THE SMART

INVESTOR

Game PrizesWinner

Runner Up

Why Finance as a specialization?

WORKPLACES for MBA FINANCETraditional•BANKS

•MUTUAL FUNDS

•INSURANCE

•FINANCIAL CONSULTANCY

Specialized•INVESTMENT

BANKING

•CORPORATE FINANCE

•MERCHANT BANKING

•PORTFOLIO MANAGEMENT

Emerging•HEDGE FUND

•ASSET MANAGEMENT

•CREDIT RISK MANAGEMENT

•DERIVATIVES STRUCTURING

•PRIVATE EQUITY

JOB PROFILES• INVESTMENT BANKER• PORTFOLIO MANAGER• FINANCE MANAGER

• CREDIT RISK MANAGER• FINANCIAL/INVESTMENT ANALYST

• FINANCIAL/EQUITY RESEARCH ANALYST• RISK and INSURANCE MANAGER• FINANCIAL PLANNER/ADVISOR

Etc….

FINANCIAL PLANNING

What do you want to become? RICH or POOR

Being financially independent

FINANCIAL PLANNING

Financial planning is the first step you can take to become financially

independent !!!

If your only goal is to become rich. You will

never achieve it.

A goal without a plan is just a DREAM.

Importance of Financial Planning

1. Financial Security2. Ensured Cash flows3. Standard of Living

4. Family Security5. Creation of Assets

6. Systematic and organized lifestyle

Factors that make financial plan important

1. Increased demands and lifestyle requirements

2. Inflation

3. Reduced Job security

4. Contingency expenses

5. Increased life expectancy

What is the most important step towards financial

planning??

PLANNING Your INVESTMENTS

Process of financial planningMonthly Salary

(Rs. 1 lac)

Saving(Rs. 50

thousand)

Save(Rs. 10

thousand)

Investment(Rs. 40

thousand)

Tax (Rs. 20 thousand)

Consumption(Rs. 30

thousand)

With INVESTMENTS you can also avail TAX BENEFITS

(Rs. 10 thousand)

Where to Invest?BANK

(Accounts and Deposits)

GOLD BONDS/DEBT INSTRUMENTS

INSURANCE EQUITY DERIVATIVES

MUTUAL FUNDS

REAL ESTATE

ART and Other Misc.

Role Of DiversificationSYSTEMATI

C Risk

UNSYSTEMATICRisk

Forms of Diversification• Asset Classes• Markets• Timings• Financial Institutions

EQUITYand

DERIVATIVES

INVESTMENT VEHICLESEQUITY Shares (Common Stock)

MUTUAL FUNDS

DERIVATIVES• FORWARDS• FUTURES• OPTIONS

Positions in Equity Stock Market

Buy LONG

Sell SHORT

MARGIN Trading

INTRADAY

Trading

MARGINS in EQUITY TRADING

Initial Margin

(VaR)

Mark to Market Margin

What is a Stock Index ?

HOW DO I SELECT THE EQUITY STOCKS To Invest

FUNDAMENTAL ANALYSIS• Fundamental analysis involves analysis of

Financial statements (P&L, BS, CFS) to forecast future performance through DCF, DDM, Relatives and other valuation models.TECHNICAL ANALYSIS

• A security analysis methodology for forecasting the direction of prices through the study of past market data, i.e, Price and Volume behavior. Charts, patterns, indicators and theories.

Interesting Facts and Figures1. Only 2-3% of Indian total savings is

invested into stock markets2. BSE is world’s top stock exchange in terms

of listed companies3. SENSEX touched the highest level of

28,882 (Intraday high) in ……4. India was the first market where US Indices

(DJIA & S&P500) derivatives contracts were traded outside US

5. India comes in the top 20 world stock markets in terms of Market Cap

Any query related to EQUITY

shares???

CHHOTA sa

QUIZ

Q 1 : NAME the INDEXName the major stock index of these

countries

JAPANU.K.

BRAZIL

Q 2 : Tell me the FULL FORM

State the full form of the following terms

LBOREIT

Q 3 : Answer the following

Any one type of:1. SWAP

2. Exotic Options

What is a DERIVATIVES

Contract?

Asset• The underlying fundamental asset

that could be a STOCK, INTEREST RATE, CURRENCY, COMMODITY

Derivatives• A mutual contract between parties

which takes value from the underlying asset

Value of Derivatives change when the value of the underlying asset changes

Major Derivatives contract traded on an exchange

StockIndexCurrencyCommoditiesInterest rate

Mr. Orange wants to invest in ITC Ltd. with Rs. 1000

Market Price of ITC Ltd. = Rs. 100No. of Shares for Mr. Orange = 10

Futures Contract Premium for ITC Ltd. = Rs. 25No. Of Shares in a futures contract = 40

After one month at the time of expiry of futures contract the price of ITC Ltd. moves to Rs. 120

So with the use of leverage feature in

the derivatives contract.Mr. Orange was able

to earn a return of Rs. 800 instead of

Rs. 200 if he had long shares of ITC Ltd.

Now if the price of ITC Ltd Moves to Rs. 80. Mr.

Orange would have lost Rs. 800 instead of Rs. 200

So… Mr. Orange turns Mr. Red.. Angry with his investment

decision !!

Major types of Derivatives contracts

FORWARDSFUTURESOPTIONSSWAPS

EXOTICS

TRADING SYSTEMS

Over the Counter Exchange• Forwards• Swaps• Exotic OptionsExchange Traded Derivatives• Futures• Options

FORWARDSLet’s suppose you want to gift an Apple Iphone6 to your brother after saving your pocket money for 2

months.

Current price = Rs. 60,000

You have three options1. Buy it now and gift it later. (No Cash)

2. Buy it after 2 months at the price prevailing after 2 months.

3. Enter into an agreement with a friend who is a mobile dealer to pay him Rs. 60,000 after 2

months in exchange of phone.

FUTURESMr. White, the owner of NYSE is a really smart

and observing personality.He observes that demand for Iphone 6 is huge

and people are executing forwards contracts on a large scale.

He floats a futures contract where contracts are:- Standardized

- Safe and Backed- Highly Liquid

- And Marked to Market

OptionsAnd here comes Mr. Blue owner of NSE who has

sympathy for the blues of futures buyers.

On the same principle of futures, Mr. Blue floats an options contracts where he gives an option to the

buyer of the contract to exercise the contract or not at the time of maturity.

He only demands a little premium for the same features offered by Mr. White and further either:

- Call Option- Put Option

Call OptionYou are an investor and want to trade on NIFTY.

Current level = 8500

You believe that NIFTY would be trading above 8700 after a month.

You buy an NIFTY call option at strike price of 8700.After one month on the day of expiry NIFTY closes at :

- 8900- 8750- 8550

Put OptionYou are an investor and want to trade on NIFTY.

Current level = 8500

You believe that NIFTY would be trading below 8700 after a month.

You buy a NIFTY PUT option at strike price of 8700.After one month on the day of expiry NIFTY closes at :

- 8900- 8750- 8550

BENEFITS of DERIVATIVES1. Formulation of long term Hedging

and speculation strategies

2. Benefit of leverage

3. Small transaction costs

4. Great risk management tool

Limitations of Derivatives1.Effect of Leverage

2.Highly volatile and risky

3.Complex and difficult to strategize

HEDGINGMr. Mukesh Ambani owns 500 shares of TATA

Steel Ltd. bought at Rs. 10 a share.He wants to hold the stocks for 6 months but

also want to secure himself from any risk.

How does he hedge himself against his long position?

He sells a futures contract of 6 months expiry currently selling at Rs.9 a share (discount).

SPECULATINGCase : Covered Call Strategy

Mr. Mukesh owns 500 shares of TATA Steel Ltd. bought at Rs. 10 a share and is ready to hold the

stock for a long time.

He wants to earn additional income over his holdings.

He sells a Call Option of 1 month expiry at strike price of Rs. 13 and receives a premium of Rs. 1 a

share.

PORTFOLIO MANAGEMENT

DIVERSIFICATION

HEDGING

SPECULATION (With STRATEGIES)

FUNDAMENTAL ANALYSISBased on the fundamentals of the company

Using the E-I-C approach

- Finding the intrinsic value of share-Implications of various financial ratios- Measuring the impact of qualitative

factors

Economy Industry Company

TECHNICAL ANALYSISBased on the price and volume behavior of

the stock in market.

TECHNICAL ANALYSISCandle Stick Charts

• Hammer• Hanging man• Morning/Evening Star etc.

Patterns

• Support• Resistance• Head and shoulders• Double top and double bottom

Indicators and Oscillators

• William %R• Relative strength index• Moving average

Trading Theories

• Elliot Wave Theory• Dow Jones Theory

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