Mutual Funds

Mutual Funds are investment options providing advantages of professional management, diversification, liquidity, high returns etc. There are
different types of mutual funds in India offering a varied range of investment opportunities (like equity, tax saving, debt etc.) to investors.
The Mutual Fund Industry in India functions under the SEBI (Mutual Fund) Regulations 1996. Investment in mutual funds can be done through
lump sum payment or Systematic Investment Plan (SIP).

Insurance More...
Insurance is a basic necessity which provides security against loss arising due to happening of an uncertain event. There can be twotypes of
insurance, namely, life insurance and general insurance.

Investments & Stock Broking More...

It is very important to have an understanding of the stock markets before investing in the stock markets. Learn more about the Stock Markets of
India and its history, trading terminologies and frequently used terms, capital gains and taxes, securities transaction tax (STT), bonds etc.

Commodities & Commodities Broking More...

Commodities like gold, silver, copper, wheat, maize, crude oil etc. are the underlyings in a contract which can be traded in the open market
on Commodity Exchanges. MCX and NCDEX are the two major commodity exhanges in India where trading of such underlyings take place.
Read further to know more about the commodity exchanges in India, commodity products traded on the exchanges in India and rules and bye-
laws related to commodites trading.

Bonds More...
Bonds refer to debt instruments bearing interest on maturity. Click on the link above to know more about terminologies related to bond
instruments and different types of bonds available in the market.

Taxation
Know all about the taxation schemes, frequently asked questions on taxation, tax deductions, exemptions, penalties, service tax, wealth tax,
income from salary, income from house property, tax benefits to pensioners, etc.
The primary thing before investing in stock markets is to have an understanding of how the stock markets operate. Companies need capital for
various purposes like expansion, research and development etc. Many companies choose to raise funds by offering the company's shares to the
public. When investors own the shares of a company they become part owners of that company. The company gets listed on a stock exchange(s)
after which its shares start getting traded. Stock exchange is a marketplace where sale and purchase of shares take place.

In order to buy or sell shares, investors need to open a trading account with a stock broker. Investors give instructions to their broker to buy or sell
shares on treir behalf. Trading can be done through telephone, internet, or in person. The price at which trade takes place is determined by the
market forces i.e. demand and supply of that particular share in the market. Investors hope to earn profits by buying shares at a low price and selling
them at a higher price. Some people invest into the stock market for a long period time (3-5 years or more) and some people invest with an objective
of earning short term profits (less than a year). The following terms are used frequently in stock markets.

 About Stock Markets: A marketplace where investors gather to buy and sell securities

 Trading Terminology: Frequently used terms in stock market

 Capital Gains/Taxes: Gains arising out of sale of capital assets like shares, property etc.

 Securities Transaction Tax: An easy-to-administer tax that helps in eliminating tax avoidance on sale of securities

 Bonds: Debt securities issued for a period longer than one year

Trading terminology explains some of the commonly used terms related to stock trading. Investors can get detailed information regarding the same
by clicking on the following links:
» Shares : A share represents a unit of ownership in a company

» Demat Account : An account where securities are held in an electronic form

» Trading : An activity of buying and seling shares to earn capital gains

» Types of Analysis : Analyzing which is a good company to invest in

» Indices : An index is an average of stocks representing the market

» Contracts : Confirmation given by the broker to his client for a trade executed

» Settlement : Process of determination of obligations standing against parties to trade

» Limits/Margins : Collateral that a member has to deposit with the exchange

» Dividends : Payouts made by the companies to shareholders as a reward for buying stock in that company
UNDERSTANDING MUTUAL FUND

Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset
classes that match the stated investment objectives of the scheme. Since the stated investment objectives of a mutual fund scheme generally forms
the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time.

Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much
better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed
on to the investors (also known as unit holders) in proportion of the number of units they own.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his
contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit
holder.
Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value
(NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by
dividing the market value of scheme's assets by the total number of units issued to the investors.

For example:
 A. If the market value of the assets of a fund is Rs. 100,000
B. The total number of units issued to the investors is equal to 10,000.
C. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00
D. Now if an investor 'X' owns 5 units of this scheme
E. Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied by the NAV of the scheme)

ADVANTAGES OF MUTUAL FUND

S. No. Advantage Particulars

Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a
1. Portfolio Diversification
diversified investment portfolio (whether the amount of investment is big or small).

Professional Fund manager undergoes through various research works and has better investment management
2.
Management skills which ensure higher returns to the investor than what he can manage on his own.

Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund.
3. Less Risk
The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.

Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction
4. Low Transaction Costs
costs. These benefits are passed on to the investors.

An investor may not be able to sell some of the shares held by him very easily and quickly, whereas
5. Liquidity
units of a mutual fund are far more liquid.

>Mutual funds provide investors with various schemes with different investment objectives. Investors
6. Choice of Schemes have the option of investing in a scheme having a correlation between its investment objectives and
their own financial goals. These schemes further have different plans/options

Funds provide investors with updated information pertaining to the markets and the schemes. All
7. Transparency
material facts are disclosed to investors as required by the regulator.

Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can
switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic
8. Flexibility
(at regular intervals) investment and withdrawal is also offered to the investors in most open-end
schemes.

Mutual Fund industry is part of a well-regulated investment environment where the interests of the
9. Safety investors are protected by the regulator. All funds are registered with SEBI and complete
transparency is forced.

DISADVANTAGES OF MUTUAL FUND

S. No. Disadvantage Particulars

Costs Control Not in the Investor has to pay investment management fees and fund distribution costs as a percentage of the
1.
Hands of an Investor value of his investments (as long as he holds the units), irrespective of the performance of the fund.

The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors
No Customized
2. have no right to interfere in the decision making process of a fund manager, which some investors
Portfolios
find as a constraint in achieving their financial objectives.

3. Difficulty in Selecting a Many investors find it difficult to select one option from the plethora of funds/schemes/plans
 available. For this, they may have to take advice from financial planners in order to invest in the right
Suitable Fund Scheme
fund to achieve their objectives.

TYPES OF MUTUAL FUNDS

General Classification of Mutual Funds

Open-end Funds | Closed-end Funds

Open-end Funds
Funds that can sell and purchase units at any point in time are classified as Open-end Funds. The fund size (corpus) of an open-end
fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An
open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an
investor wants to sell his units. The NAV of an open-end fund is calculated every day.
Closed-end Funds
Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of
a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly
from the Funds is not allowed. However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate
their positions:

1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell units from/to each other. The trading is
generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated
every Thursday)..

2. Closed-end Funds may also offer "buy-back of units" to the unit holders. In this case, the corpus of the Fund and its outstanding
units do get changed.

Load Funds | No-load Funds

Load Funds
Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund manager's salary etc. Many funds
recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following
types of loads on the investors:

1. Entry Load - Also known as Front-end load, it refers to the load charged to an investor at the time of his entry into a scheme.
Entry load is deducted from the investor's contribution amount to the fund.
2. Exit Load - Also known as Back-end load, these charges are imposed on an investor when he redeems his units (exits from the
scheme). Exit load is deducted from the redemption proceeds to an outgoing investor.
3. Deferred Load - Deferred load is charged to the scheme over a period of time.
4. Contingent Deferred Sales Charge (CDSC) - In some schemes, the percentage of exit load reduces as the investor stays

longer with the fund. This type of load is known as Contingent Deferred Sales Charge.

No-load Funds
All those funds that do not charge any of the above mentioned loads are known as No-load Funds.

Tax-exempt Funds | Non-Tax-exempt Funds

Tax-exempt Funds
Funds that invest in securities free from tax are known as Tax-exempt Funds. All open-end equity oriented funds are exempt from
distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax-
free.
Non-Tax-exempt Funds
Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds
are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are
categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction
Tax (STT). STT is deducted from the redemption proceeds to an investor.

BROAD MUTUAL FUND TYPES

1. Equity Funds
Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is
advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity
funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds:

a. Aggressive Growth Funds - In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in less
researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and
thus, are prone to higher risk than other equity funds.
b. Growth Funds - Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are different from Aggressive
Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting
speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future.
c. Speciality Funds - Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet
their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality funds are
concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds:
 i. Sector Funds: Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that
meet their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality
funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds:
ii. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign
securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities
funds are exposed to foreign exchange rate risk and country risk.
iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market capitalization than large capitalization
companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip
companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less
than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company's share
by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of
Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky.
iv. Option Income Funds*: While not yet available in India, Option Income Funds write options on a large fraction of their portfolio.
Proper use of options can help to reduce volatility, which is otherwise considered as a risky instrument. These funds invest in big,
high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors.
d. Diversified Equity Funds - Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities
without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk.
However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in
India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at
all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return.
ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to
pay income tax on such income(s) for which he may have received any tax exemption(s) in the past.
e. Equity Index Funds - Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of
these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds
that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like
BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.
f. Value Funds - Value Funds invest in those companies that have sound fundamentals and whose share prices are currently under-valued.
The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per
Share) and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are
exposed to lower risk level as compared to growth funds or speciality funds. Value stocks are generally from cyclical industries (such as
cement, steel, sugar etc.) which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long-term time
horizon as risk in the long term, to a large extent, is reduced.
g. Equity Income or Dividend Yield Funds - The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring
income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility
companies whose share prices fluctuate comparatively lesser than other companies' share prices). Equity Income or Dividend Yield Equity
Funds are generally exposed to the lowest risk level as compared to other equity funds.

2. Debt / Income Funds

Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities
belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to
generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds
distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk
of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers
who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on
different investment objectives, there can be following types of debt funds:

a. Diversified Debt Funds - Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as
diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in
risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual
investor.
b. Focused Debt Funds* - Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as
diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in
risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual
investor.
c. High Yield Debt funds - As we now understand that risk of default is present in all debt funds, and therefore, debt funds generally try to
minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of "investment grade". But,
High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of "below
 investment grade". The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. These funds
are more volatile and bear higher default risk, although they may earn at times higher returns for investors.
d. Assured Return Funds - Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there
can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in
returns is suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide
investors with a low-risk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose
name is specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured
return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return
schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises
and faced large shortfalls in returns. Eventually, government had to intervene and took over UTI's payment obligations on itself. Currently,
no AMC in India offers assured return schemes to investors, though possible.
e. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one
year) that offer a series of plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on
the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term
plan schemes is to gratify investors by generating some expected returns in a short period.

3. Gilt Funds
Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term
maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the
investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related
and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction.

4. Money Market / Liquid Funds

Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and
provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types.
However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include Treasury Bills
(issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks).

5. Hybrid Funds
As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds
have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India:

a. Balanced Funds - The portfolio of balanced funds include assets like debt securities, convertible securities, and equity and preference
shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate
capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors
having a long term investment horizon.
b. Growth-and-Income Funds - Funds that combine features of growth funds and income funds are known as Growth-and-Income Funds.
These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. The level of risks
involved in these funds is lower than growth funds and higher than income funds.
c. Asset Allocation Funds - Mutual funds may invest in financial assets like equity, debt, money market or non-financial (physical) assets like
real estate, commodities etc.. Asset allocation funds adopt a variable asset allocation strategy that allows fund managers to switch over
from one asset class to another at any time depending upon their outlook for specific markets. In other words, fund managers may switch
over to equity if they expect equity market to provide good returns and switch over to debt if they expect debt market to provide better
returns. It should be noted that switching over from one asset class to another is a decision taken by the fund manager on the basis of his
own judgment and understanding of specific markets, and therefore, the success of these funds depends upon the skill of a fund manager in
anticipating market trends.

6. Commodity Funds
Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures
contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized
commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized
commodity fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of
commodity funds.

7. Real Estate Funds

Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized assets of housing finance companies, are
known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation.
8. Exchange Traded Funds (ETF)
Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end mutual fund. Exchange Traded Funds follow
stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is
that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these
funds are quite popular abroad.

9. Fund of Funds
Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as
Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a
portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of
diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversification of risks. However, the
expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes.

* Funds not yet available in India

Risk Heirarchy of Different Mutual Funds

Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these
schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of
risk associated with these funds:

Mutual Fund Regulations

The Indian mutual fund industry witnessed robust growth and stricter regulation from SEBI since 1996. The mobilisation of funds and the number of
players operating in the industry reached new heights as investors started showing more interest in mutual funds. Safeguarding the interests of
invetors is one of the duties of SEBI. Consequantly, SEBI (Mutual Funds) Regulations, 1996 and certain other guidelines have been issued by SEBI
that sets uniform standards for all mutual funds in India.

SEBI (Mutual Funds) Regulations

03-Dec-1996 Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

12-Jan-2006 SEBI (Mutual Funds) (Amendment) Regulations, 2006

AMFI Codes and Guidelines
The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual
Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC
Mutual Fund, Indian Bank Muatual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under
management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share.

Codes Codes of ethics to be followed by the members/mutual fund companies

Guidelines Regulatory framework along with a code of conduct for intermediaries like individual agents, brokers, distribution
houses and banks engaged in selling of mutual fund products

Investments & Stock Broking

The primary thing before investing in stock markets is to have an understanding of how the stock markets operate. Companies need capital for
various purposes like expansion, research and development etc. Many companies choose to raise funds by offering the company's shares to the
public. When investors own the shares of a company they become part owners of that company. The company gets listed on a stock exchange(s)
after which its shares start getting traded. Stock exchange is a marketplace where sale and purchase of shares take place.

In order to buy or sell shares, investors need to open a trading account with a stock broker. Investors give instructions to their broker to buy or sell
shares on treir behalf. Trading can be done through telephone, internet, or in person. The price at which trade takes place is determined by the
market forces i.e. demand and supply of that particular share in the market. Investors hope to earn profits by buying shares at a low price and selling
them at a higher price. Some people invest into the stock market for a long period time (3-5 years or more) and some people invest with an objective
of earning short term profits (less than a year). The following terms are used frequently in stock markets.

 About Stock Markets: A marketplace where investors gather to buy and sell securities

 Trading Terminology: Frequently used terms in stock market

 Capital Gains/Taxes: Gains arising out of sale of capital assets like shares, property etc.

 Securities Transaction Tax: An easy-to-administer tax that helps in eliminating tax avoidance on sale of securities

 Bonds: Debt securities issued for a period longer than one year
Insurance
Insurance is a basic form of risk management which provides protection against possible loss to life or physical assets. A person who seeks
protection against such loss is termed as insured, and the company that promises to honour the claim, in case such loss is actually incurred by the
insured, is termed as Insurer. In order to get the insurance, the insured is required to pay to the insurance company (i.e. the insurer) a certain
amount, termed as premium, on a periodical basis (say monthly, quarterly, annually, or even one-time).

Life Insurance | Products Offered

Insurance against risk of loss to one's life is covered under Life Insurance. Life insurance is also known as long term insurance or life assurance. It
includes Whole Life Assurance, Endowment Assurance, Assurances for Children, Term Assurance, Money Back Policy etc. To buy or get information
on life insurance products offered by us, please click on the link above.

General Insurance | Products Offered

Insurance against risk of loss to assets like car, house, accident etc. is covered under General or Non-life Insurance. General insurance includes fire
insurance, marine insurance, motor insurance, theft insurance, health insurance, personal accident insurance etc. To buy or get information on life
insurance products offered by us, please click on the link above.

Basic Difference between Life Insurance and General Insurance

Life insurance includes plans which are directly related with the person's life. On the other hand, general insurance deals with plans which are not
related to the life of the person. General insurance plans seek to provide protection against loss to a person's assets or health and not to his/her life.
To learn more about different types of insurance policies,
General Insurance

General Insurance includes those insurance policies which are not covered under life insurance. General insurance provides protection against risk
of loss to assets like home, motor vehicle, etc. Common general insurance plans include motor insurance, fire insurance, personal accident
insurance, health insurance, marine insurance etc. The most popular general insurance plans are mentioned hereunder:
 Fire Insurance
Fire insurance provides protection against damage to property caused by accidents due to fire, lightening or explosion, whereby the explosion is
caused by boilers not being used for industrial purposes. Fire insurance also includes damage caused due to other perils like strom tempest or flood;
burst pipes; earthquake; aircraft; riot, civil commotion; malicious damage; explosion; impact.

 Marine Insurance
Marine insurance basically covers three risk areas, namely, hull, cargo and freight. The risks which these areas are exposed to are collectively known
as "Perils of the Sea". These perils include theft, fire, collision etc. Marine insurance further includes:
 Marine Cargo Marine cargo policy provides protection to the goods loaded on a ship against all perils between the departure and arrival
warehouse. Therefore, marine cargo covers carriage of goods by sea as well as transportation of goods by land.
 Marine Hull Marine hull policy provides protection against damage to ship caused due to the perils of the sea. Marine hull policy covers three-
fourth of the liability of the hull owner (shipowner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked after by
associations formed by shipowners for the purpose (P and I clubs).
 Miscellaneous
As per the Insurance Act, all types of general insurance other than fire and marine insurance are covered under miscellaneous insurance. Some of
the examples of general insurance are motor insurance, theft insurance, health insurance, personal accident insurance, money insurance,
engineering insurance etc.
Basics of Insurance

Meaning of Insurance
Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying
premium to an insurance company.

A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance
companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool.

Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of
people exposed to risk of similar type.

Definition
Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as
premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain
period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance.

The party bearing the risk is known as the 'insurer' or 'assurer' and the party whose risk is covered is known as the 'insured' or 'assured'.

Concept of Insurance / How Insurance Works

The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of
funds. In case a person actually suffers a loss on account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is
made by a group of people sharing common risks and collected by the insurance companies in the form of premiums.

Lets take some examples to understand how insurance actually works:

Example 1 Example 2

SUPPOSE SUPPOSE
 Houses in a village = 1000  Number of Persons = 5000
 Value of 1 House = Rs. 40,000/-  Age and Physical condition = 50 years & Healthy
 Houses burning in a yr = 5  Number of persons dying in a yr = 50
 Total annual loss due to fire = Rs. 2,00,000/-  Economic value of loss suffered by family of each dying
 Contribution of each house owner = Rs. 300/- person = Rs. 1,00,000/-
 Total annual loss due to deaths = Rs. 50,00,000/-
 Contribution per person = Rs. 1,200/-

UNDERLYING ASSUMPTION UNDERLYING ASSUMPTION

All 1000 house owners are exposed to a common risk, i.e. fire All 5000 persons are exposed to common risk, i.e. death

PROCEDURE PROCEDURE
All owners contribute Rs. 300/- each as premium to the pool of Everybody contributes Rs. 1200/- each as premium to the pool of
funds funds

Total value of the fund = Rs. 3,00,000 (i.e. 1000 houses * Rs. Total value of the fund = Rs. 60,00,000 (i.e. 5000 persons * Rs.
300) 1,200)

5 houses get burnt during the year 50 persons die in a year on an average

Insurance company pays Rs. 40,000/- out of the pool to all 5 Insurance company pays Rs. 1,00,000/- out of the pool to the
house owners whose house got burnt family members of all 50 persons dying in a year

EFFECT OF INSURANCE EFFECT OF INSURANCE

Risk of 5 house owners is spread over 1000 house owners in the Risk of 50 persons is spread over 5000 people, thus reducing the
village, thus reducing the burden on any one of the owners. burden on any one person.

WHY SHOULD I BUY INSURANCE ?

All assets have some economic value attached to them. No person can deny that there is also a possibilty that these assets may get
damaged/destroyed or become non-operational due to risks like breakdowns, fire, floods, earthquake etc. Different assets are exposed to different
types of risks like a car has a risk of theft or meeting an accident, a house is exposed to risk of catching fire, a human is exposed to risk of
death/accident. Insurance is needed because of following reasons:

Social Security Tool

Insurance acts as an important tool providing a sense of security to the society on a whole. It is the right of every human-being to have basic
amenities like food, clothing, housing, medical care, standard of living necessary for his personal and family's well being, and right to security in case
of unemployment, disability, sickness or any other circumstances out of his control.

In case the bread earner of a family dies, the family suffers from direct financial loss as family's income ceases. As a result, family's economic
condition gets affected unless there are other arrangements to rescue the family from this situation. Life insurance is one alternate arrangement that
offers some respite to the family from financial distress. Otherwise this family would have been pushed into the lower strata of the society, which
would be an additional cost to the society. This is because subsidies would have to be given to the family so as to enable it to survive and enjoy the
basic rights at par with other people. Moreover, a poor family is generally seen to have a large family size with family members being illiterate. This
on a whole affects the society and is a cost to the society. Therefore, insurance compliments the state in social management efforts.

Uncertainty
The basic need of insurance arises as risks are uncertain and unpredictable in nature. Getting insurance for an asset does not mean that the asset is
protected against risks or its exposure to risk is reduced, but it actually implies that in case the asset suffers any loss in value due to such risk, the
insurance company bears the loss and compensates the insured by making payment to him.

Economic Development
The premium paid by people to the insurance companies is a part of their savings. Insurance, thus, acts as a useful instrument in promoting savings
and investments, particularly within the lower-income and middle-income families. These savings are ultimately used as investments fuelling
economic growth.

General Purposes of Insurance

Insurance is widely popular and beneficial because of its following general purposes:
 Protection or safety (Term insurances) : These plans are best suited for people aged upto 35 years as it provides higher protection at low cost.
These plans are also beneficial for a person whose income is low and want to secure their family from financial default in case of his death.
 Marriage or education of the child (Children plans)
 Speedy growth of money & risk cover (Unit Linked Plans)
 Saving and Protection (Endowment type plans)
 Saving, protection & liquidity (Money back plans)
The above purposes apply for life insurance. In case of General insurance the basic purpose is to protect the insured against financial loss suffered
by him or creation of liability, due to the causes covered by the policy.

Life Insurance

Life Insurance is a contract between the insured and the insurer (insurance company), wherein the insured pays a certain amount as premium to the
insurer at regular intervals, and in return, the insurer promises to pay a specified sum upon the occurence of insured's death.

You may click on any of the policies listed below that meet your requirements. Below mentioned is a list of life insurance plans from ICICI Prudential
that you may opt for depending upon your needs:

 Education Insurance Plans

 Wealth Creation Plans
 Premium Guarantee Plans
 Protection Plans

Education Insurance Plans

Parents want that their child gets the best possible education so that the he/she can make a name for himself/herself. However, with the risk of
mishappening (death) being a part of life and with the cost of quality education getting higher and higher, it does not get any easier for the parents to
fulfill this responsibility towards their child. Education insurance plans, therefore, provides peace of mind to you and a secured future to your child in
an event of happening of uncertainity. You may choose to buy any of the following education insurance plans:

Max. Mimimum
Entry
Plans Particulars Maturity Sum Assured Term Premium Death Benefit Maturity Benefit
Age
Age (p.a.)

SmartKid Plan

New Unit- Parent 20-60 Term * Annual Sum insured +

75 yrs
linked yrs Premium/2, future premiums Fund value at the
10-25 yrs Rs.10,000
Regular (minimum Rs 1 contributed by time of maturity
Child 0-15
Premium 18-25 yrs
yrs Lac) ICICI

New Unit- Parent 20-60

75 yrs Payment of sum
linked Single yrs 5 times the Single Fund value at the
10-25 yrs Rs. 25,000 insured and policy
Premium Premium time of maturity
Child 0-15
18-25 yrs continues
yrs

Regular Parent 20-60 Option 1 Payment

NA*
Premium yrs at critical
Sum insured + educational
Child Maturity
Min - Rs 1 Lac future premiums milestones
age- Entry Rs. 8400
0-12 Max - Rs 30 Lac contributed by
Variable age of Child
yrs ICICI Option 2 Payment
in last 5 years of the
policy
*NA: Not Applicable
Top

Wealth Creation Plans

Max.
Entry Mimimum Maturity
Plans Maturity Sum Assured Term Death Benefit
Age Premium (p.a.) Benefit
Age

LifeLink Super Plan

Rs 25,000 upto
Option 1: 125% of Single Min: 5 yrs
44 yrs of age, Higher of the fund value
Single 0 to 65 Premium Max: Difference
70 yrs minimum of Rs or sum assured adjusted Fund value
Premium years Option 2: 500% of Single between 70 years
50,000 above 44 for partial withdrawals
Premium and entry age
yrs

PremierLife Gold Plan (Regular Premium)

3 yr premium Higher of 5*annual Higher of the fund value

0-69
payment 75 yrs premium and policy 6-30 yrs Rs.100,000 or sum assured adjusted Fund value
yrs
term term/2*annual premium for partial withdrawals

5 yr premium Higher of 5*annual Higher of the fund value

0-65
payment 75 yrs premium and policy 10-30 yrs Rs. 60,000 or sum assured adjusted Fund value
yrs
term term/2*annual premium for partial withdrawals

LifeTime Plus Plan

0-65 Sum assured + fund

LifeTime Plus 75 yrs Annual premium* term/2 10 - 30 yrs Rs. 20,000 Fund value
yrs value

LifeStage Plan

0-65 Term / 2 * Annual Sum assured + fund

LifeStage 75 yrs 10 - 75 yrs Rs. 15,000 Fund value
yrs Premium value
*NA: Not Applicable
Top

Premium Guarantee Plans

Max.
Entry Sum Mimimum
Plans Maturity Term Death Benefit Maturity Benefit
Age Assured Premium (p.a.)
Age

InvestShield Plan

Annual Sum assured + Fund value or Fund value or

0-65 10 - 30
Life New 75 yrs premium* Rs. 8,000 Guaranteed value whichever Guaranteed value
yrs yrs
term/2 is higher whichever is higher

InvestShield Plan

Annual Sum assured + Fund value or Fund value or

CashBak (allows 0-65 10 - 30
75 yrs premium* Rs. 8,000 Guaranteed value whichever Guaranteed value
partial withdrawal) yrs yrs
term/2 is higher whichever is higher
 **Guarnateed Value = Sum of all the premiums paid till date (subject to due premiums being paid as on date)
*NA: Not Applicable
Top

Protection Plans
As the name suggests, protection plans are aimed towards providing security to the insured and his family from a situation of financial crisis arising
out of unforeseen circumstances. ICICI prudential offers following types of protections plans:

Max. Min. Sum Mimimum

Entry
Plans Maturity Assured Term Premium Death Benefit Maturity Benefit
Age
Age (SA) (p.a.)

LifeGuard Plan

Regular Premium -
18-55 5-30
Without return of 65 yrs Rs 3 Lac Rs. 2500 Sum assured + SA under riders Nil
yrs yrs
premium (WROP)

Single Premium 18-55 3-15

65 yrs Rs 2.5 Lac NA* Sum assured + SA under riders Nil
(WROP) yrs yrs

Regular Premium -
18-55 10-30 All paid premiums
Return of Premium 65 yrs Rs 5 Lac Rs. 2500 Sum assured + SA under riders
yrs yrs shall be returned
(ROP)

Save'n'Protect Plan

Basic premiums (w/o interest) returned if

assured dies before 7 yrs of age. Sum
Guaranteed and
0- 10-30 assured + guaranteed additions @ 3.5 %
Save'n'Protect 70 yrs Rs 50,000 Rs 6000 vested bonus +
60yrs yrs compounded annually for first 4 yrs and
sum assured
vested bonus thereafter if he dies after 7
yrs

Home Assure Plan

18 -
2-22 Outstanding loan amount shall be paid by
Home Assure 60 70 yrs Rs.25,000 NA Nil
yrs ICICI
years

CashBak Plan

Guaranteed and
16-55 15 Cash back as a percentage of SA at
15 Yr Plan 70 yrs Rs. 75,000 NA vested bonus +
yrs yrs regular intervals + maturity benefit**
sum assured

Guaranteed and
16-55 20 Cash back as a percentage of SA at
20 Yr Plan 75 yrs Rs. 75,000 NA vested bonus +
yrs yrs regular intervals + maturity benefit**
sum assured
**Maturity Benefit is 50% of sum insured + guaranteed and vested bonus
*NA: Not Applicablee
Top

Bonds
Introduction
Bonds refer to debt instruments bearing interest on maturity. In simple terms, organizations may borrow funds by issuing debt securities named
bonds, having a fixed maturity period (more than one year) and pay a specified rate of interest (coupon rate) on the principal amount to the holders.
Bonds have a maturity period of more than one year which differentiates it from other debt securities like commercial papers, treasury bills and other
money market instruments.

Terminology

Used in Bond Market Meaning in General Terms

Bonds Loans (in the form of a security)

Issuer of Bonds Borrower

Bond Holder Lender

Principal Amount Amount at which issuer pays interest and which is repaid on the maturity date

Issue Price Price at which bonds are offered to investors

Maturity Date Length of time (More than one year)

Coupon Rate of interest paid by the issuer on the par/face value of the bond

Coupon Date The date on which interest is paid to investorstd-txt

Types of Bonds

1. Classification on the basis of Variability of Coupon

I. Zero Coupon Bonds

Zero Coupon Bonds are issued at a discount to their face value and at the time of maturity, the principal/face value is repaid to the
holders. No interest (coupon) is paid to the holders and hence, there are no cash inflows in zero coupon bonds. The difference
between issue price (discounted price) and redeemable price (face value) itself acts as interest to holders. The issue price of Zero
Coupon Bonds is inversely related to their maturity period, i.e. longer the maturity period lesser would be the issue price and vice-
versa. These types of bonds are also known as Deep Discount Bonds.
II. Treasury Strips
Treasury strips are more popular in the United States and not yet available in India. Also known as Separate Trading of Registered
Interest and Principal Securities, government dealer firms in the United States buy coupon paying treasury bonds and use these
cash flows to further create zero coupon bonds. Dealer firms then sell these zero coupon bonds, each one having a different
maturity period, in the secondary market.
III. Floating Rate Bonds
In some bonds, fixed coupon rate to be provided to the holders is not specified. Instead, the coupon rate keeps fluctuating from
time to time, with reference to a benchmark rate. Such types of bonds are referred to as Floating Rate Bonds.
For better understanding let us consider an example of one such bond from IDBI in 1997. The maturity period of this floating rate
bond from IDBI was 5 years. The coupon for this bond used to be reset half-yearly on a 50 basis point mark-up, with reference to
the 10 year yield on Central Government securities (as the benchmark). This means that if the benchmark rate was set at �X�
%, then coupon for IDBI�s floating rate bond was set at �(X + 0.50)� %.

Coupon rate in some of these bonds also have floors and caps. For example, this feature was present in the same case of
IDBI�s floating rate bond wherein there was a floor of 13.50% (which ensured that bond holders received a minimum of 13.50%
irrespective of the benchmark rate). On the other hand, a cap (or a ceiling) feature signifies the maximum coupon that the bonds
issuer will pay (irrespective of the benchmark rate). These bonds are also known as Range Notes.
More frequently used in the housing loan markets where coupon rates are reset at longer time intervals (after one year or more),
these are well known as Variable Rate Bonds and Adjustable Rate Bonds. Coupon rates of some bonds may even move in an
opposite direction to benchmark rates. These bonds are known as Inverse Floaters and are common in developed markets.

2. Classification on the Basis of Variability of Maturity

 I. Callable Bonds
The issuer of a callable bond has the right (but not the obligation) to change the tenor of a bond (call option). The issuer may
redeem a bond fully or partly before the actual maturity date. These options are present in the bond from the time of original bond
issue and are known as embedded options. A call option is either a European option or an American option. Under an European
option, the issuer can exercise the call option on a bond only on the specified date, whereas under an American option, option can
be exercised anytime before the specified date.
This embedded option helps issuer to reduce the costs when interest rates are falling, and when the interest rates are rising it is
helpful for the holders.
II. Puttable Bonds
The holder of a puttable bond has the right (but not an obligation) to seek redemption (sell) from the issuer at any time before the
maturity date. The holder may exercise put option in part or in full. In riding interest rate scenario, the bond holder may sell a bond
with low coupon rate and switch over to a bond that offers higher coupon rate. Consequently, the issuer will have to resell these
bonds at lower prices to investors. Therefore, an increase in the interest rates poses additional risk to the issuer of bonds with put
option (which are redeemed at par) as he will have to lower the re-issue price of the bond to attract investors.
III. Convertible Bonds
The holder of a convertible bond has the option to convert the bond into equity (in the same value as of the bond) of the issuing
firm (borrowing firm) on pre-specified terms. This results in an automatic redemption of the bond before the maturity date. The
conversion ratio (number of equity of shares in lieu of a convertible bond) and the conversion price (determined at the time of
conversion) are pre-specified at the time of bonds issue. Convertible bonds may be fully or partly convertible. For the part of the
convertible bond which is redeemed, the investor receives equity shares and the non-converted part remains as a bond.

3. Classification on the basis of Principal Repayment

I. Amortising Bonds
Amortising Bonds are those types of bonds in which the borrower (issuer) repays the principal along with the coupon over the life of
the bond. The amortising schedule (repayment of principal) is prepared in such a manner that whole of the principle is repaid by
the maturity date of the bond and the last payment is done on the maturity date. For example - auto loans, home loans, consumer
loans, etc.
II. Bonds with Sinking Fund Provisions
Bonds with Sinking Fund Provisions have a provision as per which the issuer is required to retire some amount of outstanding
bonds every year. The issuer has following options for doing so:
i. By buying from the market
ii. By creating a separate fund which calls the bonds on behalf of the issuer

Since the outstanding bonds in the market are continuously retired by the issuer every year by creating a separate fund (more
commonly used option), these types of bonds are named as bonds with sinking fund provisions. These bonds also allow the
borrowers to repay the principal over the bond�s life.

Investing in Bonds
Many people invest in bonds with an objective of earning certain amount of interest on their deposits and/or to save tax. Bonds are considered to be
a less risky investment option and are generally preferred by risk-averse investors. Though investors should not get overtly confident of investing in
bonds as bond prices are also subject to market risk. For example, bond prices have a negative correlation with interest rates due to which any
increase in interest rates can lead to a fall in bond prices and vice-versa. Thus, it is recommended that investors should consider the risk-return
factor (i.e. the expected return for the given level of risk) before investing.

Investments Eligible for Deductions

Holders of certain bonds are eligible to claim deduction from their taxable income. A list of such deposits is mentioned hereunder:

1. Interest on Government Securities, National Savings Certificate (issues VI, VII and VIII), Development Bonds, Development Bonds and 7
year National Rural Development Bonds
2. Interest on Post Office Term Deposits, Recurring Deposits Accounts and National Savings Schemes (as referred to in National Savings
Scheme Rules, 1992)
3. Dividends received from a co-operative society
4. Income from investments in UTI (up to assessment year 1999-2000)
5. Interest on deposits with a banking company or a co-operative bank
 6. Interest on deposits with a co-operative society made by a member of the society
7. Interest on deposits with housing boards
8. Interest from deposits made under A.E. (C, D.) Act & C.D.S. (I.T.P.) Act.
9. Interest on notified debentures of any co-operative society, any institution or any public sector company.
10. Interest on deposits with a financial corporation which is engaged in providing long-term finance for industrial development in India and
which is eligible for deduction under Section 36(l)(viii) [up to assessment year 1999-2000, the corporation is approved by Central
Government].
11. Interest on deposits with a public company formed and registered in India with the main object of carrying on the business of providing long-
term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under Section 36(l)
(viii) [up to assessment year 1999-2000, the company is approved by the Central Government under Section 36(l)(viii)].
12. Interest on deposits with Industrial Development Bank of India.
13. Interest on deposits under National Deposit Scheme. Income in respect of units of mutual fund specified under Section 10(23D) [up to
assess. year 1999-00].
14. Interest on deposits under Post Office (Monthly Income Account) Rules.

Commodities & Commodities Broking

Commodities like gold, silver, copper, wheat, maize, crude oil etc. are the underlyings in a contract which can be traded in the open market on
Commodity Exchanges. MCX and NCDEX are the two major commodity exhanges in India. MCX offers 73 and NCDEX offers 56 commodities for
tading. Every exchange specifies a set of rules and byelaws for the purpose of corporate governance. Investors can access the information they want
by clicking on the following links:

» Commodity Exchanges : Marketplace where trading in commodity products takes place.

» Commodity Products : Several commodities like gold, pulses, crude oil etc. are traded on commodities exchanges

» Rules and Bye Laws : Rules and regulations required to be followed as stated by MCX and NCDEX

Commodity Exchanges

Definiton
A commodity exchange refers to the market place where buying and selling of commodities for future delivery takes place.

List of exchanges allowed trading in commodities

1. Bhatinda Om & Oil Exchange Ltd., Batinda

2. The Bombay Commodity Exchange Ltd. Mumbai
3. The Rajkot Seeds oil & Bullion Merchants` Association Ltd
4. The Kanpur Commodity Exchange Ltd., Kanpur
5. The Meerut Agro Commodities Exchange Co. Ltd., Meerut
6. The Spices and Oilseeds Exchange Ltd.
7. Ahmedabad Commodity Exchange Ltd.
8. Vijay Beopar Chamber Ltd., Muzaffarnagar
9. India Pepper & Spice Trade Association. Kochi
10. Rajdhani Oils and Oilseeds Exchange Ltd., Delhi
11. National Board of Trade. Indore
12. The Chamber Of Commerce, Hapur
13. The East India Cotton Association Mumbai
14. The Central India Commercial Exchange Ltd, Gwaliar
15. The East India Jute & Hessian Exchange Ltd
16. First Commodity Exchange of India Ltd, Kochi
17. Bikaner Commodity Exchange Ltd., Bikaner
18. The Coffee Futures Exchange India Ltd, Bangalore
19. Esugarindia Limited
 20. National Multi Commodity Exchange of India Limited (NMCE)
21. Surendranagar Cotton oil & Oilseeds Association Ltd
22. Multi Commodity Exchange of India Ltd. (MCX)
23. National Commodity & Derivatives Exchange Ltd. (NCDEX)
24. Haryana Commodities Ltd., Hissar
25. e-Commodities Ltd.

Out of these 25 commodities the MCX, NCDEX and NMCE are large exchanges and MCX is the biggest among them. Click on the following links to
get a better understanding of two of the largest commodity exchanges in India:

» MCX
» NCDEX
Education Series I - The Commodity Futures Market

Introduction
India has a long history of commodity futures trading extending over 125 years. Still, such trading was interrupted suddenly since the mid seventies
in the fond hope of ushering in an elusive socialistic pattern of society. As the country embarked on economic liberalization policies and signed the
GATT agreement in the early nineties, the government realized the need for futures trading to strengthen the competitiveness of Indian agriculture
and the commodity trade and industry. Futures trading began to be permitted in several commodities, and the ushering in of the 21 century saw the
emergence of new National Commodity Exchanges with countrywide reach for trading in almost all primary commodities and their products.

A commodity futures contract is essentially a financial instrument. Following the absence of futures trading in commodities for nearly four decades,
the new generation of commodity producers, processors, market functionaries, financial organizations, broking agencies and investors at large are,
unfortunately, unaware at present of the economic utility, the operational techniques and the financial advantages of such trading. The Multi
Commodity Exchange of India (MCX) the premier New Order Exchange in the country is, therefore, launching this Commodity Futures Education
Series to provide valuable insights into the rationale for such trading, and the trading practices and regulatory procedures prevailing at the Exchange

For easy understanding and simplification of various issues and nuances involved in commodity futures trading, a convenient question-answer
approach is adopted

Statutory Framework for Regulating Commodity Futures in India

Commodity futures contracts and the commodity exchanges organizing trading in such contracts are regulated by the Government of India under the
Forward Contracts (Regulation) Act, 1952 (FCRA or the Act), and the Rules framed there under. The nodal agency for such regulation is the Forward
Markets Commission (FMC), situated at Mumbai, which functions under the aegis of the Ministry of Consumer Affairs, Food & Public Distribution of
the Central Government.

Definition of Commodity
Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of movable property other than actionable claims, money and
securities". Futures' trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods and
products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges
recognized under the FCRA. The national commodity exchanges have been recognized by the Central Government for organizing trading in all
permissible commodities which include precious (gold & silver) and nonferrous metals; cereals and pulses; ginned and un ginned cotton; oilseeds,
oils and oilcakes; raw jute and jute goods; sugar and gur; potatoes and onions; coffee and tea; rubber and spices, etc.

Definition of Commodity Exchange

A commodity exchange is an association, or a company or any other body corporate organizing futures trading in commodities

Meaning of a Futures Contract

A futures contract is a type of "forward contract". FCRA defines forward contract as "a contract for the delivery of goods and which not a ready
delivery contract is". Under the Act, a ready delivery contract is one, which provides for the delivery of goods and the payment of price there for,
either immediately or within such period not exceeding 11 days after the date of the contract, subject to such conditions as may be prescribed by the
Central Government. A ready delivery contract is required by law to be fulfilled by giving and taking the physical delivery of goods. In market
parlance, the ready delivery contracts are commonly known as "spot" or "cash" contracts.

All contracts in commodities providing for delivery of goods and/or payment of price after 11 days from the date of the contract are "forward"
contracts. Forward contracts are of two types - "Specific Delivery Contracts" and "Futures Contracts". Specific delivery contracts provide for the
actual delivery of specific quantities and types of goods during a specified future period, and in which the names of both the buyer and the seller are
mentioned.

The term 'Futures contract' is nowhere defined in the FCRA. But the Act implies that it is a forward contract, which is not a specific delivery contract.
However, being a forward contract, it is necessarily "a contract for the delivery of goods". A futures contract in which delivery is not intended is void
(i.e., not enforceable by law), and is, therefore, not permitted for trading at any commodity exchange

Salient Features of a Commodity Futures

Contract A commodity futures contract is a tradable standardized contract, the terms of which are set in advance by the commodity exchange
organizing trading in it.The futures contract is for a specified variety of a commodity, known as the "basis", though quite a few other similar varieties,
both inferior and superior, are allowed to be deliverable or tender able for delivery against the specified futures contract.

The quality parameters of the "basis" and the permissible tender able varieties; the delivery months and schedules; the places of delivery; the on"
and "off" allowances for the quality differences and the transport costs; the tradable lots; the modes of price quotes; the procedures for regular
periodical (mostly daily) clearings; the payment of prescribed clearing and margin monies; the transaction, clearing and other fees; the arbitration,
survey and other dispute redressing methods; the manner of settlement of outstanding transactions after the last trading day, the penalties for non
issuance or non-acceptance of deliveries, etc., are all predetermined by the rules and regulations of the commodity exchange.

Consequently, the parties to the contract are required to negotiate only the quantity to be bought and sold, and the price. Everything else is
prescribed by the Exchange. Because of the standardized nature of the futures contract, it can be traded with ease at moment's notice.

Differences between the Physical and Futures Markets

The physical markets for commodities deal in either cash or spot contract for ready delivery and payment within 11 days, or forward (not futures)
contracts for delivery of goods and/or payment of price after 11 days. These contracts are essentially party to party contracts, and are fulfilled by the
seller giving delivery of goods of a specified variety of a commodity as agreed to between the parties. Rarely are these contracts for the actual or
physical delivery allowed to be settled otherwise than by issuing or giving deliveries. Such situations may arise when unforeseen and uncontrolled
circumstances prevent the buyers and sellers from receiving or taking deliveries. The contracts may then be settled mutually.

Unlike the physical markets, futures markets trade in futures contracts which are primarily used for risk management (hedging) on commodity stocks
or forward (physical market) purchases and sales. Futures contracts are mostly offset before their maturity and, therefore, scarcely end in deliveries.
Speculators also use these futures contracts to benefit from changes in prices and are hardly interested in either taking or receiving deliveries of
goods.

Price Risk Management

The two major economic functions of a commodity futures market are price risk management and price discovery. Among these, the price risk
management is by far the most important, and is the of a commodity futures market. raison deter

The need for price risk management, through what is commonly called "hedging", arises from price risks in most commodities. The larger, the more
frequent and the more unforeseen is the price variability in a commodity, the greater is the price risk in it. Whereas insurance companies offer
suitable policies to cover the risks of physical commodity losses due to fire, pilferage, transport mishaps, etc., they do not cover similarly the risks of
value losses resulting from adverse price variations. The reason for this is obvious. The value losses emerging from price risks are much larger and
the probability of the recurrence is far more frequent than the physical losses in both the quantity and quality of goods caused by accidental fires and
mishaps, or occasional thefts

Commodity producers, merchants, stockiest and importers face the risks of large value losses on their production, purchases, stocks and imports
from the fall in prices. Likewise, the processors, manufacturers, exporters and other market functionaries, entering into forward sale commitments in
either the domestic or export markets, are exposed to heavy risks from adverse price changes.
True, price variability may also lead to windfalls, when prices move favorably. In the long run, such gains may even offset the losses from adverse
price movements. But the losses, when incurred, are, at times, so huge that these may often cause insolvencies. The greater the exposure to
commodity price risks, the greater is the share of the commodity in the total earnings or production costs. Hence, the need or price risks
management or hedging through the use of futures contracts.

Hedging involves buying or selling of a standardized futures contract against the corresponding sale or purchase respectively of the equivalent
physical commodity. The benefits of hedging flow from the relationship between the prices of contracts (either ready or forward) for physical delivery
and those of futures contracts. So long as these two sets of prices move in close unison and display a parallel (or closely parallel) relationship, losses
in the physical market are offset, either fully or substantially, by the gains in the futures market. Hedging thus performs the economic function of
helping to reduce significantly, if not eliminate altogether, the losses emanating from the price risks in commodities
Education Series I - The Commodity Futures Market

Introduction
India has a long history of commodity futures trading extending over 125 years. Still, such trading was interrupted suddenly since the mid seventies
in the fond hope of ushering in an elusive socialistic pattern of society. As the country embarked on economic liberalization policies and signed the
GATT agreement in the early nineties, the government realized the need for futures trading to strengthen the competitiveness of Indian agriculture
and the commodity trade and industry. Futures trading began to be permitted in several commodities, and the ushering in of the 21 century saw the
emergence of new National Commodity Exchanges with countrywide reach for trading in almost all primary commodities and their products.

A commodity futures contract is essentially a financial instrument. Following the absence of futures trading in commodities for nearly four decades,
the new generation of commodity producers, processors, market functionaries, financial organizations, broking agencies and investors at large are,
unfortunately, unaware at present of the economic utility, the operational techniques and the financial advantages of such trading. The Multi
Commodity Exchange of India (MCX) the premier New Order Exchange in the country is, therefore, launching this Commodity Futures Education
Series to provide valuable insights into the rationale for such trading, and the trading practices and regulatory procedures prevailing at the Exchange

For easy understanding and simplification of various issues and nuances involved in commodity futures trading, a convenient question-answer
approach is adopted

Statutory Framework for Regulating Commodity Futures in India

Commodity futures contracts and the commodity exchanges organizing trading in such contracts are regulated by the Government of India under the
Forward Contracts (Regulation) Act, 1952 (FCRA or the Act), and the Rules framed there under. The nodal agency for such regulation is the Forward
Markets Commission (FMC), situated at Mumbai, which functions under the aegis of the Ministry of Consumer Affairs, Food & Public Distribution of
the Central Government.

Definition of Commodity
Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of movable property other than actionable claims, money and
securities". Futures' trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods and
products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges
recognized under the FCRA. The national commodity exchanges have been recognized by the Central Government for organizing trading in all
permissible commodities which include precious (gold & silver) and nonferrous metals; cereals and pulses; ginned and un ginned cotton; oilseeds,
oils and oilcakes; raw jute and jute goods; sugar and gur; potatoes and onions; coffee and tea; rubber and spices, etc.

Definition of Commodity Exchange

A commodity exchange is an association, or a company or any other body corporate organizing futures trading in commodities

Meaning of a Futures Contract

A futures contract is a type of "forward contract". FCRA defines forward contract as "a contract for the delivery of goods and which not a ready
delivery contract is". Under the Act, a ready delivery contract is one, which provides for the delivery of goods and the payment of price there for,
either immediately or within such period not exceeding 11 days after the date of the contract, subject to such conditions as may be prescribed by the
Central Government. A ready delivery contract is required by law to be fulfilled by giving and taking the physical delivery of goods. In market
parlance, the ready delivery contracts are commonly known as "spot" or "cash" contracts.
All contracts in commodities providing for delivery of goods and/or payment of price after 11 days from the date of the contract are "forward"
contracts. Forward contracts are of two types - "Specific Delivery Contracts" and "Futures Contracts". Specific delivery contracts provide for the
actual delivery of specific quantities and types of goods during a specified future period, and in which the names of both the buyer and the seller are
mentioned.

The term 'Futures contract' is nowhere defined in the FCRA. But the Act implies that it is a forward contract, which is not a specific delivery contract.
However, being a forward contract, it is necessarily "a contract for the delivery of goods". A futures contract in which delivery is not intended is void
(i.e., not enforceable by law), and is, therefore, not permitted for trading at any commodity exchange

Salient Features of a Commodity Futures

Contract A commodity futures contract is a tradable standardized contract, the terms of which are set in advance by the commodity exchange
organizing trading in it.The futures contract is for a specified variety of a commodity, known as the "basis", though quite a few other similar varieties,
both inferior and superior, are allowed to be deliverable or tender able for delivery against the specified futures contract.

The quality parameters of the "basis" and the permissible tender able varieties; the delivery months and schedules; the places of delivery; the on"
and "off" allowances for the quality differences and the transport costs; the tradable lots; the modes of price quotes; the procedures for regular
periodical (mostly daily) clearings; the payment of prescribed clearing and margin monies; the transaction, clearing and other fees; the arbitration,
survey and other dispute redressing methods; the manner of settlement of outstanding transactions after the last trading day, the penalties for non
issuance or non-acceptance of deliveries, etc., are all predetermined by the rules and regulations of the commodity exchange.

Consequently, the parties to the contract are required to negotiate only the quantity to be bought and sold, and the price. Everything else is
prescribed by the Exchange. Because of the standardized nature of the futures contract, it can be traded with ease at moment's notice.

Differences between the Physical and Futures Markets

The physical markets for commodities deal in either cash or spot contract for ready delivery and payment within 11 days, or forward (not futures)
contracts for delivery of goods and/or payment of price after 11 days. These contracts are essentially party to party contracts, and are fulfilled by the
seller giving delivery of goods of a specified variety of a commodity as agreed to between the parties. Rarely are these contracts for the actual or
physical delivery allowed to be settled otherwise than by issuing or giving deliveries. Such situations may arise when unforeseen and uncontrolled
circumstances prevent the buyers and sellers from receiving or taking deliveries. The contracts may then be settled mutually.

Unlike the physical markets, futures markets trade in futures contracts which are primarily used for risk management (hedging) on commodity stocks
or forward (physical market) purchases and sales. Futures contracts are mostly offset before their maturity and, therefore, scarcely end in deliveries.
Speculators also use these futures contracts to benefit from changes in prices and are hardly interested in either taking or receiving deliveries of
goods.

Price Risk Management

The two major economic functions of a commodity futures market are price risk management and price discovery. Among these, the price risk
management is by far the most important, and is the of a commodity futures market. raison deter

The need for price risk management, through what is commonly called "hedging", arises from price risks in most commodities. The larger, the more
frequent and the more unforeseen is the price variability in a commodity, the greater is the price risk in it. Whereas insurance companies offer
suitable policies to cover the risks of physical commodity losses due to fire, pilferage, transport mishaps, etc., they do not cover similarly the risks of
value losses resulting from adverse price variations. The reason for this is obvious. The value losses emerging from price risks are much larger and
the probability of the recurrence is far more frequent than the physical losses in both the quantity and quality of goods caused by accidental fires and
mishaps, or occasional thefts

Commodity producers, merchants, stockiest and importers face the risks of large value losses on their production, purchases, stocks and imports
from the fall in prices. Likewise, the processors, manufacturers, exporters and other market functionaries, entering into forward sale commitments in
either the domestic or export markets, are exposed to heavy risks from adverse price changes.

True, price variability may also lead to windfalls, when prices move favorably. In the long run, such gains may even offset the losses from adverse
price movements. But the losses, when incurred, are, at times, so huge that these may often cause insolvencies. The greater the exposure to
commodity price risks, the greater is the share of the commodity in the total earnings or production costs. Hence, the need or price risks
management or hedging through the use of futures contracts.

Hedging involves buying or selling of a standardized futures contract against the corresponding sale or purchase respectively of the equivalent
physical commodity. The benefits of hedging flow from the relationship between the prices of contracts (either ready or forward) for physical delivery
and those of futures contracts. So long as these two sets of prices move in close unison and display a parallel (or closely parallel) relationship, losses
in the physical market are offset, either fully or substantially, by the gains in the futures market. Hedging thus performs the economic function of
helping to reduce significantly, if not eliminate altogether, the losses emanating from the price risks in commodities
Myths and Realities about the Commodity Futures Market

The government, after prolonged prohibition, has finally approved futures trading in all commodities. In order to activate the futures market, the
government has mandated four commodity exchanges to establish national level multi-commodity exchanges.

There have been various incorrect perceptions about the commodities market founded on experiences in the securities market. These have hindered
the development of the commodities market and the protection of real trading interests. Multi Commodity Exchange of India Limited (MCX) believes
that the commodities market would be successful only if the commodities' eco-system partners use the exchange for its economic function of price
discovery and price risk management.

Some of the Myths about the Commodities Market

Myth: Commodities markets are small due to the transaction size and number of players.
Reality: Securities cash: Rs. 12,00,000 Crore
Derivatives: Rs. 25,00,000 Crore
Commodities cash: Rs. 4,00,000Crore
Derivatives: 20 times internationally and assumed to be 10 times in India.
Possible commodity futures market size: Rs. 40, 00, 000 Crore

Myth: Commodities markets are very complex to understand.

Reality: The markets are not complex as the products are natural and therefore cannot be artificially manipulated. The demand and supply also
depends on economic factors. It is easier to understand commodities, as in our everyday life we are familiar with commodities, we know the ruling
prices of these commodities in the market, while in the stock market, we are not fully aware about the internal affairs of a company.

Myth: Only farmers are interested in trading and only they should be trading.
Reality: It is incorrect to say that only the farmers would use this market. Actually, the farmers only use the commodity futures prices as a tool to
decide which crop to grow and some large farmers would use this market to hedge their price risk through an intermediary. These intermediaries
would normally be the same commission agents who help the farmers to sell their crop in the cash market.

Myth: These markets are not really required and they only serve the need of speculators.
Reality: Commodities markets are needed for the most important economic function of price discovery and price risk management, Speculators
constitute only one dimension of the market. They can work only because someone is hedging their risk in the market.

Myth: The economy does not need futures market.

Reality: A Futures Exchange provides price signals to producers and consumers based on which they meet their long terms requirements. These
price signals are not available to the user unless there is a commodity futures exchange and in its absence, the markets have large price fluctuations.
This is not in the interest of the producers and consumers. Price stabilization comes from the price discovery process when market participants react
positively to the information available to decide a price.

Myth: A Commodity Futures Exchange must have large capital.

Reality: A Commodity Futures Exchange has to be run and managed efficiently with optimal costs as the commodities markets does not provide
listing fees as in the securities market and therefore all costs have to be recovered from revenues earned through transactions. Large infrastructure
costs may translate into large costs to traders and which would have direct implications on hedging making it expensive. If real users of the
commodities market use this market as insurance and discover that the cost of hedging is considerably high, they would prefer not to hedge but bear
the risk instead.

Myth: A Commodity Futures Exchange is represented by the size of its real estate.
Reality: A Commodity Futures Exchange has to be run and managed efficiently with optimal costs as the commodities markets does not provide
listing fees as in the securities market and therefore all costs have to be recovered from revenues earned through transactions. Large infrastructure
costs may translate into large costs to traders and which would have direct implications on hedging making it expensive. If real users of the
commodities market use this market as insurance and discover that the cost of hedging is considerably high, they would prefer not to hedge but bear
the risk instead.

Myth: A Commodity Futures Exchange must have large number of members to be successful.
Reality: A Commodity Futures Exchange must have large number of members to be successful. The Commodity Futures Exchange should focus on
good and well-spread brokerage houses to penetrate the market. The market would soon move over to many intermediaries with separate trading
rights and have few members with clearing rights like banks.

Myth: An Exchange must have cash settled contracts to avoid the pains of delivery handling process.
Reality: Cash settled market would be no different than an online lottery system. In such markets, the price of the commodity futures will have no
bearing on the spot market as delivery is not required and therefore money will be the only factor that determines prices. At MCX, there is a complete
understanding of the commodities market and it has a large talent pool to handle deliveries to keep the link pulsating between the futures market and
physical cash market. The commodities market has to be kept as real as possible.

Myth: The Depository system of electronic transfer of commodities is covered in the Depositories Act.
Reality: It is incorrect.

Myth: The regulatory framework covers agencies in the chain of the Demat Process for commodities.
Reality: No, it is merely an understanding being reached within the trade and industry.

Myth: The Depository/Warehouse guarantees the quality.

Reality: Quality of delivery is not guaranteed by anyone. Until the standards in ware housing management improves to ensure preservation of the
quality of goods stored no exchange or depository will be able to guarantee quality of the commodity in warehouse. If the quality is not assured no
benefit accrues to the actual user. Therefore, the Exchange should provide a system, Where by the sellers must ensure quality certification before
tendering delivery and the buyers must have option to recheck the quality at the time of collecting delivery and in case of any discrepancies
compared to the contract specifications, they should have an option to reject it. Worldwide, no Demat delivery operational in commodities.

Myth: There is no guarantee of quality in a physical settlement between member to member through aware house.
Reality: The seller guarantees the quality to the buyer and therefore he takes care of storing the commodity, as it may be rejected by the buyer. He
keeps it in a warehouse where he ensures preservation of quality and quantity of the commodity. Further, the buyer also has the option to recheck
the quality at the time of delivery. For performing all such checks, there are professional firms of international repute, which are experts in
certification. India is exporting a large number of agro-based commodities to Europe and America on the basis of such certification. Therefore, a
commodity Exchange has to educate the members about the effective prevailing systems and to implement a settlement process based on a similar
infrastructure.

Myth: The operators can manipulate commodity futures prices and so it is not safe to operate in this system.
Reality: It is incorrect that commodities prices can be manipulated because all these commodities are under OGL and in case somebody tries to
corner s tocks of a commodity to manipulate price, some importer will import that commodity fro many other country and deliver in India nullifying the
attempt to manipulate the price. In the s tock markets , the floating s tocks are limited so if an operator buys a large number of shares , prices will
rise, which is not the case in commodities , because supply and floating s tocks are virtually unlimited. In terms of fundamentals and technical
analysis commodity prices follow the trends with more accuracy than as compared to scrip, because the commodity markets truly reflect the demand
and supply factors.

Myth: Commodity futures markets are more risky and so it is not advisable to trade in commodities.
Reality: While a scrip price can go down even by 30-40 percent in a single trading session, it cannot happen in commodity futures as the commodity
futures price is based on the intrinsic value of the commodity. For instance, a scrip future can go down fromRs.4000 to Rs. 2800 in a single trading
session, but Gold Feb 2004 contract would never come down from Rs. 6100 to Rs. 4100 in a single trading session, because the inherent value of
gold would never fall so drastically. Therefore, it is always safe to operate in the commodity futures market as against the stock futures market. It is
only an issue of in depth understanding of the real market and anticipating and delivering what the commodity industry actually requires.

Glossary of trading terminology

We suggest you to use www.investopedia.com for any other terms that are not covered here.

Aggressive- An investment strategy with an above-average risk tolerance, with the expectation of above-average returns. Aggressive strategies
usually favor the purchase of stocks of rapidly growing companies, buying on margin, and options trading.

Buy and Hold - An investment strategy in which stocks are bought and then held for a long period of time, regardless of the market's fluctuations.
This strategy is based on the assumption that in the very long term (10-20 years), stock prices will go up and the market as a whole will rise despite
any short-term fluctuations due to business cycles or rising inflation. Trade commissions are reduced by buying and selling less often and taxes are
often reduced or deferred by holding positions longer.

BUY AT OPEN - If you'd like to implement this type of trading order, then you should place a market order before the market opens up for trading
(9:30 AM EST). When placing a market order, your trade will be filled at whatever the opening price is on that morning.

Capital gain- The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is the profit resulting from the
sale of an investment. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gains generally
receive more favorable tax treatment than ordinary gains. Depending on your tax bracket and on how long you held a capital asset, you may pay
about one-third to one-half less tax on a capital gain than you would have paid on the same amount of ordinary income.

Capital loss- The loss that results from the sale of a capital asset. Ordinary income can be offset with capital losses up to a maximum of $3,000 per
year and excess capital losses can be carried forward indefinitely until exhausted.

Close a Position -To end an investment. Closing a long position requires selling, and closing a short position requires buying.

Conservative - A cautious, risk-averse investment strategy. The preservation of capital is a high priority to a conservative investor.

Cover- To repurchase a previously sold contract.

Current Market Value -The present worth of a portfolio of securities at current market prices.

Day Trader - A very active stock trader who buys and sells the same security very quickly, executes a large number of trades each day, and
generally closes all positions at the end of each trading day.

Diversification- A portfolio strategy focused on reducing exposure to risk by combining a variety of investments which are unlikely to all move in the
same direction. Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of
economic conditions. A diversified portfolio may contain stocks, bonds and real estate.

Equity- Ownership interest in a corporation in the form of common stock or preferred stock. It can also be expressed as total assets minus total
liabilities, referred to as "shareholder's equity", "net worth" or "book value". In the context of a futures trading account, it is the value of the securities
in the account, assuming that the account is liquidated at the going price. In the context of a brokerage account, it is the net value of the account (the
value of securities in the account less any margin requirements).

Fundamental Analysis -A method used to evaluate the value of a security, by which an investor would carefully examine the company's financial
and operations, particularly sales, earnings, growth potential, assets, debt, management, products, and competition figures. Fundamental analysis
considers variables that are directly related to the company itself, whereas technical analysis considers the overall state of the market.

Growth Strategy -A strategy based on investing in companies which are growing faster than others in the same industry, with the goal of generating
capital gains rather than dividends.

Hedge funds- A fund which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program
trading, swaps, arbitrage, and derivatives. Used generally by wealthy individuals and institutions, hedge funds are restricted by law to no more than
100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts (ranging anywhere from $250,000 to over
$1 million). Investors in hedge funds pay a management fee as well as a percentage of the profits (usually 20%).

IRA (Individual Retirement Account) -A tax-deferred retirement account for an individual that permits the individual to set aside up to $2,000 per
year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later.IRAs can be established at a bank,mutual fund, or brokerage. Only
those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to
an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in
that year and interest accumulates tax-deferred until the funds are withdrawn.

Long-Term - A long period of time, or for a buy and hold investment strategy.

LIMIT ORDER - A limit order states the maximum price you are willing to pay for a stock. You can use this type of order to avoid entering a position if
a stock gaps up or down at the opening and you want to avoid entering at an extreme price. Limit orders can be combined with "buy" or "sell on stop"
orders as well.

LONG POSITION - When you buy a stock from the long side, you are purchasing the shares with the hope that they will rise inprice. This is the exact
opposite of a short sale.

Margin Account -A sophisticated customer account at a brokerage firm which allows an investor to buy securities with money borrowed from the
broker. Margin accounts generally offer low interest rates on margin loans to encourage investors to buy on margin. The Federal Reserve limits
margin borrowing to at most 50% of the amount invested, but some brokerages have even stricter requirements.

Money Management -The process of managing money, including investments, budgeting, banking, and taxes.

Open a Position -To open an investment. Opening a long position requires buying, and opening a short position requires selling.

Overbought/Oversold Indicator -A technical analysis tool that attempts to define when prices have moved too far and fast in either direction. This
indicator is calculated based on a moving average of the difference between the number of advancing and declining issues over a certain period of
time. The analyst will sell if the market is considered overbought, and vice versa.

Risk Management - The process of analyzing exposure to risk and determining how to best handle such exposure.

Risk Tolerance -An investor's ability to handle declines in the value of his/her portfolio.

S&P 500 - Standard & Poor's 500. A basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value,
and its performance is thought to be representative of the stock market as a whole (over 70% of all U.S. equity is tracked by the S&P 500). The index
selects its companies based upon their market size, liquidity, and sector. Most of the companies in the index are solid mid cap or large cap
corporations. Most experts consider the S&P 500 one of the best benchmarks available to judge overall U.S. market performance.

Short - The state of having sold a stock short without having covered it (repurchased a previously sold contract).

Short Selling - Borrowing a security or commodity futures contract from a broker and selling it, with the understanding that it must later be bought
back and returned to the broker. Short selling is a technique used by investors who try to profit from the fallingprice of a stock. The investor's broker
will borrow the shares from someone who owns them with the promise that the investor will return them later. The investor immediately sells the
borrowed shares at the current market price. If the price of the shares drops, he/she "covers the short position" by buying back the shares, and
his/her broker returns them to the lender. The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus
commissions and expenses for borrowing the stock. But if the price of the shares increases, the potential losses are unlimited.

Spread - The difference between the current bid and the current ask (in over-the-counter trading) or offered (in exchange trading) of a given
security .SP500 or S&P500- The S&P 500 is one of the most commonly used benchmarks for the overall U.S.stock market. The (DJIA) Dow Jones
Industrial Average was at one time the most renowned index for American stocks, but because the DJIA contains only 30 companies, most agree
that the S&P 500 is a better representation of the U.S. market. In fact, to many it is the definition of the market. When you hear on the evening news
that "the market was up today", the reporter is likely referring to a rise in the S&P 500. Companies included in the index are selected by the S&P
Index Committee, which is a team of analysts and economists at Standard and Poor's. The S&P 500 is a market-value weighted index, which means
each stock's weight in the index is proportionate to its market value.

Technical Analysis -A method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open
interest, can help predict future market trends. Technical analysts believe that they can accurately predict the future price of a stock by looking at its
historical prices and other trading variables. Technical analysis assumes that market psychology influences trading in a way that enables predicting
when a stock will rise or fall. For that reason, many technical analysts are also market timers, who believe that technical analysis can be applied just
as easily to the market as a whole as to an individual stock. Unlike fundamental analysis, the intrinsic value of the security is not considered.

Ticker Symbol - A system of letters used to uniquely identify a stock or mutual fund. Symbols with up to three letters are used for stocks which are
listed and trade on an exchange. Symbols with four letters are used for NASDAQ stocks. Symbols with five letters are used for NASDAQ stocks other
than single issues of common stock. Symbols with five letters ending in X are used for mutual funds.

Volatility - The relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation
of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has high volatility. If the price almost never
changes, it has low volatility.

Volume - The number of shares, bonds or contracts traded during a given period, for a security or an entire exchange.

Major Stock Exchanges : Year ended 31 December 2010

 Market Capitalization Trade Value
Rank Economy Stock Exchange
(USD Billions) (USD Billions)
1 United States Europe NYSE Euronext 15970 19813
2 United States Europe NASDAQ OMX 4931 13439
3 Japan Tokyo Stock Exchange 3827 3787
4 United Kingdom London Stock Exchange 3613 2741
5 China Shanghai Stock Exchange 2717 4496
6 Hong Kong Hong Kong Stock Exchange 2711 1496
7 Canada Toronto Stock Exchange 2170 1368
8 India Bombay Stock Exchange 1631 258
9 India National Stock Exchange of India 1596 801
10 Brazil BM&F Bovespa 1545 868
11 Australia Australian Securities Exchange 1454 1062
12 Germany Deutsche Börse 1429 1628
13 China Shenzhen Stock Exchange 1311 3572

14 Switzerland SIX Swiss Exchange 1229 788

15 Spain BME Spanish Exchanges 1171 1360

16 South Korea Korea Exchange 1091 1607
17 Russia MICEX 0949 408
18 South Africa JSE Limited 0925 340