classes of investors

Functions of brokers

1. Client registration:- A trading broker has to enter into an agreement in the specified format with his client before accepting any orders on his clients behalf. Broker also collect information about the financial profile, social profile, identification details income etc.(broker will open a demat account and trading account in the name of the client)

2. Obtaining margin money:- the broker has to collect margin money. The margin so collected must be kept separately in the client’s bank account and it must be utilized for making payment in respect of that client.(broker should maintain a margin with the stock exchange)

3. Execution of orders:- the important function of a broker is to execute orders of his client. He has o obtain clear cut order- name of the company whose se securities are to be sold or purchased, number of shares, limit of market price if any etc..

4. Supply of necessary slips:- broker should give copies of trade conformation slip, modification slip, cancellation slip etc.(now in online trading the orders are provided by the client through phone, so no slips are issued.)

5. Issue of contract notes:- broker should issue a contract note within 24 hours of the execution of the contract.

6. Payment or delivery of securities:- it is the duty of every trading member to make payment to his client – if sale or delivery of securities – if purchase within 24 hours, unless the client requested otherwise.(now the securities are in demat form so transferred to clients demat a/c, cash transferred to bank a/c or issue cheques.)

7. Charging of brokerage and other charges:- As per SEBI guideline every broker is entitled to charge not exceeding 2.5% as brokerage.

8. Maintenance of bank account:- It is the function of the broker to maintain separate bank accounts for his clients fund

9. Receipts of interest, dividend etc..:- it is the duty of the broker to receive all interest, dividend, bonus shares on behalf of his client.

10. Settlement of disputes:- if there is any dispute between broker and client, it is the duty of the broker to take initiate to resolve the disputes.

Operators in stock exchange

1. Badliwalas:- they are the financiers operating on the securities market. They provide short term loans to carry forward deals in securities. If the buyers willing to carry-over the transaction have to pay the badliwala a consideration called contango. The badla charges, the sellers has to pay to the badliwala for the carry over is called backwardation

2. Arbitragers:- the dealers who enter into dealings in different stock exchanges- by purchasing securities from one market and sale at the same time in another market where the price is high.

3. Odd lot dealers:- at SE transactions are done in lots mostly of 100 or 50 shares and multiples thereof, called market lot. The person who deals in these market lots are called market lot dealer. Any lot less than the market lot is known as odd lot, and brokers dealing odd lots are called odd lot dealers.

CLASSES OF INVESTORS

Investment

Investment may be defined as an activity that commits funds in any financial or physical form in the present with an expectation of receiving additional return in the future.

Features of Investment

1. Return: The primary objectives of investment is to derive a return in the form of dividend, interest or capital appreciation. The difference between selling price and purchase price is the capital appreciation.

2. Risk: The risk may relate to loss of capital, delay in repayment of capital ,non-payment of interest or variability in returns.

3. Safety of investment: The safety of an investment implies the certainty of return of capital without loss of money or time.

4. Liquidity: An investment is said to have liquidity if it is easily saleable or marketable without loss of money and without loss of time.

5. Legality: All investments should be approved by law.

SPECULATION

Speculation means buying or selling of securities with the expectation of making profit out of the price’s increase or decrease in future .

Differences between investors and speculators

Investor Speculator

anticipation of regular income profit out of price changes in the

market.

performance of the company in market performance of securities.

making profit.

buys and sells securities occasionally. buys and sells securities on

continuous basis

prepared to bear low risk undertaking high risk.

takes physical delivery of security does not physically deliver securities

GAMBLING

Gambling is unplanned, non scientific and without the knowledge of the exact nature of risk. Typical examples are horse riding , game of cards, lottery etc.

INVESTORS IN THE CAPITAL MARKET

The various investors of corporate securities (Financial investors) include individuals, speculators, joint stock companies, Life insurance companies, commercial banks, public provident funds, Underwriters, trustees, investment bank, IDBI, ICICI, IFCI, SFCs, SIDCs etc. Primarily the savings and surplus of individuals, joint stock companies and public and private institutions are invested in the corporate securities.

1. Individual Investors

Real investors

Speculative Investors

Individuals affiliated with issuing company (customer, employees, existing

shareholders, creditors )

2. Joint Stock Companies

3. Institutional Investors

Private institutional investors

Public financial institutions : IDBI, ICICI, IFCI, SIDC, SIIC

Foreign Institutional Investors : A FII means an institution established or incorporated outside India that proposes to make investments in India, in securities

INVESTORS IN THE CAPITAL MARKET

1) Retail investors : Retail individual investors means an investor who applies or bids for securities of or for a value not more than Rs.1,00,000.

2) High networth investors : Any bid made in excess of Rs.1,00,000 will be considered

3) Qualified Institution Buyers (QIBs): These are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets

a. Public financial institutions

b. Scheduled Commercial Banks

c. Mutual funds

d. Foreign Institutional Investors registered with SEBI

e. Venture capital funds registered with SEBI

Speculators- are not genuine investors. They buy securities with the hope to sell them in future at higher price.

Kinds of speculators.

1. Bull:- bull is an optimist, who expect a rise in price. In anticipation of rise in price, he purchase securities to sell it at a high price in the future. A bull is also called Tejiwala. If the market is dominated by an expectation of rise in price- we will call it as bullish trend.

2. Bear:- a bear speculation is always expect a fall in price of securities. They sell securities with the expectation of purchase the same securities at lower price in the future. If the market is dominated by bear speculators, it is called bearish market.

3. Stag:- is a cautious speculator ,who applies for new shares and expects to sell them at a premium, if gets allotment. He is called premium hunter.

4. Lame duck:- a bear speculator contracts to sell securities on a future date. On the appointed time he is not able to get the securities. In such a situation he is like a lame duck.