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Investment management is the professional management of various securities (shares,

bonds etc) and other assets (e.g. real estate), to meet specified investment goals for the
benefit of the investors. Investors may be institutions (insurance companies, pension
funds, corporations etc.) or private investors (both directly via investment contracts and
more commonly via collective investment schemes e.g. mutual funds) .

The term asset management is often used to refer to the investment management of
collective investments, whilst the more generic fund management may refer to all forms
of institutional investment as well as investment management for private investors.
Investment managers who specialize in advisory or discretionary management on behalf
of (normally wealthy) private investors may often refer to their services as wealth
management or portfolio management often within the context of so-called "private

The provision of 'investment management services' includes elements of financial

analysis, asset selection, stock selection, plan implementation and ongoing monitoring of

Outside of the financial industry, the term "investment management" is often applied to
investments other than financial instruments. Investments are often meant to include
projects, brands, patents and many things other than stocks and bonds. Even in this case,
the term implies that rigorous financial and economic analysis methods are used. Applied
Information Economics is one approach developed to apply statistically and economically
sound optimization methods to portfolios of other types of investments.

Investment management is a large and important global industry in its own right
responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming under the
remit of financial services many of the world's largest companies are at least in part
investment managers and employ millions of staff and create billions in revenue.

Fund manager (or investment advisor in the U.S.) refers to both a firm that provides
investment management services and an individual(s) who directs 'fund management'

Industry scope
The business of investment management has several facets, including the employment of
professional fund managers, research (of individual assets and asset classes), dealing,
settlement, marketing, internal auditing, and the preparation of reports for clients. The
largest financial fund managers are firms that exhibit all the complexity their size
demands. Apart from the people who bring in the money (marketers) and the people who
direct investment (the fund managers), there are compliance staff (to ensure accord with
legislative and regulatory constraints), internal auditors of various kinds (to examine
internal systems and controls), financial controllers (to account for the institutions' own
money and costs), computer experts, and "back office" employees (to track and record
transactions and fund valuations for up to thousands of clients per institution).

Key problems of running such businesses

• Revenue is directly linked to market valuations, so a major fall in asset prices

causes a precipitous decline in revenues relative to costs;
• Above-average fund performance is difficult to sustain, and clients may not be
patient during times of poor performance;
• Successful fund managers are expensive and may be headhunted by competitors;
• Above-average fund performance appears to be dependent on the unique skills of
the fund manager; however, clients are loath to stake their investments on the
ability of a few individuals- they would rather see firm-wide success, attributable
to a single philosophy and internal discipline;
• Evidence suggests that size of an investment firm correlates inversely with fund
performance, i.e., the smaller the firm the better the chance of good performance.
• Analysts who generate above-average returns often become sufficiently wealthy
that they eschew corporate employment in favor of managing their personal

The most successful investment firms in the world have probably been those that have
been separated physically and psychologically from banks and insurance companies. That
is, the best performance and also the most dynamic business strategies (in this field) have
generally come from independent investment management firms.

Investment managers and portfolio structures

At the heart of the investment management industry are the managers who invest and
divest client investments.

A certified company investment advisor should conduct an assessment of each client's

individual needs and risk profile. The advisor then recommends appropriate investments.

Asset allocation

The different asset classes are stocks, bonds, real-estate, derivatives, and commodities.
The exercise of allocating funds among these assets (and among individual securities
within each asset class) is what investment management firms are paid for. Asset classes
exhibit different market dynamics, and different interaction effects; thus, the allocation of
monies among asset classes will have a significant effect on the performance of the fund.
Some research suggests that allocation among asset classes has more predictive power
than the choice of individual holdings in determining portfolio return. Arguably, the skill
of a successful investment manager resides in constructing the asset allocation, and
separately the individual holdings, so as to outperform certain benchmarks (e.g., the peer
group of competing funds, bond and stock indices).
Long-term returns

It is important to look at the evidence on the long-term returns to different assets, and to
holding period returns (the returns that accrue on average over different lengths of


Against the background of the asset allocation, fund managers consider the degree of
diversification that makes sense for a given client (given its risk preferences) and
construct a list of planned holdings accordingly. The list will indicate what percentage of
the fund should be invested in each particular stock or bond. The theory of portfolio
diversification was originated by Markowitz and effective diversification requires
management of the correlation between the asset returns and the liability returns, issues
internal to the portfolio (individual holdings volatility), and cross-correlations between
the returns.

Investment styles

There are a range of different styles of fund management that the institution can
implement. For example, growth, value, market neutral, small capitalization, indexed, etc.
Each of these approaches has its distinctive features, adherents and, in any particular
financial environment, distinctive risk characteristics.

Performance measurement

Fund performance is the acid test of fund management, and in the institutional context
accurate measurement is a necessity. For that purpose, institutions measure the
performance of each fund (and usually for internal purposes components of each fund)
under their management, and performance is also measured by external firms that
specialize in performance measurement.

Absolute versus relative performance

In the USA and the UK, two of the world's most sophisticated fund management markets,
the tradition is for institutions to manage client money relative to benchmarks. For
example, an institution believes it has done well if it has generated a return of 5% when
the average manager generates a 4% return.

Risk-adjusted performance measurement

Performance measurement should not be reduced to the evaluation of fund returns alone,
but must also integrate other fund elements that would be of interest to investors, such as
the measure of risk taken. Several other aspects are also part of performance
measurement: evaluating if managers have succeeded in reaching their objective, i.e. if
their return was sufficiently high to reward the risks taken; how they compare to their
peers; and finally whether the portfolio management results were due to luck or the
manager’s skill. The need to answer all these questions has led to the development of
more sophisticated performance measures, many of which originate in modern portfolio

What Is Investment
• Many interpretations
• Lending money to another for a return
• Purchase of shares, real estate, Gold for capital appreciation
• An insurance plan or Pension plan
• Investment is a commitment of funds for earning additional income
• Investment is considered as the sacrifice of certain present value of money in
anticipation of a reward

Definition of Investment
• Fisher & Jordan – An investment is a commitment of funds made in the
expectation of some positive rate of returns
• F. Amling – The purchase by an individual or Institutional investor of a financial
or real asset that produces a return in proportion to the risk the Investor assumed
over some future investment period

Investment Scenario
• Today, managing investment has become much more challenging and complex
than ever
• Unprecedented volatility of stock market
• Mutual funds
• Derivatives
• Debt market
• Bank/ Company deposits
• Gold
• Real estate
• Plethora of investment instruments to choose from

Classification of investment
• Financial investment
• Economic investment
Financial investment
• It means employment of funds in the form of assets with the objective of earning
additional income or appreciation in the value of investment in future
• Assets for investment vary with respect to risk, Safety and return
• Bank deposits, Bonds, Shares, Mutual funds

Economic investment
• It is net addition to the capital stock of the society
• Investment in those goods and services which are used for the production of other
goods and services
• Building, Machineries, Inventories

Investment Involves
1. Real assets
• Real assets are tangible assets like land, buildings, bullions

2. Financial assets
• Financial assets are instruments having an indirect claim to real assets held by
some others

Investment Objectives
 Maximization of the economic welfare of the investor in the long run.
 Maximization of wealth and the liquidity offered by the wealth.

Objectives Involves
• Return
• Capital appreciation
• Safety
• Liquidity
• Hedge against inflation
• Tax planning

• Investment is a commitment of funds made in the expectation of some positive
• Investor while making investments consider many aspects related to return such
as the timing, frequency and quantum of return

Capital Appreciation
• It is an important objective of investment
• Before investment investors should identity the assets which appreciate in value
• Real asset or financial asset
• Purchase of property at right time and the ideal growth stocks ensure appreciation
to investors.
• It is a vital aspect mostly investors will keep away from other investment options
which are not cent percent safe. Feat of loss of capital than loss of revenue

• Degree of ready encashability
• Investors prefer investments with high liquidity

Hedge against Inflation

• Seeking protection against inflation
• Inflation has the effect of raising prices with effect of falling standard of living
• Regular and adequate return against any possible erosion in investment.

Tax Planning
• Wise investor considers tax implications before investments
• Investment offers certain tax saving avenues
• Interest/ Dividend earned as well as Capital gains are taxable
• The rate of tax various from 10% to 30% with a surcharge








Policy for systematic functioning

Availability of investible funds
Objective are framed on the basis of need for regularity of income, risk perception,
Knowledge about investment alternatives

Thesecurities to be bought have to be scrutinized through the market, industry and

company analysis

Helps investor to determine the return and risk expected from an investment in the
common stock
Intrinsic value of the share is measured through the book value of the share and the
price earning ratio.

Portfolio is a combination of securities
Portfolio is constructed in a manner to meet the investors goals
Maximum return with minimum risk
Diversifies portfolio and allocation of funds among the selected securities

The portfolio has to be managed efficiently
The efficient management requires evaluation
This process consist of portfolio appraisal and revision

The return and risk performance of the security vary from time to time
The variability of the returns of the securities is measured and compared
The appraisal warns the loss and steps can be taken to avoid such losses

Revision depends on the results of the appraisal
To keep the return at a particular level necessitates the investor to revise the components
of the portfolio periodically

Fundamental analysis is the cornerstone of investing. In fact, some would say that you aren't
really investing if you aren't performing fundamental analysis. Because the subject is so
broad, however, it's tough to know where to start. There are an endless number of investment
strategies that are very different from each other, yet almost all use the fundamentals.

The goal of this tutorial is to provide a foundation for understanding fundamental analysis.
It's geared primarily at new investors who don't know a balance sheet from an income
statement. While you may not be a "stock-picker extraordinaire" by the end of this tutorial,
you will have a much more solid grasp of the language and concepts behind security analysis
and be able to use this to further your knowledge in other areas without feeling totally lost.
The biggest part of fundamental analysis involves delving into the financial statements. Also
known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities
and all the other financial aspects of a company. Fundamental analysts look at this
information to gain insight on a company's future performance. A good part of this tutorial
will be spent learning about the balance sheet, income statement, cash flow statement and
how they all fit together

What is Fundamental Analysis?

A method of evaluating a security by attempting to measure its intrinsic value by

examining related economic, financial and other qualitative and quantitative
factors. Fundamental analysts attempt to study everything that can affect the security's
value, including macroeconomic factors (like the overall economy and industry
conditions) and individually specific factors (like the financial condition and management

The end goal of performing fundamental analysis is to produce a value that an

investor can compare with the security's current price in hopes of figuring out what sort
of position to take with that security (under priced = buy, overpriced = sell or short).

Securities market line

The securities market line (SML) graphs the relationship between risk and return. The
securities market line is a straight line. It touches the efficient frontier and passes though
the risk free rate of return.

The SML lies above the efficient frontier, except at the one point where it touches. This
shows that the availability of a risk free asset improves the returns available for a any
given level of risk and vice-versa. The line that graphs the systematic, or market, risk
versus return of the whole market at a certain time and shows all risky marketable

Technical Analysis
A method of evaluating securities by analyzing statistics generated by market activity,
such as past prices and volume. Technical analysts do not attempt to measure a security's
intrinsic value, but instead use charts and other tools to identify patterns that can suggest
future activity
Capital Asset Pricing Model – CAPM
A model that describes the relationship between risk and expected return and that is used in
the pricing of risky securities.

The general idea behind CAPM is that investors need to be compensated in two ways: time
value of money and risk. The time value of money is represented by the risk-free (rf) rate in
the formula and compensates the investors for placing money in any investment over a period
of time. The other half of the formula represents risk and calculates the amount of
compensation the investor needs for taking on additional risk. This is calculated by taking a
risk measure (beta) that compares the returns of the asset to the market over a period of time
and to the market premium (Rm-rf).

The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-
free security plus a risk premium. If this expected return does not meet or beat the required
return, then the investment should not be undertaken. The security market line plots the
results of the CAPM for all different risks (betas).

Using the CAPM model and the following assumptions, we can compute the expected return
of a stock: if the risk-free rate is 3%, the beta (risk measure) of the stock is 2 and the
expected market return over the period is 10%, the stock is expected to return 17%

Capital Market Line – CML

A line used in the capital asset pricing model to illustrate the rates of return for efficient
portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for
a particular portfolio.
The CML is derived by drawing a tangent line from the intercept point on the efficient
frontier to the point where the expected return equals the risk-free rate of return.

The CML is considered to be superior to the efficient frontier since it takes into account the
inclusion of a risk-free asset in the portfolio. The capital asset pricing model (CAPM)
demonstrates that the market portfolio is essentially the efficient frontier. This is achieved
visually through the security market line (SML).

Portfolio Management
The art and science of making decisions about investment mix and policy, matching
investments to objectives, asset allocation for individuals and institutions, and balancing
risk vs. performance

Security Analysis, authored by professors Benjamin Graham and David Dodd of
Columbia University, laid the intellectual foundation for what would later be called
"value investing". The work was first published in 1934, following unprecedented losses
on Wall Street. In summing up lessons learned, Graham and Dodd chided Wall Street for
its myopic focus on a company's reported earnings per share, and were particularly harsh
on the favored "earnings trends." They encouraged investors to take an entirely different
approach by gauging the rough value of the operating business that lay behind the
security. Graham and Dodd enumerated multiple actual examples of the market's
tendency to irrationally under-value certain out-of-favor securities. They saw this
tendency as an opportunity for the savvy.

At bottom, Security Analysis stands for the proposition that a well-disciplined investor
can determine a rough value for a company from all of its financial statements, make
purchases when the market inevitably under-prices some of them, earn a satisfactory
return, and never be in real danger of permanent loss. Warren Buffett, the only student in
Graham's investment seminar to earn an A+, made billions of dollars by methodically and
rationally implementing the tenets of Graham and Dodd's book.

Security Analysis is still used as a textbook at Columbia University. Security Analysis

also represents the genesis of financial analysis and fundamental analysis. However, in
the 1970s Graham stopped advocating a careful use of the techniques described in his text
in selecting individidual stocks, citing the extensive efforts and costs required to generate
superior returns in a modern efficient market. Instead, Graham later suggested the use of
one or two simple criteria to the investor's entire portfolio, focusing on results of the
group rather than on individual securities.[1]
Systematic Risk
Risk which is common to an entire class of assets or liabilities. The value of investments
may decline over a given time period simply because of economic changes or other
events that impact large portions of the market. Asset allocation and diversification can
protect against systematic risk because different portions of the market tend to
underperforms at different times. also called market risk.
The risk inherent to the entire market or entire market segment. Also known as "un-
diversifiable risk" or "market risk."

Market risk
Market risk is the risk that the value of an investment will decrease due to moves in
market factors. The four standard market risk factors are:

• Equity risk, or the risk that stock prices will change.

• Interest rate risk, or the risk that interest rates will change.
• Currency risk, or the risk that foreign exchange rates will change.
• Commodity risk, or the risk that commodity prices (i.e. grains, metals, etc.) will


Market risk is typically measured using a Value at Risk methodology. Value at risk is well
established as a risk management technique, but it contains a number of limiting
assumptions that constrain its accuracy. The first assumption is that the composition of
the portfolio measured remains unchanged over the single period of the model. For short
time horizons, this limiting assumption is often regarded as acceptable. For longer time
horizons, many of the transactions in the portfolio may mature during the modeling
period. Intervening cash flow, embedded options, changes in floating rate interest rates,
and so on are ignored in this single period modeling technique.

Market risk can also be contrasted with Specific risk, which measures the risk of a
decrease in ones investment due to a change in a specific industry or sector, as opposed to
a market-wide move.

Unsystematic Risk
Risk that affects a very small number of assets. Sometimes referred to as specific risk.
The risk of price change due to the unique circumstances of a specific security, as
opposed to the overall market. This risk can be virtually eliminated from a portfolio
through diversification.
Technical analysts
A method of evaluating securities by analyzing statistics generated by market activity,
such as past prices and volume. Technical analysts do not attempt to measure a security's
intrinsic value, but instead use charts and other tools to identify patterns that can suggest
future activity.

Technical analysis is the study of past financial market data, primarily through the use of
charts, to forecast price trends and make investment decisions. In its purest form,
technical analysis considers only the actual price behavior of the market or instrument,
based on the premise that price reflects all relevant factors before an investor becomes
aware of them through other channels.

Technical analysts (or technicians) identify non-random price patterns and trends in
financial markets and attempt to exploit those patterns.[1] While technicians use various
methods and tools, the study of price charts is primary. Technicians especially search for
archetypal patterns, such as the well-known head and shoulders reversal pattern, and also
study such indicators as price, volume, and moving averages of the price. Many technical
analysts also follow indicators of investor psychology (market sentiment).

Technicians seek to forecast price movements such that large gains from successful trades
exceed more numerous but smaller losing trades, producing positive returns in the long
run through proper risk control and money management.

There are several schools of technical analysis. Adherents of different schools (for
example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the
other approaches, yet many traders combine elements from more than one school.
Technical analysts use judgment gained from experience to decide which pattern a
particular instrument reflects at a given time, and what the interpretation of that pattern
should be. Technical analysts may disagree among themselves over the interpretation of a
given chart.

Technical analysis is frequently contrasted with fundamental analysis, the study of

economic factors that some analysts say can influence prices in financial markets. Pure
technical analysis holds that prices already reflect all such influences before investors are
aware of them, hence the study of price action alone. Some traders use technical or
fundamental analysis exclusively, while others use both types to make trading decisions.


Return is the primary motivating force that drives investment. It is representing the
reward for undertaking investment. Components of return are:

 Current return- it measured as the periodic income in relation to the beginning

price of the investment.
 Capital return- the price appreciation or depreciation divided by the beginning
price of the asset. Assets like equity stock

Total return for any security is defined as:

Total return = current return + capital return



Investment in assets whose face value increases with passage of time

Capital appreciation of investments ensures that the purchasing power of investment
keep pace with inflation (prevents eroding value)


When you invest in company shares your annual returns come form dividends


When the interest earns interest the security is said to be paying a compound interest
The interest earned amount is automatically reinvested as the same rate as applicable to
the original investment.


 Investments are made for a certain period. The HPR takes into account the total
returns to an investor in that period, including both interest or dividend, and
capital gains, if any.
 HPR = Total income during holding period (Dividend/ Interest + Capital Gain) ÷
Purchase price X 100


Price of the stock

Type of the stock
Issue price of the stock
Reserve for dividend
Future projects of the company
Goodwill of the company
Govt. rules and polices.

Risk is defined as possibility of meeting danger or of suffering from harm or loss.

In financial terms, it implies possibility of receiving less return than expected or
Not receiving any return at all or
Even not getting your principal amount back
The probability of actual return being less than the expected return or the probability of
adverse return
“Worry is not a sickness but a sign of health if you are not worried you are not risking
You cannot be rich without taking risks
Risks and rewards go hand in hand
Higher the risks, higher the returns the investment is expected to generate.
You should take calculated, not reckless risks
Every investment opportunity is exposed to some risk or the other
A full understanding of the various important risks is essential for taking calculated
risks and making sensible investment decisions.

1. Systematic Risks

 Market risk
 Interest rate risk
 Purchasing power risk

2. Unsystematic risks

 Business Risk
 Financial Risk
 Insolvency or Default Risk

3. Other risks

 Political risk
 Management risk
 Marketability Risk

Total Risk = Systematic Risk + Unsystematic Risk

It emanates from three sources:
Market risk
Interest rate risk
Inflation risk

External factors that cannot be controlled cause risks which are known as systematic
Systematic risk are non diversifiable
Arise out of factors such as market, nature of industry, state of economy etc.

Market risk is the risk of movement in security prices due to factors that affect the
market as a whole, rather than particular companies or industries.
Investors reaction towards various events is the main factor affecting the market risk.
Business recession, depression, long term changes in consumption pattern.
Unexpected war, election, instability of Govt., demise of head of state, speculative
activity in the market.
The fall or rise in the prices of security causes a fear of loss or utmost confidence in the
minds of investors.
When investors sharply react to a loss, it will result in excessive selling, pushing prices
Investors reaction to gain will result in more buying, pushing prices up
Good economic forecasting is the key to anticipating changes in the stock and bond


A change in interest rate is a major source of risk to the holders of bonds & debentures.
An increase in interest rate will result in decrease in demand for securities.
Increase in interest rate will result in increased earnings to lending institutions
Companies using borrowed funds, will result in lower earnings, lower dividends, and
consequent lower share prices.
Securities produce cash income streams over future time periods. They are discounted
by the market to yields present values which influence prices of these securities.
When ever the discount factor changes or cash stream changes, prices also change.
Rise in market interest rate causes a decline in market prices of securities and vice


Purchasing power risk is the probable loss in purchasing power of returns to be
If inflation occurs during future period the buying power of cash interest/dividend
income is likely to be received would decline.
If rate of inflation is equal to the money rate of return, the investor does not add
anything to his existing wealth since he obtains zero rate of return.
Investment is considered as postponement of consumption
Risk due to uncertainty surrounding a particular firm or industry.
It is unique & peculiar to a firm or industry
Due to factors like managerial inefficiency, technological change, availability if raw
material, changes in consumer preference, labor problems
Unsystematic risk emanates from three sources
Business risk
Financial risk
Default or insolvency risk

Business risk is that portion of risk caused by prevailing environment of business
Variation that causes in operating environment
Business risk can be of two broad categories

1. Internal business risk

2. External business risk


Fluctuation in sales : loss of sales means loss of profit

R&D : R&D is required for constant innovation & for operational efficiency
HRM : operational efficiency depends on management of personnel
Fixed cost : cost should be justifiable & not to affect profitability
Production of single product


Business cycle : fluctuation in business cycle leads to fluctuation in earnings

Demographic factor: distribution of population by age group, health, education and
lack of skill of employees, attitude to work.
Government polices: Risk due to Govt. polices, FDI, Disinvestment, nationalization
Social & Regulatory factors : General operating environment of business,
environmental protection act, price control, fixation of quotas, import- export control

The way the company handles its financial activities
It can be ascertained by the analysis of capital structure of the firm
High employment of debt in business

This risk due to inability of firm to satisfy the needs of investors like interest, dividend,
repayment of capital etc
The default risk arises due to deterioration of financial strength of the company
Adverse movements in liquidity, solvency, operating expenses


Political risk
Management risk
Marketability risk

Mainly for investment in foreign securities
Change in foreign Govt.
Nationalization of business in foreign country.
Inability of Govt. to handle indebtedness

Total variability of return caused by management decision
However qualified & capable management team there are chances of judgmental errors
and wrong decisions

Loss of liquidity and monitory loss in conversion from one asset to another.

A stock exchange, share market or bourse is a corporation or mutual organization
which provides facilities for stock brokers and traders, to trade company stocks and other
securities. Stock exchanges also provide facilities for the issue and redemption of
securities, as well as, other financial instruments and capital events including the payment
of income and dividends. The securities traded on a stock exchange include: shares issued
by companies, unit trusts and other pooled investment products and bonds. To be able to
trade a security on a certain stock exchange, it has to be listed there. Usually there is a
central location at least for recordkeeping, but trade is less and less linked to such a
physical place, as modern markets are electronic networks, which gives them advantages
of speed and cost of transactions. Trade on an exchange is by members only. The initial
offering of stocks and bonds to investors is by definition done in the primary market and
subsequent trading is done in the secondary market. A stock exchange is often the most
important component of a stock market. Supply and demand in stock markets is driven by
various factors which, as in all free markets, affect the price of stocks (see stock
There is usually no compulsion to issue stock via the stock exchange itself, nor must
stock be subsequently traded on the exchange. Such trading is said to be off exchange or
over-the-counter. This is the usual way that bonds are traded. Increasingly, stock
exchanges are part of a global market for securities.

The role of stock exchanges

 Raising capital for businesses
 Mobilizing savings for investment
 Facilitating company growth
 Redistribution of wealth
 Corporate governance
 Creating investment opportunities for small investors
 Government capital-raising for development projects
 Barometer of the economy


Shares and other financial products or securities (e.g. bonds, foreign exchange and
managed investment funds) (Securities) may be exchanged or traded online using the
internet (Exchanges). The Internet helps drive down transaction costs, facilitate cross-
border transactions and avoid the need to conduct trades using intermediaries.

As the trend of doing thing through Internet is growing very rapidly and everyone
in today’s life want to do every with the mouse clicks while sitting around his desk. Thus
if you are an investor and want to do online trading, it is necessary for you to know well
about online trading before actually staring trading online. These are various trading
academies giving training on online trading. These institutions are also providing online

Objectives of online securities trading

 Increase transparence in the markets.

 Enhance market quality through improved liquidity, by increasing quote continuity
and market depth.
 Reduce settlement risks due to open trade, by elimination of mismatches.
 Provide management information system.
 Introduce flexibility in system, to handling growing volumes easily and to support
nationwide expansion of market activity.
 Through online trading three fundamental objectives of securities regulation can be
easily achieved these are :

1. Investor’s protection.
2. Creation of a fair and efficient market.
3. Reduction of the systematic risks.


The Securities and Exchange Board of India came into being in April 1988 to promote
orderly and healthy development of the securities markets and to provide adequate
investor protection. It was a long –felt need to establish a competent authority in order to
liberate the growing security market from the existing trading malpractices and
inadequacies prevailing in the market. Headquarters in Bombay, SEBI’s function is to
ensure a conductive environment for growth in the capital market. The environment
includes the rules and regulations, the institutions and these interrelationships,
instruments, practices, infrastructure and policy framework. A legal body, SEBI caters to
the need of the issue of securities, the investor and the market intermediaries.

SEBI has also been releasing a number of guidelines for playing the market. The new
framework aims at better investor protection through improved disclosure requirements,
accounting standards, compensation and arbitration, small investor’s protection fund,
steps against insider trading and other malpractices.

Objectives of SEBI

As per SEBI act 1992 it has mainly three objectives:

 Protection of investor’s interests and thus ensuring steady flow of saving from the
savers to the capital market.
 Promotion of growth and development of securities market.
 Regulation of securities market in order to ensue efficient services by merchant
bankers, brokers, mutual funds and other intermediaries.

The role of SEBI

It is an independently constituted board with regulatory power over stock

exchanges, mutual funds and capital issues. However, there is government control in
the sense of having nominees from the Ministry on its Board. The regulatory powers
given to SEBI are also subject to government directives and overrules. The power to
prosecute and find defaulters is also denied. SEBI is trying to establish itself with its
two- fold role of trying to implement existing legislations and of introducing new
guidelines and regulations.


Demat account

Demat account, short term for dematerialized account is a type of banking account
which dematerialize the paper-based physical shares. The idea of dematerialized account
is to avoid the need to hold physical shares--the shares are virtually being bought and
sold through the banking account. This account is popular in India and also the SEBI
mandates Demat account for share trading above 500 shares.

Dematerialization Process


1. Client/ Investor submit the DRF (Demat Request Form) and physical certificates to DP.
DP checks whether the securities are available for Demat. Client defaces the certificate
by stamping ‘Surrendered for Dematerialization’. DP punches two holes on the name of
the company and draws two parallel lines across the face of the certificate.

2. DP enters the Demat request in his system to be sent to NSDL. DP dispatches the
physical certificates along with the DRF to the R&T Agent.

3. NSDL records the details of the electronic request in the system and forwards the
request to the R&T Agent.
4. R&T Agent, on receiving the physical documents and the electronic request, verifies
and checks them. Once the R&T Agent is satisfied, dematerialization of the concerned
securities is electronically confirmed to NSDL.

5. NSDL credits the dematerialized securities to the beneficiary account of the investor
and intimates the DP electronically. The DP issues a statement of transaction to the client.