Futures: A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Future contracts are standardized exchange traded contracts.
Options: An option gives the holder of the option the right to do something. The option holder option may exercise or not.
Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price.
Put option: A put option gives the holder the right but not obligation to sell an asset by a certain date for a certain price.
Option price: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.
Expiration date: The date which is specified in the option contract is called expiration date.
European option: It is the option at exercised only on expiration date itself.
Basis: Basis means future price minus spot price.
Cost of carry: The relation between future prices and spot prices can be summarized in terms of what is known as cost of carry.
Initial margin: The amount that must be deposited in the margin a/c at the time of first entered into future contract is known as initial margin.
Maintenance margin: T his is somewhat lower than initial margin. 157. Mark to market: In future market, at the end of the each trading day, the margin a/c is adjusted to reflect the investors’ gains or loss depending upon the futures selling price. This is called mark to market.
Baskets: Basket options are options on portfolio of underlying asset. 159. Swaps: swaps are private agreements between two parties to exchange cash flows in the future according to a pre agreed formula.
Impact cost: Impact cost is cost it is measure of liquidity of the market. It reflects the costs faced when actually trading in index.
Hedging: Hedging means minimize the risk.
Capital market: Capital market is the market it deals with the long term investment funds. It consists of two markets 1.primary market 2.secondary market.
Primary market: Those companies which are issuing new shares in this market. It is also called new issue market.
Secondary market: Secondary market is the market where shares buying and selling. In India secondary market is called stock exchange.
Arbitrage: It means purchase and sale of securities in different markets in order to profit from price discrepancies. In other words arbitrage is a way of reducing risk of loss caused by price fluctuations of securities held in a portfolio.
Meaning of ratio: Ratios are relationships expressed in mathematical terms between figures which are connected with each other in same manner.
Activity ratio: It is a measure of the level of activity attained over a period.
Mutual fund: A mutual fund is a pool of money, collected from investors, and is invested according to certain investment objectives.
Characteristics of mutual fund: Ownership of the MF is in the hands of the of the investors MF managed by investment professionals The value of portfolio is updated every day.
Advantage of MF to investors: Portfolio diversification Professional management Reduction in risk Reduction of transaction casts Liquidity Convenience and flexibility
Net asset value: The value of one unit of investment is called as the Net Asset Value
Open-ended fund: Open ended funds means investors can buy and sell units of fund, at NAV related prices at any time, directly from the fund this is called open ended fund.
Close ended funds: Close ended funds means it is open for sale to investors for a specific period, after which further sales are closed. Any further transaction for buying the units or repurchasing them, happen, in the secondary markets.
Dividend option: Investors who choose a dividend on their investments, will receive dividends from the MF, as when such dividends are declared.
Growth option: Investors who do not require periodic income distributions can be choose the growth option.
Equity funds: Equity funds are those that invest pre-dominantly in equity shares of company.
Types of equity funds: Simple equity funds Primary market funds Sectoral funds Index funds
Sectoral funds: Sectoral funds choose to invest in one or more chosen sectors of the equity markets.
Index funds: The fund manager takes a view on companies that are expected to perform well, and invests in these companies.
Debt funds: The debt funds are those that are pre-dominantly invest in debt securities.
Liquid funds: The debt funds invest only in instruments with maturities less than one year.
Gilt funds: Gilt funds invests only in securities that are issued by the GOVT. and therefore does not carry any credit risk.
Balanced funds: Funds that invest both in debt and equity markets are called balanced funds.
Sponsor: sponsor is the promoter of the MF and appoints trustees, custodians and the AMC with prior approval of SEBI.
Trustee: Trustee is responsible to the investors in the MF and appoint the AMC for managing the investment portfolio.