A BIT OF FUN WHILE YOU LEARN

TILL NOW (ONLY IF YOU HAVE READ THE PREVIOUS POSTS) YOU MIGHT HAVE STARTED FEELING A BIT COMFORTABLE WITH ALL THESE TERMS.BUT JUST READING WON'T HELP. YOU NEED TO ASSIST IT WITH A BIT OF ACTIVITY AT YOUR END.

LETS TRY ONE OF THE SIMPLEST ACTIVITY.

1.PULL OUT LAST WEEKS NEWSPAPERS,FROM TUESDAY TO SATURDAY (SHARE MARKETS HAVE SATURDAY & SUNDAY OFF ,SO NO LISTINGS THE NEXT DAY)

2.GO TO THE BUSSINESS PAGE AND JUST BROWSE THE SHARE LISTINGS.

3. CHOOSE TEN COMPANIES OF YOUR CHOICE. (SAY TATA MOTORS,INFOSYS,RELIANCE INDS,HLL,ETC)

4.JUST LIST THEM ONE UNDER THE OTHER.

5.TRY TO REMEMBER WHAT THIS COMPANIES ARE INTO i:e WHETHER THEY ARE AUTOMOBILE MANUFACTURERS,SOFTWARE GIANTS,etc.

6.SEE AND JOT DOWN HOW THEIR SHARES PERFORM OVER THE WEEK.NOTE DOWN THE PRICES FOR ALL THE WEEKDAYS.

7.TRY ALL STEPS 1 TO 6 AND YOU WILL BE LEFT WITH MANY QUERIES.NOTE THEM DOWN WE WILL TRY TO FIND THE ANSWER FOR ALL YOUR QUERIES PRETTY SOON.

TAIL PIECE:
THE BUDGET IS FAST APPROACHING JUST SAVE ALL THE PAPER CUTTINGS FROM POST BUDGET PERIOD.TRY AND WATCH THE POST-MORTEM REPORTS OF THE BUDGET EVEN IF YOU DON'T UNDERSTAND A DAMN.DO NOTE ITEMS WHOSE PRICES INCREASE AND WHOSE PRICES DECREASE.

SOME MORE IMPORTANT TERMS

WELL I THINK YOU MIGHT HAVE DIGESTED THE TWO PREVIOUS TERMS SHARE MARKET AND BROKERS,SO LETS CHUG ALONG AND TRY TO UNDERSTAND SOME MORE .

1.BSE(BOMBAY STOCK EXCHANGE)
THIS IS THE BIGGEST STOCK EXCHANGE IN INDIA AND BEING NAMED BOMBAY STOCK EXCHANGE IS DUELY LOCATED IN BOMBAY(MUMBAI) ONLY.IT WAS FORMED BY SOME TRADERS LONG BACK,BUT NOW IS CLOSELY INSPECTED BY THE GOVERNMENT.

2.NSE(NATIONAL STOCK EXCHANGE)
NSE WAS FORMED BY THE GOVERNMENT 50 YEARS BACK AS A COMPETITOR FOR BSE.IT IS LOCATED IN DELHI.

A COMMON INVESTOR LIKE US CAN INVEST IN ANY OF THE TWO.WE CAN EVEN MAKE USE OF THE DIFFERENCE IN RATE OF A PARTICULAR SHARES IN THE TWO MARKETS AND DECIDE WHERE TO BUY OR SELL.
ITS JUST LIKE TWO SHOPS SELLING/BUYING THE SAME GOOD.WE OBVIOUSLY WILL BUY AT THE ONE WITH A LOWER PRICE AND SELL AT THE ONE WITH HIGHER PRICE.

3.SENSEX:
SENSEX IS THE PERFORMANCE INDEX OF THE BSE. A LIST OF INDIA'S TOP 30 COMPANIES(RELIANCE,TATA,BAJAJ,ETC) IS MADE.PRICES OF THEIR SHARES IS CLOSELY FOLLOWED AND RATED.IF MAJORITY OF THESE SHARES SHOW A RISE IN PRICE THAT DAY THEN THE SENSEX RISES AND VICE-VERSA.

4.NIFTY:
INDIA'S TOP 50 COMPANIES DECIDE THE FATE AS AGAINST 30 AT NIFTY IS THE PERFORMANCE INDEX OF NSE.THE ONLY DIFFERENCE IS THAT AT NSEBSE.

NOW IF YOU HAVE READ NEWSPAPERS OR HEARD BUSINESS NEWS EVEN WITH LEAST ATTENTION THEN YOU MIGHT HAVE REALISED THAT SENSEX IS WAY AHEAD OF NIFTY.(FOR EXAMPLE ON 23/02/2007 SENSEX CLOSED AT 13363 WHILE NIFTY AT 3939).
THIS DIFFERENCE IS BECAUSE BSE WAS FORMED ALMOST A CENTURY BACK SO IT HAS GOT THE LEAD .IF YOU SEE THE RELATIVE PERFORMANCE THEN THEY ARE FAIRLY SIMILAR.

OK ,AS FOR NOW THIS SHOULD MAKE YOU STUDY A BIT.HAVE A LOOK AT THE BUSINESS NEWSPAPERS AND KEEP SOME QUESTIONS READY.
SEND THEM TO ME AT belose_sanket@yahoo.co.in ,I WILL TRY ANSWERING THEM IN THE FOLLOWING POSTS.

CONCEPTS AND TERMS INVOLVED

THE INDIAN SHARE MARKET IS RELENTLESSLY SWINGING UPWARDS IN RECENT YEARS,WHAT WILL THE SENSEX BREACHING THE 14K MARK THIS YEAR.
NOW WHENEVER YOU READ LINES AS THE ONE ABOVE,YOU GRASP ONLY SAY HALF OF IT.MANY OF US DO NOT UNDERSTAND WHAT SENSEX,NIFTY,DEMAT,etc IS ALL ABOUT.
SO LETS TRY AND FIGURE OUT ALL THESE TERMS ONE BY ONE.
THOUGH THE TERMS SEEM QUITE INTRICATE THEY ARE PRETTY EASY TO UNDERSTAND,THE FACT IS THAT YOU JUST NEVER TRIED.

OK SO LETS GO ONE BY ONE

1.SHARE MARKET OR STOCK EXCHANGE:
THIS IS THE PLACE WHERE ALL TRANSACTIONS RELATED TO SHARES (LIKE BUYING OR SELLING) ACTUALLY TAKE PLACE.IN OTHER WORDS SHARE MARKET IS A SHOP WHICH DEALS IN SHARES.
THERE ARE TWO BIGGEST SHARE MARKETS IN INDIA viz NSE (NATIONAL STOCK EXCHANGE ,DELHI) AND BSE(BOMBAY STOCK EXCHANGE, MUMBAI)

2.BROKERS:
THE TRANSACTIONS IN THE SHARE MARKET INVOLVE A TURNOVER OF HUNDRED,THOUSANDS OF CR ORES.COMMONERS LIKE US CAN'T REALLY BE A PART OF THESE HUGE TRANSACTIONS.SO THERE ARE MEDIATORS WHO BUY/SELL SHARES IN A HUGE AMOUNT FROM THE EXCHANGE AND IN TURN BUY/SELL SMALLER QUANTITIES TO PEOPLE LIKE US.
SO IF WE TERM THE STOCK EXCHANGE AS A WHOLESALE DISTRIBUTOR,THEN THE BROKER IS A RETAILER.
IN SHORT BROKER IS THE LINK BETWEEN COMMON INVESTORS AND THE STOCK EXCHANGE.

WELL TH ATS IT AS OF NOW,BUT THERE IS A SMALL ACTIVITY FOR YOU GUYS.PICK UP ANY NEWSPAPER AND GO TO ITS BUSSINESS PAGE,SEE IF YOU FIND SOME TERMS LIKE DEMAT,EQUITY,IPO,PAN,ETC.WE WILL TAKE THEM UP SOON,JUST IN CASE YOU FIND OUT WHAT THEY ARE THEN YOU MAY JUST RECTIFY ANY MISTAKE OF MINE.

HOW ARE SHARES A BETTER INVESTMENT?

AN INVESTMENT IS FRUITFUL IF AND ONLY IF IT YIELDS YOU SUBSTANTIAL INTEREST.IT WILL BE HIGHLY USEFUL JUST TO TAKE A LOOK AT THE FOLLOWING STATISTICS. THE NUMBERS ARE THOSE RELATED TO THE INDIAN (OR ASIAN ) MARKET BUT THE IMPLICATIONS ARE ARTHER SAME WORLD OVER

1.BANKS IN DEVELOPING NATIONS OFFER 8-9% INTEREST PER ANNUM ON FIXED DEPOSITS WHILE IN DEVELOPED COUNTRIES THE RATE CAN BE AS LOW AS 4-6%.

2. PRECIOUS METAL LIKE GOLD CAN EARN YOU AROUND 5-7% .

3.INSURANCE AND POST CERTIFICATES DO PROVIDE YOU FINANCIAL SECURITY BUT THEY EARN YOU PRETTY MEASLY INTERESTS,AND INVESTMENT BEING FOR A LONG PERIOD ISN'T ALL THAT PROFITABLE.

4. REAL ESTATE IS ONE FIELD WHICH CAN GIVE YOU WHOPPING RETURNS BUT THE INITIAL INVESTMENT IS HIGH AND PAPER WORK INVOLVED ALWAYS LEAVES SCOPE FOR CON MEN.

ON THE OTHER END SHARES CAN PROVIDE YOU UP TO 15-17% INTEREST,THERE IS ALWAYS THE OPTION OF OPTING OUT AND INVESTMENT BEING MONITORED BY THE GOVERNMENT IS ALWAYS SAFE.

WHY DO YOU NEED TO INVEST? 2

ASSUMING THAT YOU DIGESTED THE PREVIOUS DOSE OF ECONOMICAL TERMS (COMMON THEY WEREN'T ALL THAT TOUGH) LETS TRY AND UNDERSTAND SOME MORE OF THEM.

NOW TO THE 4TH POINT (HEY PASSIVE MONEY WAS NO. 3 ISN'T IT?)

4. ACTIVE MONEY: IF YOU UNDERSTOOD MY CONCEPT OF PASSIVE MONEY THEN THIS IS A CAKEWALK. IF YOUR MONEY EARNS YOU MORE MONEY ON ITS OWN THEN ITS ACTIVE MONEY.SOUNDS WEIRD? THEN TRY THIS INVEST YOUR MONEY IN SAY BANK FIXED DEPOSITS,INSURANCES,GOLD,REAL ESTATE, etc.AFTER A CERTAIN AMOUNT OF TIME YOU MONEY GENERATES YOU INTEREST,AND IT INCREASES ON ITS OWN,SIMPLE ENOUGH. NOW YOUR MONEY IS ACTING AS A EARNER,i:e ITS TURNED ACTIVE.(NOW YOU CAN'T BOAST TO BE THE SOLE BREAD WINNER).


SLOWLY WE WILL TRY TO EVALUATE HOW PROFITABLE THESE MODES OF INVESTMENTS ARE,AND WHAT ARE THEIR DRAWBACKS.AND FINALLY I WILL TRY TO PROVE YOU HOW SHARES ARE A BETTER OPTION.

YOU MIGHT FEEL THAT WE ARE A TAD TOO SLOW BUT MATE LETS TAKE THESE BABY STEPS SO THAT YOU CAN MERRILY HOP LATER.

WHY DO YOU NEED TO INVEST ? 1

BEFORE ANSWERING THE ABOVE QUESTION WE NEED TO UNDERSTAND SOME BASIC TERMS.

1. INFLATION: JUST TRY TO REMEMBER WHAT THE PRICE OF PETROL, CLOTHES,FOODSTUFFS,HOMES,etc WERE 5 YEARS BACK.ARE THEY THE SAME STILL? CERTAINLY NOT,THEY HAVE ALL BECOME DEARER ISN'T IT? THATS WHAT INFLATION IS,INCREASE IN PRICES OF ENTITIES WITH TIME.(AND MANY THINK WHAT BIG FUSS INFLATION IS )
   
2. INCREMENTS: HAS YOUR SALARY INCREASED IN PROPORTION WITH THE INFLATION.HERE YOU NEED TO REALIZE THAT YOU SHOULD APART FROM MEETING YOUR EXPENSES YOU SHOULD BE SAVING ENOUGH.
3. PASSIVE MONEY: LETS ASSUME YOU SAVE Rs5000/- PER MONTH (WHATEVER BE THE CURRENCY). SO ANNUALLY YOU SHOULD SAVE AROUND Rs.120,000/-.THAT MEANS YOUR MONEY JUST ROTTED IN YOUR CUPBOARD WHILE YOU KEPT SLOGGING TO SAVE MORE OF IT. I TERM THIS MONEY AS PASSIVE,BECAUSE IT ISN'T WORKING FOR YOU. SOME KIND OF INVESTMENT IS GOING TO MAKE IT WORK FOR YOU.
   

WHAT ARE SHARES ALL ABOUT?

'SHARE' THE WORD ITSELF MEANS A PART OR A FRACTION OF A WHOLE ENTITY. LETS TRY TO UNDERSTAND WHAT SHARES ARE WITH A SMALL EXAMPLE. LETS SAY A CHOCOLATE MANUFACTURING COMPANY BY THE NAME DINGDONG (JUST AN EXAMPLE) WANTS TO START A NEW MANUFACTURING UNIT AND EXPAND ITS BUSSINNESS.THE MOST IMPORTANT FACTOR FOR THIS NEW VENTURE WILL BE GENERATING THE FINANCE NEEDED.


NOW ONE OF THE METHODS TO RAISE THIS FUND IS BY OFFERING MINOR PARTNERSHIPS IN THE COMPANY TO MULTIPLE PARTNERS. IN SHORT MANY PEOPLE WILL PROVIDE SMALL AMOUNTS TO BUILD THE NEW COMPANY,IN TURN THEY WILL BE GIVEN PARTNERSHIPS IN THE COMPANY PROPORTIONATE TO THE FUND THEY PROVIDE. IN ECONOMICAL TERMS THESE PEOPLE ARE CALLED SHARE HOLDERS OF THE COMPANY.NOW COMPANY'S PROFIT WILL BE SHARE HOLDERS PROFIT AND SAME ABOUT THE LOSS.