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Dr. Bharath Chandra & Rohan’s

Stock Market Workshop

Study Material specially designed for the participants

of the Stock Market Workshop

Mob: +91 99-000-000-46

Email: [email protected]
[email protected]
Website: www.drbharathchandra.com

My Details:

Name
Month & Year of Workshop

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Section 1: Investment Basics

What is Investment?
The money you earn is partly spent and the rest saved for meeting future expenses.
Instead of keeping the savings idle you may like to use the savings in order to get return
on it in the future. This is called Investment.

Why should one Invest?

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One needs to invest to:
 Earn return on his/her idle resources.
 Generate a specified sum of money for a specific goal in life.
 Make a provision for an uncertain future.

One of the important reasons why one needs to invest wisely is to meet the Cost of Inflation.
Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs
to buy the goods and services you need to live. Inflation causes money to lose value because it
will not buy the same amount of a good or a service in the future as it does now or did in the
past. For example, if there was a 6% inflation rate for the next 20 years, a meal of Rs.100/-
today would cost Rs.321/- in 20 years. But at the rate of 4% bank interest you will not meet the
cost of the meal at the end of 20 years. This is why it is important to consider inflation as a
factor in any long-term investment strategy. Remember to look at an investment’s ‘real’ rate of
return, which is the return after inflation. The aim of investments should be to provide a return
above the inflation rate to ensure that the investment does not decrease in value. For example,
if the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it
increases in value. If the after-tax return on your investment is less than the inflation rate, then
your assets have actually decreased in value; that is, they won’t buy as much today as they did
last year.

When to Start Investing?

The sooner one starts investing the better. By investing early you allow your investments more
time to grow, whereby the concept of compounding increases your income, by accumulating the
principal and the interest or dividend earned on it, year after year. The three golden rules for all
investors are:

1. Invest Early

2. Invest Regularly

3. Invest for Long Term and not Short Term

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These days, you can’t retire without using the returns from investments. You can’t count on
your pension to cover your expenses when you retire. It’s barely enough for people who are
receiving it now to have food, shelter and utilities. It is important to have your own financial plan.
There are many kinds of investments you can make that will make your life much easier down
the road.

Portfolio of Age Relationship

Your age will help you determine what a good portfolio is:

Your Percentage Stock Market exposure should be = 100 – Your Age

What care should one take while investing?

Before making any investment, one must ensure to:

1. Obtain written documents explaining the investment.

2. Read and understand such documents.

3. Verify the legitimacy of the investment.

4. Find out the costs and benefits associated with the

investment.

5. Assess the risk-return profile of the investment.

6. Know the liquidity and safety aspects of the investment.

7. Ascertain if it is appropriate for your specific goals.

8. Compare these details with other investment opportunities available.

9. Examine if it fits in with other investments you are considering or you have already made.

10. Deal only through an authorized intermediary.

11. Seek all clarifications about the intermediary and the investment.

12. Explore the options available to you if something were to go wrong, and then, if satisfied,
make the investment.
What are the various options available for investment?
One may invest in:

 Physical assets like Real Estate, Gold / Jewellery, Commodities etc. and/or

 Financial assets such as Fixed Deposits with banks, small saving instruments with post
offices, insurance/ provident/ pension funds etc. or securities which are market related
like Shares, Bonds, Debentures etc.

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What are the various Short-term financial options available for Investment?

Broadly speaking, savings bank account, money market / liquid funds and Fixed Deposits with
banks may be considered as short-term financial Investment
options:

Savings Bank Account is often the first banking product people

use, which offers low interest (3.0 % p.a.)

Money Market or Liquid Funds are a specialized form of mutual

funds that invest in extremely short-term fixed income instruments and thereby provide easy
liquidity. Unlike most mutual funds, money market funds are primarily oriented towards
protecting your capital and then aim to maximize returns. Money market funds usually yield
better returns than savings accounts, but lower than bank fixed deposits.

Fixed Deposits with Banks are also referred to as term deposits and minimum investment
period for bank FDs is 30 days. Fixed Deposits with banks are for investors with low risk
appetite, and may be considered for 6-12 months investment period, as normally interest on
less than 6 months bank FDs is likely to be lower than money market fund returns.

What are the various Long Term Financial Options available for Investment?

Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument,
which can be availed through any post office. It provides an interest rate of 8% per annum,
which is paid monthly. Minimum amount which can be invested is, Rs.1,000/- and additional
investment in multiples of 1,000/-. Maximum amount is Rs. 4,50,000/- (if Single) or Rs.
9,00,000/- (if held Jointly) during a year. It has a maturity period of 6 years. Premature
withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the
principal amount if withdrawn prematurely.

Public Provident Fund: A long term savings instrument with a maturity of 15 years and interest
payable at 7.1 % per annum compounded annually. A PPF account can be opened through a
nationalized bank at any time during the year and is open all through the year for depositing
money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. A
withdrawal is permissible every year from the seventh financial year of the date of opening of
the account and the amount of withdrawal will be limited to 50% of the balance at credit at the
end of the 4th year immediately preceding the year in which the amount is withdrawn or at the
end of the preceding year whichever is lower the amount of loan if any.

Company Fixed Deposits: These are short-term (six months) to medium-term (three to five
years) borrowings by companies at a fixed rate of interest which is payable quarterly,

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monthly, semi-annually or annually. They can also be cumulative fixed deposits where the entire
principal along with the interest is paid at the end of the loan period. The rate of interest varies
between 9-12% per annum for company FDs. The interest received is after deduction of taxes.

Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the
purpose of raising capital. The central or state government corporations and similar institutions
sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest
on a specified date, called the Maturity Date. This is typically a safe bet and one that is a good
investment for a first time investor because there is little risk of losing your money.

Mutual Funds: These are funds operated by an investment company, which raises money from
the public and invests in a group of assets (shares, debentures etc.) in accordance with a stated
set of objectives. It is a substitute for those who are unable to invest directly in equities or debt
because of resource, time or knowledge constraints. Benefits include professional money
management, buying in small amounts and diversification. Mutual fund units are issued and
redeemed by the Fund Management Company-based on the fund’s net asset value (NAV),
which is determined at the end of each trading session. NAV is calculated as the value of all the
shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds
are usually long term investment vehicles though there are some categories of mutual funds,
such as money market mutual funds which are short term instruments.

Life Insurance: Life Insurance policies are another kind of investment that is fairly popular. It is
a way to ensure income for your family when you die. It allows you a sense of security and
provides a valuable tax deduction.

Stocks: Stocks are a unique kind of investment because they allow you to take partial
ownership in a company. Since these returns are potentially bigger, they have a history of being
a wise way to invest your money.

Real Estate: Is a tangible kind of investment. It includes your land and anything permanently
attached to your piece of property. This may include your home, rental properties, your
company or empty pieces of land. Real estate is typically smart investment and can make you a
lot of money over time.

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PAN Card (Permanent Account Number)

For application form visit https://tin.tin.nsdl.com/pan/form49A.html

Complete the online application form. Note down the 15-digit acknowledgement number.

Save and print this acknowledgement.

Mode of Payment

The fee for processing PAN application can be paid by: DD /

Cheque / Credit Card / Net banking

Demand draft and cheque should be drawn in favour of NSDL –

PAN, payable at Mumbai.

Those who choose to pay by credit card will be taken to the bank gateway where they need to
choose their bank and enter the 16-digit credit card number.

On successful credit card payment acknowledgement will be displayed. Applicant shall save
and print the acknowledgement and send to NSDL.

Checklist and Dispatch

Documents to be submitted as identity proof can be either voters ID card or driving license or
passport and address proof can be either driving license or passport or rent receipt or telephone
or electricity bill.

Affix a recent colour photograph (size 3.5cm x 2.5cm) in the space provided in the
acknowledgement.

Subscribe the envelope with ‘APPLICATION FOR PAN – Acknowledgement Number’. The
documents need to be sent to the following address:

INCOME TAX PAN SERVICES UNIT,

National Securities Depository Limited,
5th Floor, Mantri Sterling,Plot No. 341, Survey No. 997 /8,
Model Colony, Near Deep Bungalow Chowk, Pune - 411 016.

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Concept of Compounded Annual Growth Rate (CAGR)

Suppose, Rs.100/- is invested at 10% per annum interest in a bank, the following would be
growth of the investment -
Year Interest Total Amount
At end of Year 1 10 110
At end of Year 2 11 121
At end of Year 3 12 133
At end of Year 4 13 146
At end of Year 5 15 161
At end of Year 6 16 177
At end of Year 7 18 195
At end of Year 8 20 215
At end of Year 9 22 237
At end of Year 10 24 261
At end of Year 11 27 287
At end of Year 12 29 316
At end of Year 13 32 348
At end of Year 14 35 383
At end of Year 15 38 421

The investment of Rs.100 would have grown to Rs.421 at the end of 15 years after
compounding at 10% per annum.
Total Interest = Rs.421 - Rs.100 = Rs.321
Interest/ Profit % = 321 X 100 = 21.40 % per annum
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Although the bank paid only 10% per annum interest, the above calculation is showing an
interest rate of 21.40 % per annum.

The 21.40 % per annum calculation is when you consider the compounding effect of
money and the 10% per annum is the simple returns received from the investment.

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Section 2: Equities / Stock Markets

Primary Market
What is the role of the ‘Primary Market’?

The primary market provides the channel for sale of new securities for Government as well as
Corporates, to raise resources to meet their requirements of investment and/or discharge some
obligation. They may issue the securities at face value, or at a discount/premium and these
securities may take a variety of forms such as equity, debt etc. They may issue the securities in
domestic market and/or international market.

What is meant by Face Value of a share/debenture?

Face value is the nominal or stated amount (in Rs.) assigned to a security by the issuer. For
shares, it is the original cost of the stock shown on the certificate; for bonds, it is the amount
paid to the holder at maturity. Also known as par value or simply par. For an equity share, the
face value is usually a very small amount (Rs.1, 2, 5, 10 and Rs.100) and does not have much
bearing on the price of the share, which may quote higher in the market, at Rs.100 or Rs.1000
or any other price. For a debt security, face value is the amount repaid to the investor when the
bond matures (usually, Government securities and corporate bonds have a face value of
Rs.100). The price at which the bond trades depends on the fluctuations in the interest rates in
the economy.

Why do you mean by the term Premium and Discount in a Security Market?

Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face
Value or Par Value of the security as discussed earlier. When a security is sold above its face
value, it is said to be issued at a Premium and if it is sold at less than its face value, then it is
said to be issued at a discount.

Issue of Shares

Why do companies need to issue shares to the public?

Most companies are usually started privately by their promoter(s).

However, the promoters’ capital and the borrowings from banks and
financial institutions may not be sufficient for setting up or running
the business over a long term. So companies invite the public to
contribute towards the equity and issue shares to individual
investors. The way to invite share capital from the public is through a ‘Public Issue’. Simply
stated, a public issue is an offer to the public to subscribe to the share capital of a company.

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Once this is done, the company allots shares to the applicants as per the prescribed rules and
regulations laid down by the Securities & Exchange Board of India (SEBI).

What are the different kinds of issues?

Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as
private placements.) While public and rights issues involve a detailed procedure, private
placements or preferential issues are relatively simpler. The classification of issues is illustrated
below:

Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to the public. This
paves way for listing and trading of the issuer’s securities.

A follow on Public Offering (Further Issue or FPO) is when an already listed company makes
either a fresh issue of securities to the public or an offer for sale to the public, through an offer
document.

Rights Issue is when a listed company which proposes to issue fresh

securities to its existing shareholders as on a record date. The rights
are normally offered in a particular ratio to the number of securities held
prior to the issue. This route is best suited for companies who would like
to raise capital without diluting stake of its existing shareholders.

A Preferential Issue is an issue of shares or of convertible securities by listed companies to a

select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights
issue nor a public issue. This is a faster way for a company to raise equity capital.

What is meant by Issue Price?

The price at which a company’s shares are offered initially in the primary market is called as the
Issue price. When they begin to be traded, the market price may be above or below the issue
price.

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Secondary Market
What is meant by Secondary Market?
Secondary market refers to 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 the trading is
done in the secondary market. Secondary market comprises of equity markets and the debt
markets.
What is the role of the Secondary Market?
For the general investor, the secondary market provides an efficient platform for trading of his
securities. For the management of the company, secondary equity markets serve as a
monitoring and control conduct – by facilitating value-enhancing control activities, enabling
implementation of incentive-based management contracts, and aggregating information (via
price discovery) that guides management decisions.

What is the difference between the Primary Market and the Secondary Market?
In the primary market, securities are offered to public for subscription for the purpose of raising
capital or fund. Secondary market is an equity trading venue in which already existing/pre-
issued securities are traded among investors.

What is the role of a Stock Exchange in buying and selling shares?

The stock exchanges in India, under the overall supervision of the regulatory authority, the
Securities and Exchange Board of India (SEBI), provide a trading platform, where buyers and
sellers can meet to transact in securities. The trading platform provided by the National Stock
Exchange of India (NSE) is an electronic one and there is no need for buyers and sellers to
meet at a physical location to trade. They can trade through the computerized trading screens
available with the NSE trading members or the internet based trading facility provided by the
trading members of NSE.

What is the maximum brokerage that a broker can charge?

The maximum brokerage that can be charged by a broker from his clients as commission
cannot be more than 2.5% of the value mentioned in the respective purchase or sale note.

What precautions must one take before investing in the stock markets?

Here are some useful points to bear in mind before you invest in the Market:-
 Make sure your broker is registered with SEBI and the exchanges and do not deal with
unregistered intermediaries.

 Ensure that you receive contract notes for all your transactions from your broker within one
working day of execution of the trades.

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 All investments carry risk of some kind. Investors should always know the risk that they are
taking and invest in a manner that matches their risk tolerance.

 Do not be mislead by market rumours, luring advertisement or ‘hot tips’ of the day.

 Take informed decisions by studying the fundamentals of the company. Find out the
business the company is into, its future prospects, quality of management, past track
record etc. Sources of knowing about a company are through annual reports, economic
magazines, and databases available with vendors or your financial advisor.
 If your financial advisor or broker advises you to invest in a company you have never heard
of, be cautious. Spend some time checking out about the company before investing.

 Do not be attracted by announcements of fantastic

results/news reports, about a company. Do your own
research before investing in any stock.

 Do not be attracted to stocks based on what an internet

website promotes, unless you have done adequate study of
the company.

 Investing in very low priced stocks or what are known as penny stocks does not guarantee
high returns.

 Be cautious about stocks which show a sudden spurt in price or trading activity.

 Any advice or tip that claims that there are huge returns expected, especially for acting
quickly, may be risky and may lead to losing some, most, or all of your money.

Products in the Secondary Markets

Following are the main financial products/instruments dealt in the Secondary market which may
be divided broadly into Shares and Bonds:

Shares:

Equity Shares: An equity share, commonly referred to as ordinary share, represents the form
of fractional ownership in a business venture.
Rights Issue / Rights Shares: The issue of new securities to existing shareholders at a ratio to
those already held, at a price. For e.g. a 2:3 rights issue at Rs.125, would entitle a shareholder
to receive 2 shares for every 3 shares held at a price of Rs.125 per share.

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Bonus Shares: Shares issued by the companies to their B onus Shar es

shareholders free of cost based on the number of shares the
shareholder owns.

Preference Shares: Owners of these kinds of shares are entitled

to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can
be paid in respect of equity shares. They also enjoy priority over the equity shareholders in
payment of surplus. But in the event of liquidation, their claims rank below the claims of the
company’s creditors, bondholders/debenture holders.

Cumulative Preference Shares: A type of preference shares on which dividend accumulates if

remained unpaid. All arrears of preference dividend have to be paid out before paying dividend
on equity shares.

Cumulative Convertible Preference Shares: A type of preference shares where the dividend
payable on the same accumulates, if not paid. After a specified date, these shares will be
converted into equity capital of the company.

Bond: It is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt

security is generally issued by a company, municipality or government agency. A bond investor
lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a
specified maturity date. The issuer usually pays the bond holder periodic interest payments over
the life of the loan. The various types of Bonds are as follows:

Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest
is paid. The difference between the issue price and redemption price represents the return to
the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

Convertible Bond: A bond giving the investor the option to convert the bond into equity at a
fixed conversion price.

Treasury Bills: Short-term (up to one year) bearer discount security issued by government as a
means of financing their cash requirements.

What is Stock market?

A Stock market is a place where shares of Public limited companies are traded, or Stock market
is a place where shares and stocks are bought and sold. (“Stock” is a general term used to
describe the shares of any company and “shares” refers to a specific stock of a particular
company). Stock market is the best way to invest your personal money.
Stock markets may increase your wealth if you invest in it. So stocks may be top performers as
a part of your overall financial plan.

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Advantages of Investment in Stock market:

1. Capital appreciation - Stocks typically outperform all other investment options for
Long term (may be a period of 9 years or more)

2. Bonus shares - A profit-sharing company delivers benefits to shareholders in the

form of stock (bonus) instead of cash.

3. Annual dividends - Most of the profit making companies give dividends (Distribution
of earnings to shareholders)

4. Rights shares – Existing Shareholders are given the right to purchase a company’s shares
at slightly discounted prices than market price.

5. Voting rights – Shareholders have the right to vote on important matters relating to the
company such as selection of Board Members

6. Loanability – Shareholders can pledge their shares to a bank as security to take a loan
for personal / business purposes.

7. Marketability – Whatever the situation, the share of bluechip companies can be sold any
day at the prevailing market price and hence it is a very liquid instrument. The sale
proceeds will be credited to shareholder’s trading account in 2 days.

8. Tax Benefits -

9. Other Benefits – some companies give discount vouchers for purchase of their products/
services. Eg. Titan company gives discount vouchers for purchase of its watches,
jewellery etc.

Disadvantages of Stocks:

1. Uncertainty and changing Market Conditions

2. No Guarantee of Profits

3. Problems in dealing with Brokers

4. Need for Constant Watch

5. Need for Correct Timings

6. Uncertain Government policies

7. Need for seeking professional guidance

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Why Companies Issue Stock…

If a company wants to grow—may be build more factories, hire more people, or develop new
products—it needs money. It could get a loan from a bank. But then it would owe money. By
issuing stock, a company can raise money without going into debt. People who buy the stock
are giving the company the money it needs to grow.

Not every company can issue stock. A business owned by one person (a proprietorship) or a
few people (a partnership) cannot issue stock. Only a business corporation can issue stock. A
corporation has a special legal status. Like a school, its existence does not depend on the
people who run it. Under the law it is separate from the people associated with it, and has
special legal rights and responsibilities as well as its own unique name.

… And Why People Buy It

Owning stock in a company means owning part of that company. Each part is known as a
share. If a company has issued 100 shares of stock, and you bought one, you own 1% of that
company. People who own stock are called stockholders, or shareholders.

Stockholders hope the company will earn money as it grows. If a company earns money, the
stockholders share the profits. Over time, people usually earn more from owning stock than
from leaving money in the bank, buying bonds, or making other investments.

One Man 5,000 Votes?

Stockholders in a company usually have voting rights. They vote on such issues as who will be
elected to the board of directors—the group of people who oversee company decisions—and
whether to buy other companies. Stockholders typically have one vote for each share they own.
Every vote counts, but a stockholder with 5,000 shares will have more influence on the
company than someone with only one share.

Most companies have annual meetings, where stockholders cast votes and ask questions of the
company’s leaders. If they cannot attend, stockholders may use an absentee ballot to vote.
Shareholders also receive quarterly and annual reports that tell them how the company is doing.
What Goes up Earns Money

When the price of a particular stock rises, that stock is said to be

“up,” meaning up in price. When the price falls, the stock is said to
have gone “down.” The terms “up” and “down” are also used to
describe the rise and fall of the market as a whole.

As a company makes money, the value of its stock goes up.

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For instance, pretend you bought some shares of a company for Rs. 10 each. Since you share
the company’s profits, if it does well the shares might later be worth Rs.15 each. You could then
sell your stock and make Rs.5 on each share. If the company loses money, however, you would
also share its losses. Those Rs.10 shares might each be worth Rs.3 if the company fell on hard
times.

How to research a stock?

When considering the purchase of a stock, investors should find answers to some key
questions.

Fundamentals What is the company’s business, is it financially sound – and is it

growing?

Price History How much have other investors been willing to pay for the stock in the
past?

Price Target How much are investors likely to pay for the stock in the future?

Catalysts What catalysts will change investors’ perceptions of the stock in the
future?

Comparison How does the stock compare to others in its industry?

Recent Developments Check out what are the recent developments in the company

Trading strategies is a one-stop solution provider and guide to help Indian traders and
investors maximize their returns from the markets and create wealth for themselves and their
family. Buying or selling stocks is not an easy task if you want to make money doing it. Millions
of investors have lost money in the past trying to guess stock price movements.
In order to consistently make money in the stock market, investors have to be right over 70% of
the time. This success ratio is extremely difficult without the guidance of a successful, reliable
and robust stock selection method or algorithm that has been tested and has worked over many
years.

Blue Chips – The shares of a company known to make profits in good and bad times. As there
is low risk of capital loss, the dividend and earnings yields are proportionately high. For e.g.
Infosys, L&T, TCS etc.

Bonus Issue – Companies issue shares in lieu of consideration. The consideration may be
either in the form of cash or kind. Bonus shares are issued to the existing shareholders without
payment of any consideration, either in cash or kind. Bonus shares are issued by conversion of
the reserves and surplus of the company into shares. Obviously, bonus can be issued only by
companies which have accumulated free reserves i.e. reserves not set apart for any specific
purpose and which can be distributed as dividend.

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Some points to keep in mind

An investor must keep not choose any stock blindly. It means he/she should not invest in one
particular stock.

Do not make an average: Buying more of the same shares, generally on a falling market, lowers
the average cost per share.

Diversification of Portfolio: An investor must diversify his portfolio.

An Investor must keep in mind that there are three distinct risks he must guard against; they are
business risk, valuation risk, and force of sale risk.

Business risk- Business risk is, easily understood. It is the potential

for loss of value through competition, mismanagement, and financial
insolvency. There are a number of industries that are predisposed to
higher levels of business risk (airlines, steel, etc.) so it is the duty of
the investor to read about the company from any source which
provides them knowledge.

Valuation risk – An investor must keep in mind the valuation of a company. The business may
indeed be wonderful, but if it experiences a significant sales decline in one quarter or does not
open new locations as rapidly as it originally projected, the stock will decline significantly.

Investment Risk – You have done your homework very well and found an excellent company
that is selling far below what it is really worth, buying a good number of shares. It’s January, and
you plan on using the stock to pay your April tax bill. By putting yourself in this position, you
have bet on when your stock is going to appreciate. This is a financially fatal mistake. In the
stock market, you can be relatively certain of what will happen, but not when. So it’s your first
duty to read the news of your stocks from time to time. If by chance you get some bad news of
stock, then don’t be frantic. Sell this stock as early as possible so that your portfolio will be
saved of bad shares and put money on some safe stock you know.

Consider the following: Let us suppose you had shares of Infosys, Tata Steel, and ACC at a
decent price in 2004 yet had to sell the stock sometime later in the year, you would have been
devastated by the crash that occurred on BLACK MONDAY (18 May 2005) Your investment
analysis may have been absolutely correct but because you imposed a time limit, you opened
yourself up to a tremendous amount of risk.

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Factors which influence Share Price Movement

1. Role of Institutional Investors

2. Role of Small Investors

3. Inflation

4. Government Policies

5. Possibility of War

6. Rallies and reactions

7. Insider Trading

8. Share Cornering

9. Socio-Economic Atmosphere

10. International Developments

Fundamental Analysis
It is an approach to analyzing the merit of an investment in a share through the analyzing the
fundamentals of a company such as quality of assets, earnings consistency and future earning
potential, capital structure, quality of management, return on investment etc.

Case of ABC Limited

Profit & Loss Account for year ending 31st March 2024

Items Amount (in Rs. Crore)

Sales 25
Less: Cost of sales 10
Gross Profit 15
Less: Salaries & General Expenses 5
Earnings before interest and tax 10
Less: Interest 2
Earnings before Tax 8
Less: Tax (30%) 2.4
Net Profit after Tax 5.6

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Balance Sheet as on 31st March 2024

Amount (in Amount (in

Liabilities Assets
Rs. Crores) Rs. Crores)
Equity Share Capital 50 Fixed Assets 60

Secured Loans 10 Investments 5

Currents Assets, Loans

Unsecured Loans 10 10
and Advances

Current Liabilities 5

Total 75 75

The following are some of the factors which must be evaluated to decide on an investment:

1. Return on Equity (ROE)

This is the return that the equity shareholders receive on their investment. Higher and
consistently growing ROE are desirable.

ROE = Net Profit X 100 = 5.6 X 100 = 11.20%

Equity Share Capital 50

2. Debt / Equity Ratio

This indicates the proportion of debt out of total capital that the company has used.
Extremely high debt ratios may indicate high borrowing and cause serious trouble to the
company during economic downturns

D/E = Debt = 10+10 = 0.4

Equity 50

3. Interest Coverage Ratio

This indicates the capacity of the company to service the interest expenses of the debt
through earnings before interest and tax (EBIT). A high ratio indicates comfortable
position to pay interest.

Interest Coverage Ratio = Earnings Before Interest and Tax = 10 = 5 times

Interest Expenses 2

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4. Earnings Per Share (EPS)

EPS of a company states the earnings that the company is generating for its shareholders.
This indicates the earnings performance of a company. This can also be seen as the
amount of earnings the company has earned on our investment in a share.

EPS = Net Profit after tax = 5.6 crore = Rs. 1.87

Number of outstanding equity shares 3 crore

5. Net Profit Ratio (NPM)

This indicates the net profit the company is able to earn on its sales. Falling margins may
mean difficult times for the company or industry. The NPM must be compared with
industry peers to understand the position of the company in its industry or sector.

Net Profit Margin = Net Profit after tax X 100 = 5.6 crores X 100 = 22.40%
Sales 25 crores

6. Book value per share

This is the book value of equity shares of the company. This Book value is the difference
between the assets of a company and its liabilities as per the balance sheet. The
closer the book value is to the market price of the share, the cheaper the share is said
to be.
Assuming that market price of ABC Ltd share is currently Rs. 40.
Book Value per share = Total Assets – Total Liabilities
Number of outstanding equity shares
= 75 crores – 25 crores = Rs. 16.67
3 crores
7. Current Ratio
This indicates the ability of a company to meet its short term obligations. A company must
have sufficient current assets to meet its current liabilities. A ratio of 2:1 or 2 is usually
considered as a good ratio.

Current Ratio = Current Assets = 10 = 2

Current Liabilities 5

8. Dividend Yield
Some investors require regular dividends and not only capital appreciation. Dividend yield
is the dividend per share divided by the market price per share. It states that dividend
distributed as a percentage of the price of the share.
Dividend Yield = Dividend per share = 0.85 X 100 = 2.13 %
Market Price per share 40

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9. Analysis of Cash Flow statement

The cash flow statement indicates all cash movements in a company from or to operating,
investing and financing activities. It shows the strength of a company’s cash flow. It also
indicates in which activities cash is being utilized.

10. Insider or Promoter Holding

High proportion of promoter’s capital in a company may indicate high confidence in the
future of the company. Insider buying is a positive sign as it reflects their confidence in the
appreciation of the stock in the future due to good performance of the company

11. Competitive position in the industry

A company’s strong market share in its industry may indicate stable profits for the
company. If the company is in a dominant position, its profitability is usually better than its
peers.

The following are some indicators of ‘Valuation’ multiples:

1. Price/Earnings Ratio
It is the Market price per share divided by the Earnings per share. This ratio indicates the
price that investors are ready to pay as a multiple of the company’s earnings. It reflects the
expectation of investors in a share.
P/E Ratio = Market Price per shares = 40 = 21 times
Earnings per share 1.87

2. Price/Book Ratio
It is the Market price per share divided by the Book value per share. This ratio indicates
the price that investors are ready to pay as a multiple of the company’s book value of
equity. It indicates the price paid to receive the assets of a company after discharging all
liabilities.

P/B Ratio = Market Price per shares = 40 = 2.4 times

Book Value per share 16.67

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Demat Account
If you want to invest in shares, you require a demat account. Some information about
dematerialization of shares and demat account follows:

What is the difference between a depository and a depository participant?

A depository is a place where the stocks of investors are held in electronic form. The depository
has agents who are called depository participants (DPs). It is like a bank for securities. The
head office where all the technology rests and details of all accounts held is like the depository.
The DPs are the branches that cater to individuals.

There are only two depositories in India - the National Securities Depository Ltd (NSDL) and the
Central Depository Services Ltd (CDSL). There are over a 100 DPs.

What is a Demat Account?

Demat refers to a dematerialised account. Similar to how you have to open an account with a
bank if you want to save your money, make cheque payments etc, you need to open a demat
account if you want to buy or sell stocks.

Suppose your portfolio consisting of 25 shares of Infosys, 50 of L&T, 45 of Asian Paints and 100
of ACC, these will show in your demat account. You do not have to possess any physical
certificates showing that you own these shares. They are all held electronically in your demat
account. Your purchases and sales will affect your holding of securities in the demat account.
Just like a bank passbook or statement, the DP will provide you with periodic statements of
holdings and transactions.

Is a Demat Account a must?

Nowadays, practically all trades have to be settled in dematerialised form.

Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed
trades of up to 500 shares to be settled in physical form, nobody wants physical shares any
more. So, a demat account is a must for trading and investing.

Where do I begin?

Most banks are also DP participants, as are many brokers. You can choose your very own DP.
The websites of the NSDL and CDSL contain a list of the registered DPs. A
broker is separate from a DP. A broker is a member of the stock exchange,
who buys and sells shares on his behalf and on behalf of his clients.

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Requirements for Demat Account

Once you approach your DP, you will be guided through the formalities of opening an account.
You must fill up an account opening form and sign an agreement with your DP.

The DP will ask for some documents as proof of your identity and address. The major
government issued IDs or other official documents such as PAN Card, Passport, Driver’s
License displaying proof of identity and address are usually accepted.

Photocopies of the documents are required but they will need the originals for verification. You
will have to submit a passport size photograph on which you sign across on the application
form.

How many shares you need to have to open an account?

When you open an account with a bank, you need a minimum balance. But, with opening a
demat account, no balance of shares. No minimum balance needs to be maintained. You can
have a zero balance in your account.

What will it cost?

The charges for account opening, annual account maintenance fees and transaction charges
vary between DPs. To get a comparative idea, visit the websites of NSDL and CDSL.

Can I nominate?

You can nominate whoever you like by filling up the nomination details in the account opening
form. This is to enable the nominee to receive the securities after the death of the holder of the
demat account.

When you open an account, the DP will allot a unique BO ID (Beneficial Owner Identification)
Number, which you need to quote for all future transactions.

If you want to sell your shares, you need to place an order with your broker and give a 'Delivery
Instruction' to your DP. The DP will debit your account with the number of shares sold. You will
receive the payment from your broker. If you want to buy shares, inform your broker about your
Depository Account Number, so that the shares bought are credited into your account.

Who is a Beneficial Owner (BO)/ Beneficiary ?

"Beneficial Owner" is a person in whose name a demat account is opened with CDSL or NSDL
for the purpose of holding securities in the electronic form and whose name is recorded as such
with CDSL or NSDL.

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Issuer is a company or entity which issues securities

What is an ISIN?

ISIN (International Securities Identification Number) is the identification number given to a

security of an issuer at the time of admitting such security in the depository system.

What are the services provided by a DP?

Dematerialisation i.e. converting physical securities into electronic form.

Rematerialisation i.e. converting electronic securities balances in a BO account into

physical form.

To maintain record of holdings in the electronic form.

Settlement of trades by delivering/ receiving underlying securities from/in BO accounts.

Providing electronic credit in respect of securities allotted by issuers under IPO or

otherwise.

Receiving on behalf of demat account holders non-cash corporate benefits, such as,
allotment of bonus and rights shares in electronic form or securities ensuing upon
consolidation, stock split or merger/amalgamation of companies.

Pledging of dematerialised securities.

Facilitating Securities Lending and Borrowing, if the DP is registered as an "Approved

Intermediary" for the purpose.

What are the benefits of opening a demat account?

SEBI has made it compulsory for trades in almost all scripts to be settled in demat mode.
Although, trades up to 500 shares can be settled in physical form, physical settlement is
virtually not taking place for the apprehension of bad delivery on account of mismatch of
signatures, forgery of signatures, fake certificates, etc.

It is a safe and convenient way to hold securities compared to holding securities in

physical form.

No stamp duty is levied on transfer of securities held in demat form.

Instantaneous transfer of securities enhances liquidity.

It eliminates delays, thefts, interceptions and subsequent misuse of certificates.

Change of name, address, registration of power of attorney, deletion of deceased's name,

etc. - can be effected across companies by one single instruction to the DP.

Each share is a market lot for the purpose of transactions - so no odd lot problem.

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Any number of securities can be transferred/delivered with one delivery order. Therefore,
paperwork and signing of multiple transfer forms is done away with.

It facilitates taking advances against securities on low margin/low interest

Is there any restriction on the number of demat accounts that can be held? Are there any
restrictions for holding more than one demat account with one DP?
Under the depository system, there is no restriction on opening more than one demat account in
the same or identical name/s with the same or other DPs subject to compliance of all
requirements.

Is it necessary for an investor to open an account with the same DP as that of his broker
for settling the trades done through him?

There is no compulsion on any investor to open his demat account with the same DP as that of
his broker. Investor can open account with the DP of his choice and can carry on his trading
activity through a broker of his choice. Where any DP offers special charge structure for such
accounts, opening an account with the broker's DP may have some advantage. Some DPs
collect charge for opening a demat account as also for account maintenance.

Can all securities be dematerialised through a single demat account?

Any number of securities admitted with CDSL or NSDL system can be dematerialised and held
through one demat account provided all of them are registered in same names.

Can a sole holder of the share certificate, add any other name as a joint holder, at the
time of dematerialising the share certificate?

It is not possible to add any other name while dematerialising a share certificate. If the shares
held in single name are intended to be held in any joint account, they have to be transferred to
such names before they are dematted. Alternatively, such shares can be dematerialized first in
the demat account in the single name and then transferred to the demat account in the joint
names, through an off-market transaction, which will attract payment of DP/depository charges.

How does a BO get information that the DP has updated his account after each
transaction?

DP sends to BO, a statement of transactions and balances at least once every month, even
where a single transaction has taken place during the month. Statement can be sent more
frequently, if so desired by a BO against payment of additional charges.

What if there are any discrepancies in the statement of holdings?

In case of any discrepancy in the statement of holdings, BO can contact his DP and if the
discrepancy is not resolved, the BO may approach the depository.

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What happens if a BO loses his statement of holdings or depository passbook?

BO should inform the DP about the loss of the statement of holdings and apply for issue of a
duplicate statement. A third party does not get any right to issue instruction on the
basis of statement of account.

Can all DPs access all investor accounts details?

A DP cannot access the investor accounts of any other DP. It can have access
only to those accounts, which are serviced by it.

Can a minor be nominated?

A holder of shares/debentures can nominate a minor, represented by one of the parents or

guardian.

How many nominees can be appointed?

Irrespective of the fact whether securities held severally or jointly, one person can be
nominated. In the event of the death of the sole BO or all the joint BOs, all rights in the
securities held in the demat account will vest with the nominee.

Client ID: This is also known as Beneficiary Account / Demat Account number. Whenever a
security account is opened with a DP, an account number is allotted.

Dematerialisation Request Form (DRF): This form has to be filled in triplicate and submitted to
the DP along with the certificate for converting physical securities into electronic form. DRF can
be obtained from the concerned DP.

Delivery Instruction Books (DIB): These slips are to be used for debiting the account with the
number of securities sold / transferred. DPs issue pre-printed DIB containing the names of the
account holders and the Client ID, to its clients. Investors are advised to use pre-printed DIB
and keep the same in safe custody.

How are dividends paid for dematted shares?

The organisation downloads data of beneficiaries holding its shares in demat form as on a
record date. On the basis of this data the organisation sends the notice of the meeting, annual
report and corporate benefits like dividend/right/bonus etc. The rights of the shareholders
holding shares in Demat form are at par with the holders in physical form.

Risk Factors of any fraud / disputes in using a Demat account and whom to approach in
such cases: Common risk factors applicable to trading in physical shares like mismatches in
signatures, loss in postal transit etc., are absent since the dematted shares are traded in script
less mode. However in the unlikely event of any other dispute, the concerned Stock Exchange

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and/or Depository Participant, Depository Custodian viz. NSDL/CDSL or SEBI would have to be
approached for resolving such issues.

Pledge of shares in demat form for the purpose of availing any funding/loan arrangement
with bankers: Pledge of shares in demat mode can be done by submitting the filled in Pledge
Creation Form (Form W/Exhibit 15) to your DP.

Concepts regarding Demat Account

1. Depository – There are only two Depositories in India – NSDL & CDSL. Both of them are
quasi government organizations.
NSDL – National Securities Depository Limited
CDSL – Central Depository Services Limited

2. Depository Participant (DP) – Depository Participants are agents of the NSDL & CDSL.
They offer demat account facilities to investors. Examples of DPs are Way2Wealth, Sharekhan,
Motlilal Oswal etc.

3. Beneficiary – Beneficiaries are investors such as you. The Depositories allocate a separate
8 digit or 16 digit account number depending on where the account is opened (NSDL or CDSL)
which is a unique number for that particular investor.

4. Broker – Broker is the company which is a member of the Stock Exchanges and provides
investors the facility of buying and selling shares. Most of the times, the DP and the broker are
the same.

5. Trading Account – Trading account and demat account are usually linked. Trading account
holds the cash balance for purchase of shares. Demat account holds only shares in the account
and does not hold any cash balance. Hence, when we need to purchase shares, we need to
transfer the required amount from our savings bank account to trading account. Then, we need
to enter the purchase orders through our trading terminal. Suppose, we want to buy 8 shares of
Asian Paint which is priced at Rs.1100, we need to transfer Rs.10,000 from our savings account
to trading account. We can then put the order for purchase of shares and 8 X 1100 = Rs.8800
plus some brokerage & other charges will be charged. If brokerage and other charges comes up
to Rs.100. Then, Rs.8900 (8800+100) will be debited from the trading account and Rs.1100
(10,000-8,900) will be available as balance. Also, 8 shares of Asian Paint will be credited in the
demat account.

6. Trading Terminal – It is a facility of being able to buy and sell shares online without the
direct help of the broker. Shares can be bought online through computer or mobile through the
trading terminal software.

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Initial Public Offering (IPO)

Public issues can be classified into Initial Public offerings and further public offerings. In a public
offering, the issuer makes an offer for new investors to enter its shareholding family. The issuer
company makes detailed disclosures as per the guidelines in its offer document and offers it for
subscription. Initial Public Offering (IPO) is when an unlisted company makes either a fresh
issue of securities or an offer for sale of its existing securities or both for the first time to the
public.

IPO is new shares offered to the public in the Primary Market for the first time by the company.
Once the Shares are listed then it is traded on the stock exchange. A prospectus is issued to
read about its risk before investing. Securities offered in an IPO are often, but not always, those
of young, small companies seeking outside equity capital and a public market for their stock.
Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the
possibility of large gains. Sometimes, just before the IPO is launched, existing shareholders get
very liberal bonus issues as a reward for their faith in risking money when the project was new.

How to apply to a public issue?

When a company floats a public issue or IPO, it prints forms for application to be filled by the
investors. Public issues are open for a few days only. As per law, any public issue should be
kept open for a minimum of 3 days and a maximum of 21 days. Generally, issues are kept open
for only 3 to 4 days. The duly complete application form, accompanied by a Cheque should be
deposited before the closing date as per the instruction on the form.

Before applying for any IPO, analyse the following factors:

1. Who are the Promoters? What is their credibility and track
record?
2. What is the company manufacturing or providing services –
Product, its potential?
3. Does the company have any Technology tie-up? If yes, what is the reputation of the
collaborators?
4. What has been the past performance of the Company offering the IPO?

5. What is the Project Cost, what are the means of financing and profitability projections?
6. What are the Risk factors involved?

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What is a Premium Issue?

Generally, most shares have a face value (i.e. the value as in a balance sheet) of Rs.10 though
not always offered to the public at this price. Companies can offer a share with a face value
of Rs.10 to the public at a higher price.

The difference between the offer price and the face value is called the premium. As per the
SEBI guidelines, new companies can offer shares to the public at a premium provided:

1. The promoter company has a 3 years consistent record of profitable working.

2. The promoter takes up at least 50 per cent of the shares in the issue.

3. All parties applying to the issue should be offered the same instrument at the same terms,
especially regarding the premium.

4. The prospectus should provide justification for the proposed premium. On the other hand,
existing companies can make a premium issue without the above restrictions.

A company’s aim is to raise money and simultaneously serve the equity capital. As far as
accounting is concerned, premium is credited to reserves and surplus and it does not increase
the equity. Therefore, a company which raises Rs.100 crores by way of shares at say Rs.90
premium per share increases its equity by only Rs.10 crores, which is easier to service with an
investment of Rs.100 crores.

Thus the companies seek to make premium issues. A premium issue can increase the book
value without decreasing the EPS. In a buoyant stock market when good shares trade at very
high prices, companies realize that it’s easy to command a high premium.

Upper band and lower band in IPOs

Usually companies price their shares in IPOs within a narrow range. For example, a company
may invite applications in the IPO in the price range of Rs.225 to Rs.245. Here, Rs.225 is the
lower band and Rs.245 is the upper band. This means that investors can apply for shares at
any price in the stated range. However, the shares are allotted at a price in which maximum
shares have been applied for. So, there is no guarantee of allotment if you applied for the
shares at the lower band in the price. If the shares have not been in high demand, then there is
a possibility that most shares had been applied for near the lower price band.

Equity Investment

Why should one invest in equities in particular?

When you buy a share of a company you become a shareholder in that company. Shares are
also known as Equities. Equities have the potential to increase in value over time. It also

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provides your portfolio with the growth necessary to reach your long term investment goals.
Research studies have proved that the equities have outperformed most other forms of
investments in the long term. This may be illustrated with the help of following examples:

a) Over the long term, the Indian indices have given about 16% returns per annum. This is
besides a 1-2 % dividend return.

b) Mr. Raju invested in Nifty in the year 2000 (index value 1592.90). The Nifty value as of
end June 2018 was around 10800. Holding this investment over this period Jan 2000 to
June 2019 he gets a return of 634%. Investment in shares of HDFC Ltd. for almost the
same period gave a return of 6600 %, Axis Bank 15500 %, Titan Company 16400 %.

Therefore,

 Equities are considered the most challenging and

rewarding, when compared to other investment options.

 Research studies have proved that investments in some shares with a longer tenure
of investment have yielded far superior returns than any other investment. However,
this does not mean all equity investments would guarantee similar high returns.
Equities are high risk investments. One needs to study them carefully before
investing.

Which are the factors that influence the price of a stock?

Broadly there are two factors: (1) stock specific and (2) market specific.

The stock-specific factor is related to people’s expectations about the company, its future
earnings capacity, financial health and management, level of technology and marketing skills.

The market specific factor is influenced by the investor’s sentiment towards the stock market as
a whole. This factor depends on the environment rather than the performance of any particular
company. Events favourable to an economy, political or regulatory environment like high
economic growth, friendly budget, stable government etc. can fuel euphoria in the investors,
resulting in a boom in the market. On the other hand, unfavourable events like war, economic
crisis, communal riots, minority government etc. depress the market irrespective of certain
companies performing well. However, the effect of market-specific factor is generally short-term.
Despite ups and downs, price of a stock in the long run gets stabilized based on the stock
specific factors. Therefore, a prudent advice to all investors is to analyse and invest and not
speculate in shares.

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Classification of Stocks
1. Blue Chips

These stocks are of established companies which have strong asset, sales and profit
growth. They usually have growth oriented managements.

Example – HDFC Bank, Infosys

2. Growth Stocks

These stocks are of relatively newer companies which have been growing at a tremendous
pace. They are usually run by first generation entrepreneurs. These companies over time
become blue chips as they mature and become leaders in their industry.

Example – Titan Company

3. Defensive Stocks

These stocks are of traditional companies operating in mature and stable industries. Their
earnings and other vital parameters are usually quite consistent and their stock prices do not
fluctuate too much.

Example – Hindustan Unilever (HUL)

4. Cyclical Stocks

These stocks are of companies engaged in businesses which are affected by business
cycles. The performances of the companies fluctuate based on the economic activity (trade
cycles). Cyclical businesses do well in booms and perform poorly during recessions.

Example – ACC
5. Turnaround Stocks

These stocks are of companies whose market price is less than intrinsic value because of the
company going through a bad phase. This is the time when many intelligent investors
purchase these stocks as they are selling at a discount to their intrinsic value. When the
future of such companies starts to look up, due to a takeover by a bigger company or
improvement in the business, the stock price starts to rise. This results in huge profits for the
investors in these companies.

6. PSU Stocks
These stocks are of companies in the public sector or companies in which the Government of
India is a majority shareholder.
Example – BHEL, BEL

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7. MNC Stocks

These stocks are of reputed multinationals which run their business in India.

Example – BOSCH, ABB

Growth Stocks and Blue Chips

Parameter
Growth Stocks Blue Chips

Equity Base Small Large

Top Management Entrepreneurial Professional

Employees Young and aggressive Experienced and high quality

Minor problems, usually small Stable operations with multi

Operations with limited products and products and productions
production facilities centres
Ability to absorb shocks Limited ability Great ability

Debt/Equity Ratio Usually high Usually low

Growth Strategy Aggressive Conservative and calculated

Family feuds and

Bureaucracy and ageing
Threats disagreements between
founders
owners
What is meant by the term Growth Stock / Value Stock?

Growth Stocks:

In the investment world we come across terms such as Growth stocks, Value stocks etc.
Companies whose potential for growth in sales and earnings are excellent and growing faster
than other companies in the market or other stocks in the same industry are called the Growth
Stocks. These companies usually pay little or no dividends and instead prefer to reinvest their
profits in their business for further expansions.

Value Stocks:

The task here is to look for stocks that have been overlooked by other investors and which may
have a ‘hidden value’. These companies may have been beaten down in price because of some
bad event, or may be in an industry that’s not fancied by most investors. However, even a
company that has seen its stock price decline still has assets to its name – buildings, real
estate, inventories, subsidiaries, and so on. Many of these assets still have value, yet that value
may not be reflected in the stock’s price. Value investors look to buy stocks that are

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undervalued, and then hold those stocks until the rest of the market realizes the real value of
the company’s assets. The value investors tend to purchase a company’s stock usually based
on relationships between the current market price of the company and certain business
fundamentals. They like P/E ratio being below a certain absolute limit; dividend yields above a
certain absolute limit; Total sales at a certain level relative to the company’s market
capitalization, or market value.

How can one acquire equity shares?

You may subscribe to issues made by corporates in the primary market. In the primary market,
resources are mobilised by the corporates through fresh public issues (IPOs) or through private
placements. Alternately, you may purchase shares from the secondary market. To buy and sell
securities you should approach a SEBI registered trading member (broker) of a recognized
stock exchange.

What are the advantages of having a diversified portfolio?

A good investment portfolio is a mix of a wide range of asset class. Different securities perform
differently at any point in time, so with a mix of asset types, your entire portfolio does not suffer
the impact of a decline of any one security. When your stocks go down, you may still have the
stability of the bonds in your portfolio. There have been all sorts of academic studies and
formulas that demonstrate why diversification is important, but it’s really just the simple practice
of “not putting all your eggs in one basket.” If you spread your investments across various types
of assets and markets, you’ll reduce the risk of your entire portfolio getting affected by the
adverse returns of any single asset class.

Trading Vs. Investing

Many people confuse trading with investing. They are not the same.

The biggest difference between them is the length of time you hold onto the assets. An investor
is more interested in the long-term appreciation of his assets, counting on that historical rise in
market equity.

He’s not generally concerned about short-term fluctuations in prices, because he’ll ride them
out over the long haul.

An investor relies mostly on Fundamental Analysis, which is the analytical method of

predicting long-term prospects of a particular asset. Most investors adopt a “buy and hold”
approach to assets, which simply means they buy shares of some company and hold onto them
for a long time. This approach can be dangerous, even devastating, in an extremely volatile
market such as today’s BSE or NSE Index’s Show.

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Let’s consider someone who bought shares of XYZ Company at their

peak value of around Rs.650 per share at the beginning of the year
2000. Two years later, those shares are worth Rs.100 each. If that
investor had spent Rs.65,000/-, his net loss would be Rs.55,000/-!
Losing Fifty Five Thousand Rupees is a relatively big loss.

Many investors suffer such losses regularly, hoping that in five or ten or
fifteen years the market will rebound, and they’ll recoup their losses and achieve an overall
gain.

What most investors need to remember is this: investing is not about weathering storms with
your “beloved” company – it’s about making money.

Traders, on the other hand, are attempting to profit on just those short-term price
fluctuations. The amount of time an active trader holds onto an asset is very short; in many
cases minutes, or sometimes seconds. If you can catch just two index points on an average
day, you can make a comfortable living as a Trader.

To help make their decisions, Traders rely on Technical Analysis, a form of market analysis
that attempts to predict short-term price fluctuations.

Who is a Stock Broker?

A stock broker is a person or a firm that trades on its client’s behalf. You tell them what you
want to invest in and they will issue the buy or sell order. Some stock brokers also give out
financial advice that you are charged for.

Stock Market Tips

The stock markets are at all-time highs and just like the last time around when the market was
at its previous high everyone thinks that nothing can go wrong and there is just one way where
the market can go, which is UP. Nothing could be farther from the truth and this will be clear

from the way the market behaves in the next few months. Here are a few tips that would
hopefully save you from losing a lot of cash in the current frenzy.

Time and again investors have burnt their fingers in the markets and here are some tips to you
so that you do not end up burning your fingers in this market.

The number one tip at this point would be to sell if you have stocks
and not to buy them if you have cash. The golden principle in the
markets is “Buy when everyone else sells and sell when everyone
else buys.”

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When everyone else around you seems to be having a ball at the markets you would feel like a
fool if you didn’t participate now.

If you can’t resist buying at this time then at least do yourself a favour and stay away from
unknown stock and hot tips that your barber gave you. True that the stock has tripled in the
last fifteen days but that was before people like your barber started buying the stock. Chances
are that the Promoters of the company have started buying into the stock and have spread
rumors like acquisition or a big export order to fool investors and sell out to them at a later date.

Another tip that would serve useful is to value a stock based on its future growth and not its
past performance. For instance, many investors say that they will not buy stocks of X company
because it has doubled in the last year. Well it may have doubled in the last year but that should
not be the thing you should be telling yourself. Rather you should ask yourself why has this
doubled in the last year and can it do so again? There should be a solid answer to your
question like the launch of a new product or reduction in the prices of raw material. If the answer
is in the positive then by all means go ahead and buy that stock regardless of what has
happened in the last year.

Another tip would be to remember what you are buying. Quite simply investors often forget that
when buying a stock they are simply buying ownership in the companies. Most of you would
know that nothing spectacular would happen in the company that you work for, in a month, they
are not going to double their revenues and certainly not double your salary every month. Then
why expect anything different from the companies that you are investing in.

Why expect the prices to double in a month or two. Give time to your investments; don’t reduce
it to a gamble. Only when you invest in fundamentally sound companies and then give the
investments sufficient time to grow will you see some healthy returns on your investments.
Ideally a minimum horizon of one year is a good time.

You Buy and Price Falls, You Sell and Price Rises!

One says “I bought XYZ Company” at Rs.2200 and immediately after I bought the stock price
dropped to Rs.2000.” I feel sad. Another comes with a different version “I sold XYZ Company” at
Rs. 2000 and it went up to Rs. 2400 same evening” I made an imaginary loss of Rs. 400 per
share.

Solution: You can buy more shares @ Rs. 2000 and reduce your overall buying cost. This has
to be done only if you believe in the fundamentals, management and the future prospects of the
company.

To do this you need to keep money ready. Whatever money you have
and want to invest, split it into two parts. Then keep 50% cash aside, only

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invest with other 50%. So, if you need to buy more of any stock when the price falls you have
ready cash.

If you have 200 shares of XYZ Company, 100 @ Rs.2200 and 100 @ Rs.2000, and when the
price goes up to Rs.2400, sell only 100 of the shares. Then if the price further shoots up, you
will have some shares to sell and participate in the rally to make money.

Next, you sold the share and the price went up. The solution to this is never sell all the shares at
one time. Sell only 50% of your shares. So if the price goes up later you still have the other 50%
to sell and make profit.

The golden Rule is to first do your own analysis of the stock before investing and buying
on tips.

Also invest only in companies, which declare dividends every year, to be sure that you are
not investing in loss making companies. Every Market experts advise to do your stock analysis
before investing in the stock market.

What is a Bull Market?

A bull market is a financial market where prices of instruments (eg. stocks) are, on average,
trading higher. The bull market tends to be associated with rising investor confidence and
expectations of further capital gains.

A market participant who believes prices will move higher is called a “bull”. A news item is
considered bullish if it is expected to result in higher prices. An advancing trend in stock prices
usually occurs for a time period of months or years. Bull markets are generally characterized
by high trading volume.

Simply put, bull markets are movements in the stock market in which prices are rising and the
consensus is that prices will continue moving upward. During this time, economic production is
high, jobs are plentiful and inflation is low. Bear markets are the opposite-stock prices are
falling, and the view is that they will continue falling. The economy will slow down, coupled with
a rise in unemployment and inflation.

A key to successful investing during a bull market is to take advantage of the rising prices.
For most, this means buying securities early, watching them rise in value and then selling
them when they reach a high. However, as simple as it sounds, this practice involves timing the
market. Since no one knows exactly when the market will begin its climb or reach its peak,
virtually no one can time the market perfectly. Investors often attempt to buy securities as they
demonstrate a strong and steady rise and sell them as the market begins a strong move
downward.

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Portfolios with larger percentages of stocks can work well when the market is moving upward.
Investors who believe in watching the market will buy and sell accordingly to change their
portfolios. Speculators and risk-takers can fare relatively well in bull markets. They believe they
can make profits from rising prices, so they buy stocks, options, futures and currencies they
believe will gain value. Growth is what most bull investors seek.

What is a Bear Market?

The opposite of a bull market is a bear market when prices are falling in a financial market for
a prolonged period of time. A bear market tends to be accompanied by widespread pessimism.
If an investor is “bearish” they are referred to as a bear because they believe a particular
company, industry, sector, or market in general is going to go down. A bear market is slang for
an extended period of decrease in stock prices.

Dividend

What are Dividends and when they’re issued?

If you’ve ever owned stocks or held certain other types of investments, you might already be
familiar with the concept of dividends.

Even those people who have made investments that paid dividends may still be a little
confused as to exactly what dividends are.

If you have ever found yourself wondering exactly what dividends are and why they’re issued,
then the information below might just be what you’ve been looking for.

Defining the Dividend

Dividends are payments made by companies to their stockholders in order to share a

portion of the profits from a particular quarter or year. The amount that any particular
stockholder receives is dependent upon how many shares of stock they own and how much the
total amount being divided up among the stockholders amounts to. This means that after a
particularly profitable quarter a company might set aside a lump sum to be divided up amongst
all of their stockholders, though each individual share might be worth only a very small amount,
depending upon the total number of shares issued and the total amount being divided.
Individuals who own large amounts of stock receive much more from the dividends than those
who own only a little, but the total per-share amount is usually the same.

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When Dividends Are Paid

How often dividends are paid can vary from one company to the next, but in general they are
paid whenever the company reports a profit. Most companies are required to report their profits

or losses quarterly, which means that most of them have the potential to
pay dividends up to four times each year. Some companies pay dividends
more often than this, however, and others may pay only once per year.

The more time there is between dividend payments can indicate financial
and profit problems within a company, but if the company simply chooses to pay all of their
dividends at once it may also lead to higher per-share payments on those dividends.

Why Dividends Are Paid

Dividends are paid by companies as a method of sharing their profitable times with the
stockholders that have faith in the company, as well as a way of luring other investors into
purchasing stock in the company that is paying the dividends. The more a particular company
pays in dividend payments, the more likely it is to sell additional common stock… after all, if the
company is well-known for high dividend payments then more people will want to get in on the
action. This can actually lead to an increase in stock price.

Getting the Most Out of Your Dividends

In order to get the most out of the dividends that you receive on your investments, it is generally

recommended that you reinvest the dividends into the companies that pay them.

While this may seem as though you’re simply giving them their money back, you’re receiving
additional shares of the company’s stock in exchange for the dividend. This will increase future
dividend payments (since they’re based upon how much stock that you own), and can set you
up to make a lot more money than the actual dividend payment was for since, increase in
stock prices will affect the newly purchased stock as well.

Important Dates concerning Dividends

Declaration Date – This is the date on which the company declares that they will be paying a
dividend.

Date of Record - This is the date on which all shareholders of a company’s stock as per
records are eligible for the dividend declared.

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Ex-dividend Date – This is the date from which the share trades excluding the dividend and
therefore the share price would have fallen by the amount of dividend per share.

Stock Splits

Stock Splits occur when the face value of a share has been split in some multiple. This is
usually done to make a highly priced stock more attractive. Stock splits do not increase the net
assets of a company but only increase the number of outstanding shares. For example, if there
is a stock split of 2:1, it means that the face value of the share has been split into 2. This means
that if the face value of the share is Rs.10, after a stock split of 2:1, the new face value of the
share becomes Rs.5.

The Seven Mistakes All Novice Traders Make and How to Correct Them

Mistake One

Lack of Knowledge and No Plan

It amazes us that some people expect to trade the stock market successfully without
any effort. Yet if they want to take up golf, for example, they will happily take some
lessons or at least read a book before heading out onto the course.

The stock market is not the place for the ill-informed. But learning what you need is
straightforward – you just need someone to show you the way.

The opposite extreme of this is those traders who spend their life looking for the method of
trading! Both are wrong attitudes.

Mistake Two

Unrealistic Expectations

Many novice traders expect to make a million by next Thursday. Or they start to write out their
resignation letter before they have even placed their first trade!

The stock market can be a great way to replace your current income and for creating wealth but
it does require time. Not a lot, but some.

Other beginners think that trading can be 100% accurate all the time. Of course this is
unrealistic.

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Mistake Three

Listening to Others

When traders first start out they often feel like they know nothing and that everyone else has the
answers. So they listen to all the news reports and so called “experts”
and get totally confused. They take “tips” from their friends who
themselves don’t know much about it.

Mistake Four

Getting in the Way

By this we mean letting your ego or our emotions get in the way of doing what you know you
need to do.

When you first start to trade it is very difficult to control your emotions. Fear and greed can be
overwhelming. Lack of discipline; lack of patience and over confidence are just some of the
other problems that we all face.

Mistake Five

Poor Money Management

It never ceases to amaze us how many traders don’t understand the critical nature of money
management and the related area of risk management.

This is a critical aspect of trading. If you don’t get this right you cannot be successful and you
will not survive!

Mistake Six

Only Trading Market in One Direction

Most new traders only learn how to trade a rising market. Very few traders know really good
strategies for trading in a falling market.

If you don’t learn to trade “both” sides of the market, you are drastically limiting the number of
trades you can take. This limits the amount of money you can make.

Mistake Seven

Overtrading

Most traders new to trading feel they have to be in the market all the time to make any real
money.

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Infosys – Bonus / Stock Split History

After the IPO in February 1993, where investors invested Rs.9500 (100 shares of Rs.95 each)
(Face value – Rs.10, Premium Rs.85), the following is the multiplication -
Action Year Ratio Total
Bonus 1994 1:1 200
Bonus 1997 1:1 400
Bonus 1999 1:1 800
Stock Split 2000 1:1 1600
Bonus 2004 3:1 6400
Bonus 2006 1:1 12800
Bonus 2014 1:1 25600
Bonus 2015 1:1 51200
Bonus 2018 1:1 1,02,400
Price as on Aug 2024, Rs.1900 per share,
Total Market Value – Rs.1900 X 1,02,400 shares = Rs.19,45,60,000

Year Dividend Year Dividend

Percentage Percentage
2008 745 % 2015 790 %
2009 470 % 2016 505 %
2010 1100 % 2017 555 %
2011 700 % 2018 750 %
2012 940 % 2019 450 %
2013 940 % 2020 430%
2014 1460 % 2021 600%

Wipro – Bonus / Stock Split History

After the IPO in 1980, where investors invested Rs.10,000 (100 shares of Rs.100 each, the
following is the multiplication –
Action Year Ratio Total
Bonus 1981 1:1 200
Bonus 1985 1:1 400
Stock Split 1986 10:1 4,000
Bonus 1987 1:1 8,000
Bonus 1989 1:1 16,000
Bonus 1992 1:1 32,000
Bonus 1995 1:1 64,000
Bonus 1997 2:1 1,92,000
Stock Split 1999 5:1 9,60,000
Bonus 2004 2:1 28,80,000
Bonus 2005 1:1 57,60,000
Bonus 2010 2:3 96,00,000
Bonus 2017 1:1 1,92,00,000
Bonus 2019 1:3 2,56,00,000
Price as on Aug 2024, Rs.535 per share,
Total Market Value – Rs.535 X 2,56,00,000 shares = Rs.1369 Crores

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Various Sectors in Stocks with some examples

1. Technology – Infosys, TCS, Wipro, HCL Technologies
2. Automobiles – Mahindra & Mahindra, Maruti Suzuki, Tata Motors,
Hero Motocorp, Eicher Motors
3. FMCG - Dabur, HUL, Godrej Consumer, ITC, Britannia
4. Construction & Heavy Engineering – L & T, BHEL
5. Banks – HDFC Bank, HDFC, Kotak Mahindra Bank, ICICI Bank, Axis Bank, SBI
6. Oil and Gas – ONGC, GAIL, Reliance Industries
7. Pharmaceuticals – Sun Pharma, Dr.Reddy’s Lab, Cipla, Ranbaxy Lab, Lupin
8. Metal – Tata Steel, Vedanta, Hindalco, SAIL, Jindal Steel
9. Telecom – Bharti Airtel, Vodafone Idea, Reliance Communications
10. Hospitality – Indian Hotels, Hotel Leela, ITC Hotels
11. Media & Entertainment – SUN TV Ltd., PVR Limited
12. Realty – DLF, Unitech Ltd., Brigade Enterprises, Sobha, Prestige
13. Auto Ancillaries – Amtek Auto, Bosch, Rane Engine Valves, Motherson Sumi
14. Aviation – Indigo, Spicejet, Jet Airways
15. Textiles – Bombay Dyeing, Bombay Rayon, Grasim Industries, Arvind Mills
16. Shipping – Mercator Limited, Varun Shipping, GE Shipping
17. Cement – ACC, Ambuja Cements, Ultratech Cement
18. Power – Reliance Power, Power Grid Corporation, NTPC, Tata Power
19. Miscellaneous – Titan Company, Asian Paints

The Following is my List:*

My Long term Buys are* - My Short term Watch list is* -

1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
6. 6.
7. 7.
8 8
9 9
10. 10.

*Please read instructions on next day (PTO)

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Long term Stocks *

For long term investing, select the list of stocks after doing fundamental analysis of the bluechip
stocks.

You will need to purchase around 5-6 stocks at one time on a monthly basis for long term.

Once in around 3 months, check the financial performance of the company by doing
fundamental analysis and if the performance is deteriorating, decide whether to Sell or Hold.
Regular monitoring is required to ensure that your investments are on the right track.

Short term Stocks List *

The stocks invested for short term should generally have ‘high beta.’ Beta is a numeric value
that measures the fluctuations of a stock to changes in the overall stock market (index).

For example, if the beta value of Axis Bank is 1.2, it means that when the index (Nifty) goes up
by 10%, then Axis Bank stock is expected to go up by (1.2 X10) = 12 %.
Similarly, if the index falls by 10%, the stock is expected to fall by 12%.

For short term, we need stocks which have high beta since the movement will be quick and
hence help us make good short term profits in a relatively short period of time.

The list of stocks for short term should not only be ones which have relatively higher beta but
also fundamentally strong stocks so that in case for any reason you do not sell a stock which
was showing Sell signal and the stock price falls further, you can at least hold it for long term
without too much concern.

Purchase the same stocks as purchased for long term. This strategy will ensure that in case
there is any adverse movement in the share price, these stocks can be kept for medium or long
term until they fetch satisfactory returns.

Index Stocks list (The current list of stocks in the Nifty is printed on the next page)

It is the list of the largest companies in the country based on market capitalization which are
given in alphabetical order.

It is not a permanent list. The list may change once in 2-3 months depending on the overall
market value of the companies in the stock market.

You can view the list in Economic Times newspaper or you can view online at
http://www.moneycontrol.com/stocks/marketstats/index.html

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Composition of Nifty Fifty Index as on Sept 2024

1 Adani Enterprises Ltd. DIVERSIFIED
2 Adani Ports Ltd. INFRASTRUCTURE
3 Apollo Hospitals Hospitals
4 Asian Paints PAINTS & VARNISHES
5 Axis Bank BANKS
6 Bajaj Auto AUTOMOBILES – 2 WHEELERS
7 Bajaj Finance FINANCE – LEASING & HIRE PURCHASE
8 Bajaj Finserv FINANCE – INVESTMENTS
9 Bharti Airtel Ltd. TELECOMMUNICATION – SERVICES
10 Bharat Electronics Ltd. DEFENSE
11 Bharat Petroleum Corporation Ltd (BPCL) REFINERIES
12 Cipla Ltd. PHARMACEUTICALS
13 Coal India Ltd MINING & MINERALS
14 Dr. Reddy’s Lab PHARMACEUTICALS
15 Eicher Motors AUTOMOBILES – 4 WHEELERS
16 Grasim Industries DIVERSIFIED
17 HCL Technologies Ltd. COMPUTERS – SOFTWARE
18 HDFC Bank Ltd. BANKS
19 HDFC Life Insurance INSURANCE
20 Hero Motocorp Ltd. AUTOMOBILES - 2 AND 3 WHEELERS
21 Hindalco Industries Ltd. ALUMINIUM
22 Hindustan Unilever Ltd. (HUL) DIVERSIFIED
23 ICICI Bank Ltd. BANKS
24 IndusInd Bank BANKS
25 Infosys Technologies Ltd. COMPUTERS – SOFTWARE
26 Indian Oil Corporation REFINERIES
27 ITC Ltd. CIGARETTES
28 JSW Steel IRON & STEEL
29 Kotak Mahindra Bank BANKS
30 Larsen & Toubro Ltd. ENGINEERING
31 Mahindra & Mahindra Ltd. AUTOMOBILES - 4 WHEELERS
32 Maruti Suzuki India Ltd. AUTOMOBILES - 4 WHEELERS
33 Nestle CONSUMER – FOOD
34 NTPC Ltd. POWER
35 Oil & Natural Gas Corporation Ltd.(ONGC) OIL EXPLORATION / PRODUCTION
36 Power Grid Corporation of India Ltd. POWER
37 Reliance Industries Ltd. REFINERIES
38 State Bank of India BANKS
39 SBI Life Insurance INSURANCE
40 Shriram Finance FINANCE
41 Sun Pharmaceutical Industries Ltd. PHARMACEUTICALS
42 Tata Consumer Products FMCG
43 Tata Motors Ltd. AUTOMOBILES - 4 WHEELERS
44 Tata Steel Ltd. STEEL AND STEEL PRODUCTS
45 Tata Consultancy Services Ltd.(TCS) COMPUTERS – SOFTWARE
46 Tech Mahindra COMPUTERS – SOFTWARE
47 Titan Company MISCELLANEOUS
48 Trent Ltd RETAIL
49 UltraTech Cement CEMENT
50 Wipro COMPUTERS – SOFTWARE

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Global Cues
Global cues are indications from other international stock markets. The US stock markets are
usually followed by professional and institutional investors all over the world. Stock Markets all
over the world are integrated and are almost like one single market operating 24 hours a day.
The markets in Asia Pacific regions open first and they take cues from the previous day’s
trading in the US. In a few hours, the markets in mainland Asia start trading based on the
sentiments in the markets which have already been trading for that day. The European markets
open when many of the Asian market are closing or already closed. They move based on US
markets as well as other Asian markets. The US markets are usually less dependent on other
markets as they are the major markets and command their own standing in the world.

Investors can benefit from tracking the cues from international markets. A positive development
in other markets spreads optimism and may lead to rising home markets. Often, when Asian
markets such as Hong Kong, Singapore, Japan are rising, Indian markets seem to take ‘cues’
from those markets and rise. Similarly, when the other markets are pessimistic, the mood is
passed on to Indian markets as well.

How to Check Global Cues?

Global cues can be checked on the homepage of moneycontrol.com under the section ‘Global
Markets.’ This will help understand how Indian markets may move.

Different Indices in India

The most important index in India is the Nifty Fifty. Apart from Nifty Fifty there are some
smaller indices.

 Nifty Next 50 Index

 Nifty 100 Index

 Nifty Midcap 50

 Nifty IT Index

 Nifty Bank Index

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Investing based on Macro-economic factors

As can be seen in the diagram, investors are influenced by greed during a boom in the
economy and therefore purchases of stock must not be made. This is the time to disinvest or
sell their holding. As the economy enters a recession and stock markets fall further, investors
must make regular purchases at attractive prices. When the economy is a depression or bust
stage, the entire market is influenced by fear and therefore this is the time when most stock
prices are extremely depressed. This is the time for long term investors to make substantial
purchases at low rates until they realize that stock prices are being prices unreasonably high in
the market. Once the markets have regained their strength and the market is influenced by
greed, investors must look to book profits as close as possible to market peak.

If purchases are made at the market peak, then investors will need to either book losses or wait
for stock prices to regain previous levels before he can earn any profits.

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Major world stock exchange trading hours as per

Indian Standard Time (IST)

Name of stock Location of the stock

Start of trading End of trading
Exchange exchange

Australian Stock
Sydney, Australia 5.30 am 11.30 am
Exchange

Tokyo Stock Exchange

Tokyo, Japan 5.30 am 11.30 am
(Nikkei)

Singapore Exchange
Singapore 6.30 am 2.30 pm
(Strait Times)

Shanghai Stock Exchange Shanghai, China 7.00 am 12.30 pm

Hong Kong Stock

Hong Kong, China 7.30 am 1.30 pm
Exchange (Hang Seng)

Euronext Paris, France 1.30 pm 10.00 pm

Frankfurt Stock Exchange

Frankfurt, Germany 1.30 pm 12.30 am
(DAX)

London Stock Exchange

London, England 1.30 pm 10.00 pm
(FTSE)

Chicago Stock Exchange Chicago, USA 8.00 pm 3.30 am

NASDAQ New York, USA 8.00 pm 3.30 am

New York Stock

New York, USA 8.00 pm 3.30 am
Exchange

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Risk-Return Trade-off

The safest stocks are defensive stocks as they are not too volatile even when markets are experiencing
big swings. Blue Chips are average risk and provide average to good returns. The Growth stocks are
closer to high risk but higher returns are expected from these stocks. Turnaround Stocks are very risky as
these stocks may or not may not perform even after significant improvement in the business of the
company.

Increased Investments through SIPs

Year Average Monthly SIP collections

2014 1206 crores
2016 2719 crores
2017 7304 crores
2018 7609 crores

Overall SIP collections for 2016-17 = Rs.43,921 crores

Overall SIP collections for 2017-18 = Rs.67,190 crores
Overall SIP collections for 2018-19 (till Dec 2018) = Rs.68,479 crores

Due to more awareness regarding Mutual Funds & Stock markets and the concept of SIP,
more investors have been investing in the Stock Markets during the last 3-4 years. This
helps all investors since there will be more stability in our markets and our markets will not
be dependent on foreign money.

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Yearly Returns of Sensex for the period 1991-2023

Yearly Profit
Year High Low Close (%)
1991 1955 947 1908 91.03
1992 4547 1945 2615 37.01
1993 3459 1980 3346 27.94
1994 4643 3406 3927 17.36
1995 3944 2891 3110 -20.79
1996 4131 2713 3085 -0.81
1997 4605 3097 3659 18.6
1998 4322 2741 2055 -16.5
1999 5151 3042 5006 63.83
2000 6151 3492 3972 -20.65
2001 4462 2595 3262 -17.87
2002 3758 2828 3377 3.52
2003 5921 2904 5839 72.89
2004 6617 4228 6603 13.08
2005 9443 6069 9398 42.33
2006 14035 8799 13787 46.7
2007 20498 12316 20287 47.15
2008 21207 7697 9647 -52.45
2009 17531 8047 17465 81.03
2010 21109 15652 20509 17.43
2011 20665 15136 15455 -24.21
2012 19516 15518 19427 25.7
2013 21484 17449 21171 8.98
2014 28822 19963 27499 29.89
2015 30025 24834 26118 -4.98
2016 29077 24044 26626 1.95
2017 34086 26167 34057 27.91
2018 38896 33723 36068 5.91
2019 42274 35287 41254 14.38
2020 47746 25981 47746 15.75
2021 62245 46160 58254 22.00
2022 63583 50921 60841 4.44
2023 72484 57084 72240 18.74
Average 17.57

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Highs and lows of Sensex: A snapshot of a journey to the 30,000 peak

For the second time in as many years, the BSE Sensex touched the 30,000 mark. However, on
both the occasions it failed to close above the high watermark. Nonetheless a 300 times jump in
the Sensex since its inception in 1979 results in a 15.75 percent compounded annual growth
rate (CAGR) over the last 37 years.
However, despite its stellar returns, Sensex has had a rough ride. Assuming its year of inception
as the base year and a base value of 100 points, we track the benchmark index’s journey
through the year’s right up till he notched up the magic figure.

From 100 to 1,000 points

On July 25, 1990 Sensex touched the 1,000 mark. The day is important since not only did the
Sensex achieve an important psychological barrier but it gained 10 times in slightly over 11
years. The first 11 years saw the Sensex growing by a CAGR of 23.28 percent. The year 1990
is also important as it started on what is generally agreed as a bubble, but later came to be
defined by the Harshad Mehta scam.

From 1,000 to 4,000 points

Sensex galloped along to reach the next 1,000 points in less than two years. On January 3,
1992 Sensex touched the 2,000 level but only after two weeks did it close above that level. In
fact, the Sensex scaled 3,000 points on the last day of February 1992 and the 4,000 mark within
a month on March 1992.
The sharp rally coincided with two major events unfolding on the ground. First, as mentioned
earlier was a scam which was fuelling the rally and second was Finance Minister Manmohan
Singh’s historic Budget speech where he opened up the Indian economy.

From 4,000 to 6,000 points

It was a hard uphill task for Sensex which couldn’t build on the momentum it had gained until
then. In 1992 it looked strong, and the next leap forward – by another 2000 points – took over 7
years to achieve. The stock market bubble burst open in April 1992. Within a year, the Sensex,
which was just 500 points away from touching 5,000 crashed to less than 2,000 points. A slow
and grinding climb resulted in Sensex scaling 5,000 levels on December 30, 1999.

Here again two events led the rally. One was a global event, where the dotcom bubble was
setting world markets on fire and the second was the election victory of BJP-led government.
The 6,000 level was achieved in February 2,000 but the dotcom bubble was soon coming to an
end. Markets soon crashed to enter a phase of consolidation.

Journey to 10,000 points

It took another 6 years for the market to reach the 10,000 mark. On February 6, 2006 the level
was breached with rampant buying from foreign as well as domestic investors. A global rally
was led by a sharp run in commodity prices on account of frantic spending by China to meet the
Beijing Olympic deadline.

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Sensex score till then: it had gained 100 times in a span of 27 years posting a CAGR of 18.60
percent. From 1,000 to 10,000 it took the market 16 years growing at a CAGR of 15.48 percent.

From 10,000 to 20,000 points

Sensex was once again on a roll – literally. It scooped up the next 10,000 points in just 18
months which puts to shame the first 10,000 points which had taken it a better part of 27 years.
On October 29, 2007 Sensex sighted the 20,000 mark as the market was heating up. The
trigger was global liquidity which was generated by financing derivatives and highly leveraged
products in the developed markets.

From 20,000 to 30,000 points

The final leg of the journey for Sensex could at best be described as an arduous climb. To say it
limped along would be an understatement. After the financial meltdown Sensex crashed to less
than 8,000 before gaining strength to touch the 30,000 mark on March 2015.

A major part of the 22,000 point journey from a low of 7697 on October 27, 2008 to 30,000 in
March 2015 was spurred by infusion of global liquidity by central banks across all major
economies. The last part of the journey was helped by a clear majority for Narendra Modi-led
government. This rally from the low was at a CAGR of 20.78 percent.

However, after the initial euphoria died down markets corrected again and it took nearly two
years for 30,000 to be regained.

The Nifty Story – 1,000 to 10,000 in 21 years

1996 - Nifty was launched in 1996 with the base value of the index set at 1,000

2004 – Nifty reaches 2,000

2006 – Nifty touches 3,000

2006 – Nifty goes to 4,000 - One of the best years for Indian Stock markets.
Nifty went by 40 %

2007 – Nifty reaches 5,000 level - Global Stock Market rally helped Nifty rise further

2007 – Nifty at 6,000 - Nifty went by 55% in this year

2014 – Nifty goes to 7,000

2014 – Nifty continues to rise to touch 8,000

2015 – Nifty at 9,000 mark

2017 – Nifty crosses 10,000 for first time

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Are you on track for a large retirement corpus?

For a 30 year old, who has a current monthly expense of Rs.35,000, at 7% per annum
inflation, to maintain the same standard of living, the monthly expenses at retirement
age 60 years will be around Rs.2.66 lakhs per month or around Rs.31.97 lakhs per
annum.

Similarly, if the monthly expenses is Rs.35,000 for different ages, then following will be
monthly expenses at age 60.

Your Age today Monthly expenses at Age 60

35 years Rs.1,90,000
40 years Rs.1,35,000
45 years Rs.97,000
50 years Rs.69,000

Assuming that a person retires at age 60 and lives up to the age of 85, then following
would be the minimum retirement corpus required to cover basic monthly expenses –

Your Age today Retirement Fund required

30 years Rs.7,99,25,000
35 years Rs.5,70,00,000
40 years Rs.4,05,00,000
45 years Rs.2,91,00,000
50 years Rs.2,07,00,000

(30 year old required Rs.31.97 lakhs per annum and may live for 25 years after
retirement (85-60 years) = Rs.31.97 lakhs X 25 years = Rs.7,99,25,000)

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Investing like Warren Buffett

Warren Buffett, the world’s most successful investor has a few golden principles which are
precious for every investor.

He states that the key to become successful in the stock market is to “be fearful when others
are greedy and be greedy when others are fearful.”

Warren Buffett’s four principles of investing

1. Do not worry about the stock market.

2. Do not worry about the economy.

3. Buy a business not a stock. Change your perspective to that of a business owner and

learn as much as possible about the business and the industry.

4. Manage a portfolio of businesses. Do not diversify for diversification’s sake.

He believes that the fewer stocks that you hold, the more time you can spend in becoming an
expert on them. He recommends holding only ten stocks at a time.

Warren Buffett’s Tenets of investing

 Is the business simple to understand and does it have a durable competitive advantage?

 Is there a chance of the company’s product becoming obsolete in the foreseeable future?

 Does the company have consistently growing earnings history?

 Does the company have favourable long-term prospects?

 Is the management ethical and shareholder oriented? Are they honest with shareholders
about prospects of the company?

 Does the management do things the way others do, or do they analyse and take
innovative approaches in business.

 Does the company have more than 30% debt?

 Can the business adjust prices during inflation?

 Is the profit margin attractive? Are the costs of the company too high?

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Styles of Investing
1. Cautious Long term investor – These investors buys established blue chip companies.
They follow the buy and hold strategy for long periods (5-10 years). They are conservative,
unwilling to take risks and are happy with reasonable returns.

Example: Amar purchased Reliance Industries for Rs.175 in 2000 and sold it for Rs.1000 in
2010. He has earned a return of 471% in 10 years.

2. Aggressive Investor – These investors are willing to take calculated risks and therefore
expect high returns. They buy growth stocks which have good prospects for the medium term
(1-3 years).

Example: Akbar purchased 100 shares Gujarat Ambuja for Rs.180 in August 1998 and sold it
for Rs. 320 in March 1999. He earns a profit of Rs.14,000 which translates into a profit of 77% in
7 months.

3. Speculator – These investors are ready to take any degree of risk. They target extraordinary
gains from short term fluctuations. At times, these investors may borrow money to trade in the
market. They are only worried about short term profits. They buy speculative stocks for periods
of 1-6 months.

Example: Anthony purchased 100 shares of Infosys for Rs. 2800 on 20th May 2010 and sold it
for Rs. 2920 on 5th July 2010. He earns a profit of Rs.12,000 in only 15 days.

Approaches to Investments
1. Holy Cow Approach – Treating shares like holy cows. Shares are bought but never sold.

2. Pig Farm Approach – Buy and selling shares as fast as pigs are grown and slaughtered.

3. Rice Miller Approach - Buying at the right price, holding on to it and sells very slowly.

4. Woolen Trades Approach – Buying over a period of time but selling quickly.

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Trading Rules
 In bull markets, investors must be long

 Buy shares which are showing strength and sell those which show weakness.

 Imagine a trade to have the maximum potential at the time of entering of trade.

 Be patient if a trade is missed at a particular low price. Wait for a correction before
purchasing the stock.

 Be patient with your trades. Give your investments time to show their potential.

 Small losses and quick losses are best losses.

 Never add to a losing trade by averaging.

 Practice what works for you and avoid things which do not work for you.

 Do not get into the urge of regaining losses the same way as you lost them.

Details required for Profit Calculation

1. Name of share/ mutual fund scheme
2. Date of purchase
3. Price of purchase
4. Current Price

Profit Percentage Calculation Formula

Profit % = Profit X 100 X 12

Invested Amount Number of months

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Section 3: Insurance

Types of Insurance
1. Endowment Policies: In case of endowment assurance, the term of policy is defined for a
specified period say 15, 20, 25 or 30 years. The insurance company pays the claim to the family
of assured in an event of his death within the policy's term or in an event of the assured
surviving the policy's term.

2. Money Back Policies: It is a policy opted by people who want periodical payments. A money
back policy is generally issued for a particular period, and the sum assured is paid through
periodical payments to the insured, spread over this time period. In case of death of the insured
within the term of the policy, full sum assured along with bonus accruing on it is payable by the
insurance company to the nominee of the deceased.

3. Term Insurance Policies: The basic feature of term assurance plans is that they provide
death risk-cover. Term assurance policies are only for a limited time, claim for which is paid to
the family of the assured only when he dies. In case the assured survives the term of policy, no
claim is paid to the assured.

Do Not Mix Insurance & Investment

Suppose, ABC Car Insurance Company gives you the following policy terms –
Pay Rs.10,000 premium per year for car insurance and the minimum term is 5 years. If there is
car damage, the cost of the damage will be covered by the company. If there is no damage in
that year, then nothing is paid back to the Car Owner.

XYZ Car Insurance Company gives you the following policy –

Pay Rs.40,000 premium per year for car insurance and the minimum term is 5 years. If there is
a car damage, the cost of the damage will be covered by the company. If there is no damage in
any year, then Rs.1,50,000 will be paid to the Car Owner after 5 years.

Which policy would you choose?

Insurance companies come out with three main types of Life insurance policies.
The above Car Insurance example is an example of a Money back Policy.

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In Term Insurance for a 30 year male for a term of 30 years for an insurance cover of Rs.1
crore, the premium is Rs.22,600/- per annum

In case of eventuality (death) of the Insured person, the Rs.1 crore risk cover is paid to the
family.

In Endowment Policy, the same Rs.1 crore for a 30 year male for 30 years is Rs.3,15,000/- per
annum.

In case of eventuality (death) of the Insured person, the Rs.1 crore risk cover is paid to the
family. In case, the Insured survives the term of the Policy (Age 60), then he/she will be paid
around Rs.2.49 crores at the age of 60 years

The extra Rs.2,92,400 (3,15,000 – 22,600) if invested in better instruments, will grow to –
Instrument Amount at Age 60
At 4% in Savings Bank Account Rs.1.70 crores
At 6% in Liquid Funds Rs.2.45 crores
At 7.9% in PPF Rs.3.51 crores
At 12% Equity Mutual fund Rs.7.9 crores
At 18 % in Diversified Portfolio of Shares Rs.27.29 crores

If the policy holder survives the term of the policy, he will receive a return of around
6.1 % p.a. (Rs.2.49 crores)

Hence, taking term insurance and investing our other savings in higher return
instruments will result in us earning a huge amount of money by just making a small but
correct decision.

Broad guidelines for Life Insurance coverage

Age (years) Coverage
20 - 30 22 times Annual Income
30 - 40 17 times Annual Income
40 – 50 15 times Annual Income
50 - 60 12 times Annual Income
Above 60 Usually fresh policy is not available

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Section 4: Personal Finance & Tax Planning

Income Tax Slabs for Financial Year 2022-23 – New Scheme without
Deductions

Income Range Tax Percentage

Upto Rs.3,00,000 No Tax

Rs.3,00,001 – 7,00,000 5%

Rs.7,00,001 – 10,00,000 10%

Rs.10,00,001 – 12,00,000 15 %

Rs.12,00,001 – 15,00,000 20%

Rs.15,00,001 & Above 30%

Bonds which are eligible for investment for Capital Gains (Section 54EC)
1. NHAI (National Highways Authority of India)
2. REC (Rural Electrification Corporation)
3. Power Finance Corporation (PFC)
4. Indian Railway Finance Corporation (IRFC)

To avoid paying Long term Capital Gains, we can invest in the above bonds upto a
maximum of Rs.50 lakhs in a financial year. The lock-in period is 5 years. These bonds
pay 5.75 % interest per annum and the interest is taxable.

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Evaluation of different Asset Classes

Asset Class Safety & Liquidity Returns Taxation

Returns are fully
Very low risk and low Low returns, but
Bank FDs liquidity assured.
taxable, hence post-
tax returns still lower
Low risk with very low
liquidity.
Interest is tax-free.
(15-year lock-in
PPF period, with partial
7.1 % p.a. Also, 80C benefit,
hence attractive
withdrawal allowed
after 6 years)
Traditionally hedge
Low long-term risk.
against inflation.
Gold But volatile in short
Hence, returns around
No Tax advantages
term. High liquidity.
inflation levels.
Low returns and Varies with the term
ULIPs Not very liquid
subject to market risks of the plan
Variable risk and
No tax benefits
variable liquidity
Market linked returns. except attractive tax
Real Estate depending on type
Good potential. benefits on home
and location of
loans.
property
Attractive tax
treatment. 10% Tax
Equity High risk and high Market linked returns. on long term capital
(Stocks) liquidity Good potential. gains. 15% tax on
short term capital
gains.

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Plan of Action after the Stock Market Workshop

1. Read this Study Material fully once again.

2. Take steps to open a demat account and trading account. Check with 3-4 brokerage
companies about their charges and facilities before opening the account.

3. Once trading account is opened, ask for online trading terminal facility.

For Long Term investing:

Based on the date of your birth select the date on which you will invest on a monthly
basis in the bluechip stocks you have selected for long term. For example, if you are
born on 8 Jan, you can decide to invest for long term on 8th of every month such as 8
Jan, 8 Feb etc.
The amount you are investing on a monthly basis such as Rs.5,000 etc should be
divided among the stocks selected and not in only one or two stocks.

By investing on a monthly basis for many years, your invested amount would multiply to
a huge amount which can be utilized for your Retirement, Children Education, Children
Marriage, or any other major life events.

For example, a person who invested Rs.1000 each in 6 companies in different sectors
very month from Jan 2000 to July 2022, has invested a total of Rs.16.26 lakhs and his
total portfolio value is around Rs.3.48 crores.

This is the power of compounding and long term investments

For Short term Investing:

Once again revise your understanding of the technical analysis graph.

Keep aside a sum of around Rs.50,000 to Rs.1 lakh to invest for short term whenever
the Buy indication arises.

View the graph for the particular companies and see which indication – Buy, hold or Sell
indication it is showing. Take your own decision based on your own analysis.

The profits that you make from short term trades can be used to improve your lifestyle
such as pay for expenses, buying better mobile phones, vacation expenses for family
etc.

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Is the list of Long Term Stocks Permanent?

The list of Long Term Stocks suggested during the Workshop is not permanent. You
should monitor the fundamentals of the companies every 3 months or so and take
decisions on your investments.

If the business performance of the company is continuously deteriorating for more than
a year, then there is some cause for concern and we will have to decide whether to
continue to invest in that company or not.

Why two demat accounts?

It is wise to maintain two demats – one for long term and one for short term.
Either we open two demat accounts – one in your name and one in the name of your
spouse in the same company
OR
One demat account in your name in a particular brokerage company and another demat
account also in your name but in another company

We are allowed to have only one demat account in a particular name in one brokerage
company. For example, Ram cannot maintain two demat accounts in his own name in
Way2wealth brokers.
He may have one account in Way2wealth brokers and another in Sharekhan etc.

Term Insurance

If you do not have a life insurance policy in your name, then you must buy a pure term
insurance policy.
Term insurance policies can be bought online as they are cheaper online than by buying
through a life insurance advisor.

Assuming the person to be insured is Male and is a Non-smoker, the following are the
premiums to be paid annually for Rs.1 crore sum assured for a maximum term of 40
years from the present age of the insured:

Kotak Preferred ICICI Pru iProtect

Age of LIC e-term
e-Term Plan Smart
person to (maximum age upto
(maximum age (maximum age upto
be insured 70 years)
upto 75 years) 75 years)
25 Rs.7,614 Rs.19,038 Rs.7,882
35 Rs.13, 482 Rs.37,962 Rs.14,183
40 Rs.18,148 Rs.47,766 Rs.20,575
45 Rs.24,675 Rs.60,648 Rs.30,405
50 Rs.33,863 Rs.76,722 Rs.39,527
55 Rs.47,060 Rs.95,304 Rs.51,132

The above premiums are indicative and exact details can be checked on their website
before deciding to purchase insurance.

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The following are the website for more details of the policies and to purchase online -

Kotak Insurance – http://insurance.kotak.com/individual/protect/preferred-term-plan-key-

features.php

LIC Insurance - http://www.licindia.in/premium_calculator.htm

Other companies such as HDFC, SBI etc also offer term insurance policies. However,
you will need to enter your personal details to know what is the premium applicable.

You can also visit policybazaar.com for information about insurance policies.
However, buy the insurance online and not through a broker.

What to do if you already have an endowment life insurance policy?

Suppose you already have an endowment life insurance policy in your name, then you
will be aware that the premium you have paid so far is much higher for the risk cover
you have opted for when compared to a term insurance policy.

The remedy is to take a loan on the insurance policy. Visit the insurance company office
and inform them that you need a loan on your life.

They will give you a loan on the premiums paid by you so far over the years.

For example, if you have paid Rs.25,000 per year for the last 15 years, the total
premium paid by you is Rs.3,75,000. They may give you a loan of about 75% of the
amount of premiums paid.

Loan eligibility = 3,75,000 X 75% = Rs.2,81,250/-

This amount can be taken and invested for long term in the basket of stocks
suggested during the Workshop.

Please note:

 You will need to continue paying premiums for the insurance policy as usual.
 The insurance company may charge 9 to 10% interest per annum on the loan
taken on the policy which usually needs to be paid once in 6 months.
 You will need to pay only the interest component of the loan taken and the
principal amount need not be paid since it will be reduced from the total sum
assured and only the difference will be given to you at the time of maturity.

Ensure that you do not miss investing the loan amount for long term in the stock
markets. You may get around 20-40% p.a returns (depending on the basket of stocks)
which will cover the mistake you had made by investing in an endowment plan.

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Do you require insurance policy for Children?

Insurance companies take advantage of our emotional side towards our children by
encouraging us to buy Children Insurance Plans.
They state that these policies can help fund our requirements for Children Education or
Children Marriage.

The main drawback of these policies is that the returns received are only around 5-6%
p.a. which is extremely poor. We can rather invest for long term in stocks on behalf of
our children for the future, so that we can expect much higher returns.

We can insure ourselves with a term insurance for a higher sum if we want to provide
financial security for our family.

Medical Insurance/ Health Insurance for Yourself & Family

Health insurance in India typically pays for only inpatient hospitalization and for
treatment at hospitals in India. This is very essential these days since medical expenses
are very high and costs are rising.

There are two ways of payment by the insurance company:

 Direct Payment or Cashless Facility: In this facility, the person does not need to
pay the hospital as the insurer pays directly to the hospital. The policyholder and all
those who are mentioned in the policy can undertake treatment from those hospitals
approved by the insurer.
 Reimbursement at the end of the hospital stay: In this facility, the person pays for
the hospital and treatment expenses and later gets a reimbursement from the
insurer for the treatment that is covered under the policy undertaken.

There is usually a policy called ‘Family Floater’ in Medical insurance policies where you
and your spouse and family will be covered under one policy. This is usually suitable for
most families.

Always make sure that you near and dear ones are adequately covered with health
insurance since we do not want to un-equipped when a health emergency occurs.

Some of the famous companies through which you can a Medical Insurance policy are:

 New India Assurance

 United India Insurance
 Star Health Insurance

There are plenty of other companies such as Religare, Apollo Munich, Bajaj Allianz,
Max Bupa etc.

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How to use Internet surfing for your

benefit?

I) For obtaining N. A. V. values

1. Go to www.moneycontrol.com -Click on ‘Markets’ -Go to the end of the page -Look for
mutual funds (a,b,c,d etc…)-Click on the required fund house (Eg. Reliance, Prudential,
Franklin etc…) -The whole page with all the schemes will be displayed -Click on your
scheme (Eg. Reliance, Growth Fund etc.)-The page will be displayed with N.A.V.
2. Go to www.valuenotes.com -Click on ‘List of AMCs’ on right side
of page -Click on your fund house -Click on ‘Scheme snapshot’ just above ‘Fund Details’
3. Go to www.amfiindia.com -N.A.V. pages are available.
4. Go to www.icicidirect.com -Click on mutual funds.
5. Many leading newspapers provide N.A.V. values of all fund houses atleast once a week.

II) How to calculate the profitability of a share?

Go to www.moneycontrol.com -Click on markets -Go to the end of the page -Select stock
(a,b,c,d etc…)-Click on the particular stock (Eg. Infosys, Larsen & Toubro etc…)-That particular
page will be displayed -Go to the required share- Click on ‘Price & Volume’ – You will
calculated returns for 1 week, 1 month, 1 year etc.

III) How to check past stock prices (historical data)

Go to www.moneycontrol.com -Click on markets -Go to the end of the page -Select stock
(a,b,c,d etc…)-Click on the particular stock (Eg. Infosys, Larsen & Toubro etc…)-That particular
page will be displayed -Go to the required share-Click on ‘Price & Volume’ -Click on ‘Historical
Prices’ -Enter the company name and select daily, monthly or yearly historical data and enter
the time period for which you want to see the prices.

IV) How to perform basic fundamental analysis of companies?

Go to www.moneycontrol.com -Click on markets -Go to the end of the page -Select stock
(a,b,c,d etc…)-Click on the particular stock (Eg. Infosys, Larsen & Toubro etc…)-That particular
page will be displayed -Go to the required share- Click on ‘Financials’ on the top bar -You will
see the page where various financial statements of the company can be seen- Click on the
Profit & Loss Account- Check the growth of reported net profit- You can click on any of the
financial statements to see a direct comparison of profits, assets of your company and its
competitors.

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V).Creating Short Term Profits by using 30 days moving average technique on

www.moneycontrol.com
1. Open any internet browser such as Google Chrome, Mozilla Firefox etc.
2. Open www.moneycontrol.com - Click on markets - Go to the end of the page - Select
stock (a,b,c,d etc…)- Click on the particular stock (Eg. Infosys, Larsen & Toubro etc…) - That
particular page will be displayed - Go to the required share - Scroll downwards - Click on
Advanced Chart – Click on ‘Indicators’ – Type ‘Moving Average’ – Click on ‘MA 9 close’– Click
on the settings option – Under ‘Inputs’ option, change Length to 30 from 9 - Under ‘Style’ option
Click on the Blue Colour box and make it Red – Click On ‘Ok’ – You will get the 30 days moving
average graph (Red line to Red line technique)
You can follow the same steps for other companies too to view the graph.

VI) How to calculate profits from investments through SIP (monthly basis)

Go to www.moneycontrol.com Click on ‘Markets’ Go to the end of the page Select stock
(a,b,c etc.) Click on the particular stock (Eg. Infosys, Larsen & Toubro etc…)That particular
page will be displayed Go to the required shareClick on ‘Historic Prices’ just above current
price of the company  Click on ‘Click here to view the Open, High, Low, Close’ Enter the
company name and select ‘daily’ Select the time period for which you want to compute
returns

For calculation purposes, assume that you are investing a particular amount on a specified date
every month (Eg. Rs.1000 per month on 5th of every month). Assume that you bought the
shares at the closing price of the date you have selected. Calculate for each month the number
of shares that could be bought for Rs.1000. Calculate total number of shares that could be
bought during the time period that you assumed. Multiply the total number of shares into the
current market price of the share. You will get the current market value of investment as against
the total investment made on a monthly basis.

VII) How to check performance of past IPOs?

Go to http://www.moneycontrol.com/ipo/listed_equities.php?ipo_type=BSE&step=4&pno=1
You will be able to see the performance of all IPO Listed since 2010

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VIII) How to know about upcoming IPOs?

1. Go to www.moneycontrol.com
2. Go to www.bseindia.com, www.nseindia.com
3. CNBC and other television channels.
4. Reading newspaper advertisements.
5. Information from your share broker.

IX) How to download CAGR Calculator –

Visit - http://www.experiglot.com/2006/01/28/compound-annual-growth-rate-cagr-calculator-xls/
To download the calculator, Right click on link and click “Save link as.” It will be downloaded on
your computer for future use.

X) How to see Magic of Compounding Calculator –

Visit moneycontrol.com - Click on ‘Personal Finance’ on top of page – Scroll downwards –

Look for ‘Personal Finance Tools’ – Click on ‘View More’ – Scroll downwards and click on
‘Magic of Compounding tool’

XI) Other websites which may be useful are:

www.bseindia.com, www.nseindia.com, www.mutualfundsindia.com, www.amfiindia.com
www.personalfn.com, www.nseguide.com, www.icicidirect.com, www.indiainfoline.com,
www.policybazaar.com

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Short Term Profits – Technical Analysis Rule

Red Line – 30 days moving average of closing prices of stock

Blue Line / Black Line – Closing Price of the stock

Buy Signal – When blue/black line is rising from below and cuts the red line.
Sell Signal – When blue/black line comes from the top and cuts the red line.

Technique - When the blue line of a stock you purchased for short term has gone up
from the red line, you should buy. You should sell the stock only when the blue/black
line touches the red line from above. This is called red line to red line technique. By
following this technique, you will be able to make good profits in the short term and also
the chance of loss is almost zero or negligible.

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Homework

1. Plot your wheel of balance and calculate the percentage of assets in each of the
categories (asset classes)
2. Check your insurance policy certificates and see which kind of policies you hold.
3. Visit www.moneycontrol.com and browse through the various options available.
4. Visit our website www.drbharathchandra.com.
5. Send a test email to [email protected] & [email protected] so that your email
ID is registered with us.
6. Send a Test Message on Whatsapp 99-000-000-46. This is for us to send you any important
messages in the future.
7. Calculate the number of times a stock has gone above the red line and what is the total profit
we have received in the previous 24 months using the graph on www.moneycontrol.com
8. Become a member of Dr.Bharath Chandra’s Facebook page.
Visit our website www.drbharathchandra.com and click on the Facebook icon on the right side
of the homepage. Once our Facebook page is open, click on the “Like” button next to
Dr.Bharath Chandra’s name. By becoming a member on our Facebook page, you can receive
updates, thoughts and interesting videos from Dr.Bharath Chandra.

Advanced Homework
1. Calculate the returns from 15 days moving average and 30 days moving average for
short term trades and see which technique is giving better returns.

2. Checkup whether Stock SIP or Mutual Fund SIP is more profitable

3. Check up whether One time Lumpsum Investment is better or SIP (Monthly investments)
is better.
Your Total Assets in Rupees:

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Your Total Assets in Rupees:

1. Bank Deposits :
Fixed : Rs. …………………………………
Recurring : Rs. …………………………………
Savings : Rs. …………………………………
Bonds : Rs. …………………………………
Company : Rs. …………………………………
Money Invested in Own Business: Rs. …………………………………
Present cost of Vehicles : Rs. …………………………………
Total : Rs. …………………………………

2. Personal Loan given to people Rs. …………………………………………………………

3. Life Insurance Premium (only LIP) Paid until today

LIC : Rs. …………………………………
Others : Rs. …………………………………

4. Gold and Silver

Gold gms x Rs. …………………………………
Silver kgs x Rs. …………………………………

5. Real Estate

a) House/s valued at Rs. …………………………………

b) Site/s Rs. …………………………………
c) Flat/s Rs. …………………………………
d) Agricultural Land Rs. …………………………………

6. Mutual Fund
Already paid amount Rs. …………………………………

7. Shares Rs. …………………………………

Total Assets as of Today - Rs. …………………………………

Total Assets: Percentage in various sectors.

Bank Deposits x 100

1. Bank = = ________%
Total Assets

LIP x 100
2. Life Insurance = = ________%
Total Assets

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Total Value x 100

3. Gold & Silver = = ________%
Total Assets

Value x 100
4. Real Estate = = ________%
Total Assets

Worth x 100
5. Mutual Funds = = ________%
Total Assets

Total Value x 100

6. Shares = = ________%
Total Assets

Monthly Commitments

1. Towards servicing of loans – Rs. ……………………………………………………………

2. Towards compulsory expenditure like rent, food, school fees etc. ………………………

3. Life Insurance Premium – Rs.…………………………..…………………………………….

4. Any other Rs. …………………………………………………………………………………...

5. Net savings per month – Rs. ………………………………………………………………….

6. What amount you can comfortably invest every month – Rs. …………………………….

7. Any other fixed amount you have ready for investing now – Rs. …………………………

8. Total income per month minus tax – Rs. …………………………………………………….

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Practice Exercises

1. Suresh has invested Rs.1,30,000 in post office savings account giving 8% simple interest.
Calculate the interest amount he will get at the end of 6 years.

Solution-
Formula: I = Prt
Where, I=Interest, P=Principal, r=Rate of interest, t=Time in years

P = 1,30,000 r=8/100 t=6

I = 130000 x 8 x 6 = 62,400
100
Therefore, Suresh gets an interest of Rs.62,400 from the post office after 6 years.

2. Geetha has invested Rs.2,34,000/- in a bank at the rate of 7.5% compound

interest compounded annually for 3 years. Calculate the final cheque she will receive from
the bank after 3 years.

Solution-
Formula: C = P(1 + r)^n
Where,C=Compound Interest, P=Principal, n=Time

P=234000 r=7.5/100 n=3

C = 234000 (1+7.5/100)^3 = 234000 (1+0.075)^3 = 234000 (1.075)^3 = 234000 (1.2422)

C=290675
Therefore, Geetha gets a final cheque of Rs.2,90,675 from the bank.

3. Ramesh purchased a site for Rs.3 lakhs on 2 Oct 2003. He sells his site for Rs.7.35 lakhs
on Sept 29, 2006. Calculate the profit in Rupees and the income tax he has to pay on the
transaction. What would have been your suggestion to Ramesh?

Solution-
Site sold for = Rs.7,35,000
Site purchase cost = Rs.3,00,000
Profit in rupees = Rs.4,35,000

The site was sold in less than 3 years. Hence the short term capital gains tax would apply is
about 31 %.
The capital gains tax = 4,35,000 x 31 % = Rs.134850

Suggestion -Ramesh is a foolish person and lacks tax sense. He should have registered the
land to the buyer after Oct 3, 2006 to avoid short term capital gain and qualify for long term
capital gain.
The long term capital gain would have been 22.6% not 31%.He would have paid Rs.98,310 not
Rs.1,34,850.By some knowledge of tax he would have saved an amount of Rs.36,540.

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4. Raju has the following assets:

House - Rs.34 lakhs Plots - 20 lakhs and 23 lakhs

Flat - 22 lakhs Farm House -12 lakhs
Gold - 8.3 lakhs Money invested in business - 5.6 lakhs
Insurance premium paid - 4.15 lakhs Loan given to Prashanth - 3.5 lakhs
Bank deposits - 4 lakhs PPF - 3.2 lakhs
Post office savings - 0.5 lakhs Car (Market value) - 2.5 lakhs
Mutual Fund - 1 lakh Shares - 1.35 lakhs

Plot his wheel of balance and give suggestions to Raju.

Solution-
The ideal Asset allocation would be: Asset Allocation after the Workshop

1-Real estate 40% 1-Real Estate 50 %

2-Bank 10% 2-Bank 10 %
3-Insurance 5% 3-Insurance 5%
4-Gold 5% 4-Gold 5%
5-Mutual funds 20% 5- Stocks 30%
6-Stocks 20% Total 100 %
Total 100%

First step is to segregate all his assets as given below:

A-Real estate B-Bank C-Gold D-Insurance E-Mutual funds F-Stocks

A- Real Estate - 34+20+23+22+12= 111 Lakhs

B- Bank - 5.6+3.6+4+3.2+0.5+2.5=19.3 Lakhs
C- Gold - 8.3 Lakhs
D- Insurance paid - 4.15 Lakhs
E- MF - 1 Lakh
F- Shares - 1.35 Lakhs
Total assets = 111 + 19.3 + 8.3 + 4.15 + 1 + 1.35 = 145.10 Lakhs

Now calculate Raju’s Assets in percentages in each category

A-Real estate = 111/145x100=76%
B- Bank = 19.3/145x100=13%
C- Gold = 8.3/145x100=6%
D- Insurance = 4.15/145X100=3%
E- M.F. = 1/145X100=1%
F- Shares = 1.35/145x100=1%
Total = 100%
Suggestion - Too much money is invested in real estate!
Bank deposits can be reduced!
No more gold to be purchased for the next few years!!
Has to start investing more money into MF and Shares in the future-may be on
monthly basis.

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5. Umapathy has the following assets:

Shares - 5.5 lakhs House - 10 lakhs

Insurance - 0.25 lakhs Mutual Funds - 3 lakhs
Agricultural Land - 15 lakhs Gold - 0.3 lakhs
Motorbike - 0.25 lakhs Bank - 0.75 lakhs
Personal loan due for payment - 0.45 lakhs

Plot his wheel of balance and give suggestions to Umapthy.

Solution-
The ideal Asset allocation and segregation of assets are already discussed in the previous
problem

A- Real estate - 10+15= 25 Lakhs

B- Bank - 0.25 + 0.75= 1 – 0.45= 0.55 Lakhs
C- Gold - 0.30 Lakhs
D- Insurance - 0.25 Lakhs
E- M.F. - 3 Lakhs
F- Shares - 5.50 Lakhs
Total assets = 25 + 0.55 + 0.30 + 0.25 + 3 + 5.50 = 34.60 Lakhs

Percentage Allocation
A- Real Estate = 25/35x100=72%
B- Bank = 0.55/35x100= 1%
C- Gold = 0.3/35x100=1%
D- Insurance = 0.25/35x100=1%
E- M.F. = 3/35X100=9%
F- Shares = 5.5/35x100=16%
-------------------------------------------------
Total = 100%

Suggestion - Too much money is invested in real estate!

Bank deposits should be increased to meet the emergencies.
Gold to be purchased in small quantities!!
Has to start investing more money into MF in the future-may be on monthly basis.
Too less insurance!!
Can sell half his Agricultural land in case it is unproductive.

6. You have invested Rs.39,800/- in 9 % compound interest, compounded annually for 7 years.
What is the difference in case it is invested only for simple interest for 7 years.

Solution-
For Compound Interest-
Formula: C = P(1 + r)^n

P=39800 r=9/100 n=7

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C = 39800 (1+9/100)^7 = 39800 (1+0.09)^7 = 39800 (1.09)^7 = 39800 (1.8280)

C = Rs.72754 ---------- A

For Simple Interest-

Formula: I = Prt

I = 39800 x 9 x 7=25074
100
Therefore, interest is Rs.25074. With Principal we get Rs.64874

Difference between compound & simple interest is-

From compound interest 72754
From simple interest 64874
------------------------------------------------------------------------
Difference in amount is 7880
-----------------------------------------------------------------------

7. You have invested in PPF as follows.

1- 15th March 2006- Rs.20,000/-
2- 17th March 2007- Rs.20,000/-
3- 16th March 2008- Rs.20,000/-
4- 20th March 2009- Rs.20,000/-

8% interest compounded annually.

What is the total amount with interest in your account as on 2nd April 2009?
Solution-
PPF ACCOUNT
First step: Second step:
1-15th March 2006 to 2009 2-15th March 2007 to 2009
Three years compound interest Two years compound interest
C= 20000(1+8/100)^3 C=20000(1+8/100)^2
C=Rs.25194 --------------- A C=Rs.23328 -------------- B

Third step: Fourth step:

3-15th March 2008 to 2009 4-15th March 2009 to April 2009
One year simple interest No interest
I= 20000x8/100x1=1600+P=21600 So principal remains same
C=Rs.21600 --------------- C C=Rs.20000 -------------- D

Total all = A+B+C+D

25194
23328
21600
20000
Total Interest = 90122

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Homework
Exercise - 1
Purchased 120 shares of Infosys at the rate of Rs.1,812 on 10th Sept.2006. Sold 120 shares of
Infosys at the rate of Rs.2,211 on 10th Dec.2006. Brokerage is 1% (for both buying and Selling).
Calculate the net profit in Rupees, percentage of return and income tax to be paid on the
transaction.

Step-1
Sale Price = Rs.2211
Effective Selling Price (-1%) = Rs.2189
Purchase Price = Rs.1812
Effective Purchase Price (+1%) = Rs.1830

Profit per share = Rs.359

Profit for 120 shares = 359 x 120 = Rs.43080
Percentage of Profits = 359 x 100 =19.6%
1830
Time Period = 3 months
So Annual Profits = 19.6 x 4 = 78.46%
Income Tax = 15% of Profits = 43080 x 15 = Rs.6462
100

Exercise - 2
Purchased 80 Reliance Industries shares at Rs.815 on 12th August 2006. Sold 40 Reliance
Shares on 17th Oct 2006 for Rs.896 and sold another 40 Shares on November 11th 2006 at
Rs.1215/-. Calculate total profit, profit percentage and Income Tax. (Brokerage 1% for each
transaction)

Purchase Price = Rs.815

Effective Purchase Price (+ 1%) = Rs.823.15
Total Cost = 80 x 823.15 = Rs.65852

1st Transaction --- Profit = Rs.2554

Percentage of Profit = 46.5%
Income Tax 15%= Rs.384

2nd Transaction ---Profit = Rs.15188

Percentage of Profit = 184.51 %
Income Tax 15%- = Rs.2279

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Exercise - 3 - Bonus shares

Purchased 60 shares of L & T on 15th May 2006 for Rs.2100 per share. L & T gave bonus 1:1
on 22nd August 2006. Sold all shares of L&T on 25th November 2006 at Rs.1375 each.
(Brokerage 1% each). Calculate Net profit in Rupees, percentage of profit and tax to be paid.

Ans: Profit = Rs.36090

Percentage of Profit = 56.7%
Income Tax = Rs.5414

Exercise - 4 - Stocks Split

Purchased 50 shares of Axis Bank Company at the rate of Rs.1200 in May 2014. In July 2014,
Axis Bank shares split 5:1. Hence, investors received 250 shares of Axis Bank after split. In Feb
2015, he sold the shares at Rs.553. Calculate total profit

Ans:
Effective Cost of Purchase = Rs.1200/5 = Rs.240 per share
Selling Price = Rs.553 per share
Total Profit = 553 – 240 = 313 X 250 = Rs.78250

Exercise - 5 - Mutual Fund

Invested Rs.15000 in mutual fund ‘A’ at the rate of Rs.34.35 on 18th January 2005. Sold all the
units at NAV of Rs.42.19 on 16th January 2006. Calculate the profit, profit percentage and
Income Tax. (No entry and exit load.)

Ans: Net Profit = Rs.3423.58

Percentage of Profit = 22.82% p.a
Income Tax = Rs.514

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List of CDs and books by Dr.Bharath Chandra

1. Audio CD on Alpha Music for Better Concentration

By listening to this soothing music, you reach alpha state of mind, Alpha state is nothing but the
state of tranquility of mind. This background music can be heard anywhere and everywhere to
enhance creativity. Recommended for students while studying, for better memory recall, and
concentration. This music is specially designed scientifically to calm you down, to synchronize
you from beta state of mind to alpha.
2. Audio CD on Assertiveness Training and Facing Criticism (Part 1 & 2)
If we cannot refuse the requests of others, others will run our life. There are many situations in
life in which you wanted to say “NO” instead you said “YES” and suffered, and vice versa. This
CD teaches you the techniques of managing your communications honestly without hurting
others.
3. Audio CD on Attracting Prosperity
We are as rich as we think we are. The world is abundant in everything. It is only our limitation
of thinking that makes us poor. This CD is all about projecting the thoughts and pictures of
abundance on our sub-conscious mind. Any picture that is imprinted on the sub-conscious will
become a reality shortly later. This cassette is a model for learning to visualize effectively. Listen
to this CD at least once in two days for better results and prosperity.
4. Audio CD on Goal Setting
97% of the people don’t reach their goals because they don’t write them down. If you don’t
stand for something, you will fall for anything. In this CD Dr. Bharath Chandra instructs you to
use the available time to reach your cherished goals in life.
5. Audio CD on Time Management
Time is the one thing that is given to all of us in equal amounts but very badly misused. It is said
that time is your life. If you waste time you waste your life. We cannot control time. We can only
manage time.
6. Audio CD on How to Motivate Others
A very important factor in our lives, whether at office or at home is dealing with people,
negotiating, reaching an understanding, agreements, striking deals and bargains day in and day
out. If you want to become a winner, you must have considerable expertise in convincing others
and influencing others. This program deals with how to get the other person to your way of
thinking. Dr. Bharath Chandra, who is a master story teller, explains candidly various life
situations to focus clearly on the spirit of the principle. If we are winners we must be able to
enroll others in to our projects, thereby enhancing our success.
7. VIDEO CD on Improving Your Memory and Studying Skills (Part 1 & 2)
Memory is what you make it. The more you use it, the sharper it becomes. The more you trust it,
the more it serves you. There is nothing called a bad memory or good memory. What exists is
trained memory or untrained memory. In this CD, Dr. Bharath Chandra deals practically with
various techniques of improving your memory.
What you study is not important, what you remember of what you have studied is important.
Working harder is not important. Working sharper is pretty important. This part deals with how to
study, how long to study, when to study, how to manage difficult subjects, how to study for a
longer time, and managing examination fear.

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8. Audio CD on Neuro-Linguistic Programming

NLP makes impossible things possible. Practise these techniques in order to achieve certain
desired goals.
9. Audio CD on Positive Mental Attitude
All of us operate through the glasses we have. If you have pessimistic glasses you see gloom
everywhere. If you have optimistic glasses you see possibilities everywhere. This CD changes
your glasses and the attitude towards the world.
10. Audio CD on Art of Effective Public Speaking
Presentation is an art as well as a science. Anything and everything can be presented in a
better manner. This CD teaches you how to begin a speech and how to end the speech in a
memorable way.
11. Audio CD on Relaxation and Stress Management
This audio book deals with time tested Jacobsons Relaxation, which is highly recommended for
tension headaches, cramps and pains not responding to medical treatment. In this relaxation
you have to tense your body first and then relax. Hence this relaxation is also called tension
relaxation.
Normally we use the logical left-brain. Hence a large portion of our brain is unutilized. We only
use 10% of our real potential. By practicing relaxation, we start using the unutilized other side of
the brain – thus enhancing our potential. By practicing relaxation for about 20 minutes a day we
can nullify the ill effects of stress on our body.
12. Audio CD on How to Develop Everlasting Relationships
This CD deals with the famous, time tested golden principles of human relations, as
propounded by the world’s number one trainer Dale Carnegie, who wrote the important book
“How to win friends and Influence people”. All successful people have wonderful relationships
with others. By practicing the nine principles mentioned in this CD you become extremely
popular and people fall in love with you. You look like a live magnet and as a by-product of
people’s love, you become prosperous.
13. Video CD on Ten Secrets of Success
Winners are not born. Winners are made. Winning is a habit. By repeatedly practicing winning
habits we can become a winner in life. All winners have certain characteristics in common.
Similarly, if you master certain habits, you are sure to become a WINNER. These habits are to
be consciously acquired, subconsciously adhered to, and finally practiced. When you take care
of these habits, success becomes mandatory. In this CD Dr. Bharath Chandra, a powerful
trainer and behavioural therapist speaks on all the winning formulas.
14. Audio CD on Theory of Stress Management
Stress is a slow killer. In this program you will understand the basics of stress and factors
producing stress, ill effects of stress, and broadly how to manage stress.
15. Video CD on Winners Workshop
A Video C.D. is available on Winners Workshop by Dr.Bharath Chandra (Documentary film).
Time – 20 minutes.
16. Motivation Plus (Book containing Motivational stories and articles)
This book contains excellent motivational stories and articles which can be read by people of all
ages.

17. Inspiration Plus (Book containing Motivational stories and articles) - This book
contains excellent motivational stories and articles which can be read by people of all ages.

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18. Injections (Book containing Motivational stories and articles)

This book contains excellent motivational stories and articles which can be read by people of all
ages.

19. Inspiring Thoughts (Book containing Inspiring Thoughts)

This book contains 200 famous quotes of Dr.Bharath Chandra

20. Personal Finance Made Easy (Book)

This book contains numerous articles on various aspects of Personal Finance such as Stocks,
Real Estate, Mutual Funds, Insurance, Tax Planning etc.

21. Exercises to Increase Height & Tips to Lose Weight

This book contains special exercises which will help children increase their height as well as tips
for adults on how to lose and maintain the lost weight.

22. Dr.Bharath Chandra’s Weekly Organizer

This Weekly Organizer is specially designed to help you plan your week effectively. This
Organizer helps you plan the tasks to be completed for the entire week. Our past record shows
that people who follow this in a disciplined manner experience tremendous positive difference in
their performance in life.

23. Dr.Bharath Chandra’s Financial Calculator Software

This is a Software which contains 15 different calculators to help you plan your finances and
investments.

24. Dr.Bharath Chandra’s Rapid Reading Software for enhancing your Reading Speed
It is a Software which increases your Reading Speed by scientifically practicing to read
passages at high speeds. This software is especially helpful for students to improve their
reading speed and thereby reduce time spent on studying.

25. Audio CD on Personal Finance “Nimma Hana Namma Salahe” in Kannada

This is a CD in Kannada which contains 4 hours of audio on topics on Personal Finance such
as Insurance, Stocks, Gold, Mutual Funds, Tax Planning etc.

26. Preraka Nudi Muttugalu (Book on Motivation in Kannada)

This book in Kannada contains excellent motivational stories and articles which can be read by
people of all ages.

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