accept. If you’re buying, the price you pay for shares may be worse or it might be better than the last traded price. | |
| What is electronic/internet trading? | |
| Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange’s central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange’s central computer and are matched electronically. | |
| How many Exchanges are there in India? | |
| The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the country’s two leading Exchanges. There are 20 other regional Exchanges, connected via the Inter-Connected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT systems. | |
| What is an Index? | |
| An index is a stock-market indicator created as a statistical measure of the performance of an entire market or segment of a market based on a sample of securities from the market. An index is thus a means to evaluate the overall performance of a market or of a segment of the market. An index measures aggregate market movements.Apart from being a general market indicator, indices are used as a benchmark to evaluate individual portfolio performance. An Index comprises stocks that have large liquidity and market capitalization. Each stock is given a weightage in the Index equivalent to its market capitalization.
We have 2 renowned indices viz. (b) S&P Nifty 50 (Nifty) |
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| Which shares can I buy? | |
| You can buy the shares that are listed on any of the recognized Stock Exchanges. | |
| Whom should I contact for my Stock Market related transactions? | |
| To be able to buy or sell shares in the stock markets a client would need to be registered with a stockbroker like Usectrade.com who holds membership in stock exchanges and who is registered with SEBI. | |
| Am I required to sign any agreement with the broker or sub-broker? | |
| Yes, you have to sign the “Member-Client agreement” for the purpose of engaging a broker to execute trades on your behalf from time to time and furnish details relating to yourself to enable the member to maintain Client Registration Form. | |
| Why does one need a broker? | |
| As per SEBI (Securities and Exchange Board of India.) regulations, only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognized Stock Exchange or through a SEBI-registered sub-broker. | |
| What is a Member–Client Agreement form? | |
| This form is an agreement entered into between client and broker in the presence of witnesses wherein the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of broker’s capabilities to deal in the same. | |
| How to execute an order? | |
| Select a broker of your choice and enter into a broker-client agreement and fill in the client registration form. Place your order with your broker preferably in writing. Get a trade confirmation slip on the day the trade is executed and ask for the contract note at the end of the trade date. | |
| What is Buying and Selling? | |
| There are several types of orders that you can dictate to a broker. The most common type, which is a regular buy or sell order, is called a market order. Another type of order is a limit order wherein you ask the broker to trade only if the price reaches a specific level. In a stop order, you tell the broker to sell your shares if the price drops to a certain level to prevent significant loss because if it drops to that level it is likely to drop further and your losses are likely to increase. | |
| What is meant by bullish and bearish trend? | |
| When the market goes up it is called a bullish trend and when the market goes down it is called a bearish trend. | |
| What is taking a position? | |
| When you act upon a stock and buy into it, you are taking a position. A position is an amount of money committed to an investment in anticipation of favorable price movements.There are two kinds of positions : - a) Long positions are what most people do. When you buy long, that means you are anticipating an upward movement in the price, and that is how you profit. People usually buy stocks at prices expecting to sell them later at higher prices and hence make profits. b) Short positions are the tricky ones. When you buy short, you are anticipating a fall in the price and the fall is the source of your profits. The shares will be sold and when the price falls they will be repurchased and given back and the difference is the where the investor profits. Of course, the investor who borrowed the shares carries the risk of not having the price move as anticipated, in which case he may lose money in repurchasing the stocks. |
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| What is a contract note? | |
| Contract Note is a confirmation of trades done on a particular day on behalf of the client. It establishes a legally enforceable relationship between the client and Usectrade.com with respect to the settlement of the trades. The Contract Note would show settlement number, order number, trade number, time of trade, quantity and price of the trades, brokerage charged, etc and it would be signed by an authorised person of Usectrade.com. These are made in duplicate and the member and the client both keep a copy each. A client should receive the contract note within 24 hours of the executed trade. | |
| What are the additional charges other than brokerage that can be levied on the investor? | |
| The trading member can charge: 1. Securities Transaction Tax.2. Service tax as applicable. 3. Transaction charges levied by NSE, Stamp duty and other charges directly attributable to the transaction. Note : The brokerage and service tax is indicated separately in the contract note. |
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| What is a book-closure/record date? | |
| Book closure and record date help a company determine exactly the shareholders of a company as on a given date.Book closure refers to the closing of register of the names or investors in the records of a company. Companies announce book closure dates from time to time. The benefits of dividends, bonus issues, rights issue accruing to investors whose name appears on the company’s records as on a given date, is known as the record date.
An investor might purchase a share-cum-dividend, cum rights or cum bonus and may therefore expect to receive these benefits as the new shareholder. In order to receive this, the share has to be transferred in the investor’s name, or he would stand deprived of the benefits. The buyer of such a share will be a loser. It is important for a buyer of a share to ensure that shares purchased at cum benefits prices are transferred before book-closure. It must be ensured that the price paid for the shares is ex-benefit and not cum benefit. |
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| What is the difference between book closure and record date? | |
| In case of a record date, the company does not close its register of security holders. Record date is the cut off date for determining the number of registered members who are eligible for the corporate benefits. In case of book closure, shares cannot be sold on an Exchange bearing a date on the transfer deed earlier than the book closure. This does not hold good for the record date. | |
| What is a no-delivery period? | |
| Whenever a company announces a book closure or record date, the Exchange sets up a no-delivery (ND) period for that security. During this period only trading is permitted in the security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor’s entitlement for the corporate benefit is clearly determined. | |
| What is an ex-dividend date? | |
| The date on or after which a security begins trading without the dividend (cash or stock) included in the contract price. | |
| What is an ex-date? | |
| The first day of the no-delivery period is the ex-date. If there are any corporate benefits such as rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the shares on or after the ex-date will not be eligible for the benefits. | |
| What is Earnings Per Share? | |
| Earnings Per Share (EPS) is the net profit earned per share of the company. It can be obtained by dividing the Profit after Tax (PAT) by the outstanding equity shares of the company. EPS indicates the profitability of the company in relation to its share capital. | |
| What is a Bonus Issue? | |
| While investing in shares the motive is not only capital gains but also a proportionate share of surplus generated from the operations once all other stakeholders have been paid. But the distribution of this surplus to shareholders seldom happens. Instead, this is transferred to the reserves and surplus account. If the reserves and surplus amount becomes large, the company may transfer some amount from the reserves account to the share capital account by a mere book entry. This is done by increasing the number of shares outstanding and every shareholder is given bonus shares in a ratio called the bonus ratio and such an issue is called bonus issue. If the bonus ratio is 1:2, it means that for every two shares held, the shareholder is entitled to one extra share. So if a shareholder holds two shares, post bonus he will hold three.However, one should note that the price of the share may adjust downwards once it becomes ex-bonus. | |
| What is a Split? | |
| A Split is book entry wherein the face value of the share is altered to create a greater number of shares outstanding without calling for fresh capital or altering the share capital account. For example, if a company announces a two-way split, it means that a share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a person holding one share now holds two shares. This may also result in the price of the stock adjusting downwards ex-split. | |
| What is a Buy Back? | |
| It is a process by which a company can buy back its shares from shareholders. A company may buy back its shares in various ways: from existing shareholders on a proportionate basis; through a tender offer from open market; through a book-building process; from the Stock Exchange; or from odd lot holders.
A company cannot buy back through negotiated deals on or off the Stock Exchange, through spot transactions or through any private arrangement. |
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| What is Book Value? | |
| Book Value is also called as Net Asset Value per share. It indicates the assets backing per share of the company. The ratio can be computed as follows: Book Value = Paid-up Equity Capital + Reserves & Surplus – Fictitious Assets Number of Equity Shares Outstanding
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| What is a settlement cycle? | |
| The accounting period for the securities traded on the Exchange. On the NSE, the cycle begins on Wednesday and ends on the following Tuesday, and on the BSE the cycle commences on Monday and ends on Friday.
At the end of this period, the obligations of each broker are calculated and the brokers settle their respective obligations as per the rules, bye-laws and regulations of the Clearing Corporation. If a transaction is entered on the first day of the settlement, the same will be settled on the eighth working day excluding the day of transaction. However, if the same is done on the last day of the settlement, it will be settled on the fourth working day excluding the day of transaction. |
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| What is a rolling settlement? | |
| The rolling settlement ensures that each day’s trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. At present, this gap is five working days after the trading day. The waiting period is uniform for all trades. | |
| When does one deliver the shares and pay the money to broker? | |
| As a seller, in order to ensure smooth settlement you should deliver the shares to your broker immediately after getting the contract note for sale but in any case before the pay-in day. Similarly, as a buyer, one should pay immediately on the receipt of the contract note for purchase but in any case before the pay-in day. | |
| What is short selling? | |
| Short selling is a legitimate trading strategy. It is a sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers take the risk that they will be able to buy the stock at a more favourable price than the price at which they “sold short.” | |
| What is an auction? | |
| An auction is conducted for those securities that members fail to deliver/short deliver during pay-in. Three factors primarily give rise to an auction: short deliveries, un-rectified bad deliveries, un-rectified company objections. | |
| Is there a separate market for auctions? | |
| The buy/sell auction for a capital market security is managed through the auction market. As opposed to the normal market where trade matching is an on-going process, the trade matching process for auction starts after the auction period is over. | |
| What happens if the shares are not bought in the auction? | |
| If the shares are not bought at the auction i.e. if the shares are not offered for sale, the Exchange squares up the transaction as per SEBI guidelines. The transaction is squared up at the highest price from the relevant trading period till the auction day or at 20 per cent above the last available Closing price whichever is higher. The pay-in and pay-out of funds for auction square up is held along with the pay-out for the relevant auction. | |
| What is bad delivery? | |
| SEBI has formulated uniform guidelines for good and bad delivery of documents. Bad delivery may pertain to a transfer deed being torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer. Bad delivery exists only when shares are transferred physically. In “Demat” bad delivery does not exist. | |
| What are company objections? | |
| A list documenting reasons by a company for not transferring a share in the name of an investor is called company objections. Rejection occurs due to a signature difference, or fake shares, or forgery, or if there is a court injunction preventing the transfer of the shares. | |
| What should one do with company objections? | |
| The broker must immediately be notified. Company objection cases should be reported within 12 months from the date of issue of the memo for the original quantity of share under objection. | |
| Who has to replace the shares in case of company objections? | |
| The member who has sold the shares first on the Exchange is responsible for replacing the shares within 21 days of the Exchange being informed. Company objection cases that are not rectified or replaced are normally auctioned. | |
| How does transfer of physical shares take place? | |
| After a sale, the share certificate along with a proper transfer deed duly stamped and complete in all respects is sent to the company for transfer in the name of the buyer. Once the transfer is registered in the share transfer register maintained by the company, the process of transfer is complete. | |
| What are the rights of the investor? | |
| The right to get - Proof of price/brokerage charged, Money/shares on time, Statement of Accounts and Contract Note from trading member. |
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| What are the obligations of the investor? | |
The obligation to -
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| What are the tax implications of investing in Indian equities? | |
| Tax rates on investments gains are categorized as long term & short term capital gains.
(a) Long term capital gains Long Term investments that are held for more than 12 months are termed as long term capital assets. Profit on sale of such assets is termed as long term capital gain (LTCG) which as per the latest Budget notification will attract nil tax. (b) Short term capital gains |
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