Introduction Title to Broking

Last updated: 15/02/2010

Investment

Money earned is partly spent and the rest saved for meeting future expenses. Investing money to get return on it in the future is Investment.

Inflation: Rise in the general level of prices of goods and services in an economy over a period of time.

Investment Options
Physical Assets Gold/ Jewellery Real Estate Commodity Financial Assets Fixed Deposits Small Savings Instruments (NSC) Public Provident Fund Pension Fund Insurance Bonds/ Debentures Shares/ Equity

The Risk & Return

Investment Type Gold/ Jewellery Real Estate Fixed Deposits Small Savings Instrument Public Provident Fund Pension Fund Mutual fund Commodities Equity Market Risk Low Low Low Low Low Low Moderate* High High Return Moderate Moderate Low Low Low Low Moderate* High High

Investment Instruments Saving Account Fixed Deposit Insurance, MF, PPF, NSC etc Equity Commodity Gold

Return 3% 7% 10% 20% 16% 4%

Why Equity?

LONG TERM BENEFIT AND HIGH RETURN ON INVESTMENT LIQUIDITY

DIVIDEND EARNING

BONUS SHARES

DIVERSIFIED FUND HIGH RETURN CAPITAL GAIN TAX ADVANTAGE

LOW INVESTMENT

Equity/Share

Total equity capital of a company is divided into equal units of small denominations, each called a share. The holders of such shares are members of the company and have voting rights.

How is Equity Traded ?

Company wants to raise Capital Issues Initial Public Offering (IPO) in Primary Market. Shares Issued in IPO are then Traded in Secondary Market.

Lets understand how it is Traded

NEED FOR CAPITAL

Banks & FIs (Loans, Debts)

Primary Markets IPO (Equities)

Self Financing

General Public/Investors

Trading Member /Broker

Secondary Market - NSE & BSE (Listing of Shares In Stock Exchanges Like NSE and BSE)

Trading Member /Broker

Buyer

STOCK EXCHANGE

A common platform where buyers and sellers transact in stocks and shares. The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two leading Exchanges. There are 23 other regional Exchanges.

Regulation of Securities Market

The responsibility for regulating the securities market is shared by

Department of Economic Affairs (DEA) Department of Company Affairs(DCA) Reserve Bank of India (RBI) & Securities and Exchange Board of India (SEBI).

Regulation of Stock Exchange

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India ROLE :Protecting the interests of investors in securities Promoting the development of the securities market Regulating the securities market.

Depository

A depository is like a bank wherein the deposits are securities in electronic form.

Two main Depositories in India:

Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL).

Advantage of Depository

Immediate transfer of securities No stamp duty on transfer of securities Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc. Reduction in paperwork involved in transfer of securities Reduction in transaction cost

Depository Participant(DP):

A depository participant is an agent appointed by the depository to provide its services to investors Eg:- Banks, Financial Institutions and SEBI Registered Trading Members can become DPs. Angel Broking Ltd. Is a Depository Participant registered with CDSL.

USPs of Angel Broking as a DP

Lowest Transaction charges in the Country. Minimum Rs 11/- for transfer from Demat to Pool or any other Demat. No charges if shares kept in Pool Account. No separate Demat A/c required. Shares kept in Pool Account can be used as Margin for trading. No interest charged till T+4 days on non delivery of Shares.

BROKER

A broker is an intermediary of the Stock Exchange. Only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker or through a SEBI-registered subbroker.

Our Membership on Stock Exchanges

Memberships On Exchanges

BSE Angel Broking Ltd. Cash Segment

NSE Angel Capital & Debt Market Cash , Derivatives & Currency Future Segment

NCDEX Angel Commodities Broking (P) Ltd. Commodities Segment

MCX Angel Commodities Broking (P) Ltd. Commodities & Currency Future Segment

Capital Market Structure

Depository

Exchanges

23 Regional Exchanges

Customers

Customers

Customers

Sub Brokers

Sub Brokers

Customers

Customers

Customers

Customers

Trading on the Exchange

To Buy & Sell Shares, the customer needs

Demat Account Trading Account

Demat Account

Demat is an abbreviation of Dematerialization. Securities like shares, debentures are converted from the "material" (paper documents) into electronic data.

Trading Account

Trading Account is an account required for Buying & Selling Shares. Trading accounts needs to opened with a Broker . Each account holder is assigned unique client code .

Types of Customers

Experienced Investor - Regularly Invests money into various Investment products Trader - Continuously buys and sells securities First Time Investor Wishes to Invests in financial Instruments & earn profits but has not yet started Investing.

THE TRADING NETWORK

VSAT

Confirmation

Orders
Confirmation orders

Types of Trades

Intra Day Trade:- Both Buying and selling is done on the same day . Delivery Based Trading :Buy today Sell anytime BTST :- Buy Today Sell Tomorrow

When the market goes up it is called a bullish trend

When the market goes down it is called a bearish trend.

Clearing & Settlement

Settlement Cycle
Trading Day Settlement Auction Auction Settlement Pay-in / Pay-out Buying / Selling Pay-in / Pay-out T T+2 T+3 T+4 (BSE) T+5 (NSE)

Example
Trade Date RAM
Buys 10 shares of RIL @ Rs 2100 T+0 1-Sep-08 (Thru Angel broking) Issues Cheque in Favor of Angel Brkg Clearing T+1 2-Sep-08 A/c# For 21000 Receives 10 RIL shares in his T+2 3-Sep-08 DEMAT B.0 A/c

SHYAM
Sells 10 shares of RIL @ 2100 (Thru Angel Broking) Transfer 10 RIL Shares from his DEMAT B.O A/C to Angel Broking Pool A/c Receives credit amount of 21000 in leader Account

PAYIN OF FUNDS RAMs Bank A/c NSCCL (T+2)

Angel Bank A/c (Clearing)

Angel Broking Bank A/c (Clearing)

PAYOUT OF FUNDS Shyams Bank A/c

PAYIN SHARES Shyams Beneficiary A/c Demat A/c Angel Broking Pool A/c

NSCCL (T+2)

PAYOUT SHARES Angel Broking Pool A/c `` RAM Beneficiary A/c Demat A/c

The Trading Process

Pay-in day: The securities sold are delivered to the exchange by the sellers and funds for the securities purchased are made available to the exchange by the buyers. Pay-out: The securities purchased are delivered to the buyers and the funds for the securities sold are given to the sellers by the exchange. This is also called as Rolling Settlement. It happens on 2nd working day (T+2) Auction - On account of non-delivery of securities by the trading member on the PayIn day, the securities are put up for auction by the Exchange. This ensures that the buying trading member receives the securities.

Margin Amount

Margin Amount is the Amount that needs to be deposited by an Investor while opening a Demat & Trading account with a BROKER.

More Margin Amount implies more Exposure which ultimately helps Investor do more Trading & earn more PROFITS.

Contract Note

Contract Note is a confirmation of trades done on a particular day on behalf of the client by a trading member. A valid contract note should be in the prescribed form, contain the details of trades, stamped with requisite value and duly signed by the authorized signatory. Contract notes are kept in duplicate, the trading member and the client should keep one copy each.

Brokerage

As per SEBI guidelines, a STOCK BROKER/DP can charge maximum brokerage Amount of 2.5% (on both sides) to his Clients. As per SEBI guidelines, a SUB-BROKER can claim maximum brokerage Amount of 1.5% (on both sides) from his Broker.

Recommended Brokerage Rates

Expected Turnover / month
0-4 lacs 5-25 lacs 26-60 lacs 61-100 lacs 101-200 lacs

Initial Margin
10000 25000 50000 100000 300000

Delivery

Intraday

FnO

0.50% 0.40% 0.30% 0.25% 0.20%

0.10% 0.08% 0.06% 0.05% 0.04%

0.10% 0.08% 0.06% 0.05% 0.04%

Note: The table above is shown as a reference variations possible due to local market conditions

Charges Applicabl e on Turnover On Tax Turnover STT Stamp Duty SEBI Tax On Turnover On Turnover On Turnover

Intraday Charges % 0.0035% 0.025% (Only Selling Side) 0.002% 0.0001% 10.30%

Delivery Charges % 0.035% 0.125% (Both Side) 0.01% 0.0001% 10.30%

Futur Optio e ns 0.002 0.05% % 0.017 0.0017 % % 0.002 0.002 % % 0.0001 0.0001 % % 10.30 10.30 % %

Service On Tax Brokerage

Brokerage Calculation

If client has sold 10000 shares of a scrip @ 50,What is the brokerage that the client can be charged? (brokerage rate 0.50p)

Ans:Brokerage= Brokerage rate * Value of the transaction = 0.50p * (10000 shares * 50). = 2500/- Rs.

The client buys 10000 shares of a scrip @ 225.25 and does intraday at 275.10. What is the brokerage that the client can be charged?(Intraday brokerage- 0.07p)

Ans:Maximum brokerage= Brokerage rate * Value of the transaction = 0.07p * (10000 shares * 275.10). = Rs. 192.57

The client buys 1250 shares at the price of 190 and sells 980 shares at the price of 210 then What is the Delivery and intraday brokerage client will be charged? (Del:- 0.45 p; Intra:-0.08 p).

Delivery brokerage= Brokerage rate * Value of the transaction = 0.45p * {(1250-980) shares * 190). = Rs. 230 .85p Intraday brokerage = Brokerage rate * Value of the transaction = 0.08 * (980 shares * 210). = Rs 164 .64p

Debt Instruments

Debt instrument: A contract whereby one lends money to another on predetermined terms Debt Market is Regulated by RBI(Reserve Bank of India) Bond: Debt instrument issued by Central and State governments & Public Sector Organizations. Debenture: Debt instrument issued by Private Corporate Sector.

Derivatives (F&O)

Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. Equity, Index, FOREX, Commodity can be the underlying asset. Derivative products initially emerged as hedging devices. The financial derivatives came into spotlight in post-1970. By 1990s, they accounted for about two thirds of total transactions in derivative products. NSE is the largest STOCK EXCHANGE(volume) in the world for STOCK FUTURES.

Types of Derivatives

Forwards : A forward Contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre agreed price. Futures : An agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Options : A contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price. Types of Options: Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date.

Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset, at a given price on or before a given future date.

Option Premium

At the time of buying an option contract, the buyer has to pay a premium. The premium is the price for acquiring the right to buy or sell. It is price paid by the option buyer to the option seller for acquiring the right to buy or sell. Option premiums are always paid upfront.

Miscellaneous

Redressing investor grievances

Complaints can be lodged through the Investor Grievances Cell of the Exchange Arbitration is an alternative dispute resolution mechanism provided by a stock exchange If no amicable settlement could be reached through the normal grievance redressal mechanism Investor Protection Fund (IPF) is maintained by NSE to make good investor claims, which may arise out of non-settlement of obligations by the trading member

Thank You
Published in FYI 2009. Angel Broking 2009-10. Angel Broking All rights reserved. corporate Off: 612, Acme Plaza, M.V. Road, opp sangam cinema, Andheri east, Mumbai 400059, India. Tel.: +(91) 022 39527100/ 4000 3600 This report is for information purposes only and does not construe to be any investment, legal or taxation advice. It is not intended as an offer or solicitation for the purchase and sale of any financial instrument. Any action taken by you on the basis of the information contained herein is your responsibility alone and Angel Broking and its subsidiaries or its employees or directors, associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, but do not represent that it is accurate or complete. Angel Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this publication. The recipients of this report should rely on their own investigations. Angel Broking and/or its subsidiaries and/or directors, employees or associates may have interests or positions, financial or otherwise in the securities mentioned in this report.