Flow of Presentation

GAAP in Accountancy C to s of Capital Markets Discussion on Demateralisation Matters of Mutual Funds Suspense behind Derivatives Round and round the Settlement Cycle

Accountancy
The accounting process in a nutshell:

Capture and Record a business transaction. Classify and post transactions to their individual Ledger Accounts. Summarize and report the balances of Ledger Accounts in financial statements.

The three main financial statements:

Income Statement Balance Sheet Statement of Cash Flows

FAQs

What is GAAP? What are the 3 Golden Rules of Accountancy? Where is Profit and Loss posted in a balance sheet? What kind of items are posted in the Income statement? What is depreciation and the method? What is BRS, with an example?

What are the types of cash flows?

Capital Markets
The market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. It is a place where investors come together to buy and sell shares.

Segmentation of Securities Market:

Primary Market: It deals with the issuance of new

securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue.

Secondary Market: The financial market for trading of

securities that have already been issued in an initial public offering.

FAQs

What are Equity shares, Preference shares, Bonus shares, Bond, Debentures, Dividend?

Why does one need a broker?

What are Blue-Chip companies? How is SENSEX calculated? What is ISIN? What is Insider Trading?

What is a Split and buy-back?

What are Corporate Actions? What is the Technology used to carry out trades?

Dematerialisation
An Analogy
How does the Depository System operate? BANK DEPOSITORY

Holds funds in accounts Transfers funds between accounts Transfers without handling cash Safekeeping of money

Holds securities in accounts Transfers securities in accounts Transfers without handling physical securities Safekeeping of securities All the holders must sign the instruction

Either or survivor can sign the cheque

FAQs

What is Dematerialisation and its benefits? What is a Depository? Who is a Depository Participant? What are the benefits of participation in a depository? What is a Custodian? Can I freeze my account? What is transposition-cum-demat? What is transmission-cum-demat?

Mutual Funds
A Mutual Fund is a pool of money collected from investors and is invested according to stated investment objectives such as portfolio diversification, reduction in risk, professional management, tax benefits etc

FAQs

Types of Mutual Funds:

Open Ended Funds , Close Ended Funds Equity Funds, Debt Funds, Balance Funds

By Structure

By Investment Objectives Special Schemes

Money Market Funds / Cash Funds, Gilt Funds, Index Funds, Sector Specific Funds

NAV Net Asset Value:

mutual fund.
liabilities

The per share price of a

Formula of NAV: Closing price of all securities owned + cash

Number of outstanding shares

Derivatives
Financial instruments such as futures and options, which derive their value from underlying securities including bonds, bills, currencies, and equities.

Futures / Forwards: Investment contracts which specify

the quantity and price of a commodity to be purchased or sold at a later date.

Options: A contract that gives the owner the right to buy or

sell a security at a specific price within a specific time limit. Options can be further classified as call option and put option.

Profit from a Forward position

Long a forward (to buy) Profit Short a forward (to sell) Profit

Price of Underlying Asset at Maturity, ST

Price of Underlying Asset at Maturity, ST

Delivery Price

Delivery Price

FAQs

Call option: An option to buy a certain asset by a certain date for a

certain price

Put option: An option to sell a certain asset by a certain date for a

certain price

Hedging: An investment strategy of lowering risk by buying

securities that have off-setting risk characteristics

Arbitrage: An act of buying securities in one market and selling in

another at higher prices. It takes advantage of a price differential existing in the prices of the same commodity or security in two or more different markets.

Speculation: An act to take high risks for high return. It gives

liquidity to the market.

Collateral Management: Collateral management services are a

method of securing a loan with physical commodities. They are deposited as a pledge or guarantee that the loan will be repaid at maturity; if not paid the commodities may be sold to reimburse the

Settlement Cycle
The period within which the settlement is made, i.e; The period within which buyers receive their shares and sellers receive their money.

Process of trade settlement (selling):

You sell securities in any of the stock exchanges linked to NSDL through a broker You give instruction to your DP to debit your account and credit the broker's [clearing member pool] account Before the pay-in day, your broker gives instruction to its DP for delivery to clearing corporation Your broker receives payment from the stock exchange [clearing corporation]

FAQs

What do you mean by 'Market Trades' and 'Off Market Trades'?

What settlement details are required on the delivery instruction slip?

What is T+2 rolling settlement cycle? How many times can one buy and sell within a settlement cycle?

What is a rolling settlement?

What does Pay-In and Pay-Out mean? What is an auction?